The MGA market faces many obstacles but is growing quickly. The Managing General Agents’ Association (MGAA) now has some 140 MGA members with over £6bn premium under management – and all within six years.
However, with reducing capacity, multiple regulatory challenges, new London market practices, Brexit, and a bewildering choice of improving technologies, these all lead one to ask the question: why be an MGA?
Cyber is a challenge for the whole market not just MGAs. Technology is the undoubted way forward – and will only improve. However, this leads to wider issues such as cyber risk. How does one deal with this? Education is still the best defence since most cyber issues arise still from human error. Anti viral software helps – but is always one day behind the hackers and virus developers. There are many cyber insurance products that assist with covering some of the costs and expenses that cover against hacking and viruses. However, these are not and cannot be a complete protection to any MGA.
So where will the market move to make things more secure? What is the ‘next technology’? A better understanding of the cyber risk market will only help insurers assess new opportunities that can lead to the creation of better insurance products tailored to this market. These new technologies will enhance risk modeling and help insurers expand their offerings into new cyber areas. In the short term, cyber insurance will cater for areas such as business interruption and network and service liability, data and software loss and privacy breaches. Moreover, in the medium to long-term, as technologies help to provide better risk-modeling capabilities, insurers will be able to better assess and quantify losses to intangible assets and areas such as reputation harm, internet protocol theft management could be addressed.
Blockchain and Digital Ledger Technology in an MGA world
These are not now new technologies.Various US insurers have been testing this technology for few years. Jurisdictions such as Gibraltar have Digital Ledger Technology (DLT) Legislation to regulate the use of these technologies, especially in the crytocurrency world. Imagine though a world where Sterling is a crypto currency, payment is secure, and thoughts of ‘risk transfer’ do not need to apply.
Blockchain is one type of a distributed ledger technology. Distributed ledgers use independent computers (referred to as nodes) to record, share and synchronise transactions in their respective electronic ledgers (instead of keeping data centralised as in a traditional ledger). Blockchain organises data into blocks, which are chained together in an ‘append only’ mode.
One can anticipate a world when proposal forms, policies, correspondence and everything pass through a secure DLT exchange. However, it is not until the banks have fully integrated DLT payment systems that this utopian world can operate.
Even using DLT, this can give rise to ‘crypto risk’. Much is being said about this, but there is currently little understanding. What are these risks? There are many of them.We have recently seen the owner of a Canadian crypto exchange die in suspicious circumstances, and he was the only one that held all the codes to some $120m of cryptoassets. One could say that this is bad corporate governance, but fidelity risk and even contingent life risk where an employee dies or loses the ‘nuclear codes’, or even sells them, is a real risk.
Every IT system has a ‘back door’ – what if hackers break through that door? Cyber risk still exists. And with ‘quantum’ computing potentially on the horizon, will any data be safe? What new safeguards will be required?
Government seizure or control over the servers, is becoming ever more possible as China and Russia try to gain control of ‘their’ internet.
Further, simple IT failure or physical destruction should not cause an issue due to back up systems being in place – but if they are off line for any period of time,…