MGAs urged to come together

(June 10, 2005) Managing general agencies, by their own admission, are an incredibly splintered group. To the outside observer, the business model MGAs have created for themselves appears competitive to the point of dysfunction. Cost downloading and increased pricing pressures from the insurance carriers however could be the catalyst needed to create unity and cooperation in a group notorious for shortchanging themselves in an effort to attract talent and sell contracts.

MGAs could have a lot of leverage if they worked together, acknowledge insurance company representatives. And that message was part of the discussion at Changing Channels: Managing General Agencies at the Crossroads, an ADVISOR Group symposium held Thursday and Friday in Niagara-On-The-Lake, Ontario.

MGAs need to stand together and tell industry associations like the Canadian Association of Independent Life Brokerage Agencies (CAILBA) and the insurance carriers what they need, agrees David Steward, partner at Wise Riddell Financial Group.

Steward, along with David Juvet, managing partner of Ontario East Insurance Agency, Serge Vallée, vice president of Courtage d’assurance iForum and Mari-Jayne Woodyatt, president of WCS Financial Services were members of a panel which discussed cost downloading, the shift in responsibilities imposed on MGAs, and the growing burden of training and succession planning.

Insurance companies are pushing the costs of the back office administration to the MGA level and advisors appear unwilling to help shoulder some of the burden. Recruitment — and the larger question of just who is responsible for drawing new blood into the rapidly greying industry — also remain a challenge.

“Sometimes as MGAs, we don’t behave like a business,” says Vallée. “The companies are downloading costs and we haven’t agreed as a group to do the same thing.”

He says the service burden has never been greater than it is today. In the 1980s and 1990s many companies encouraged advisors to build large books of business and live off vested renewal commissions once they retired. Vested commissions were paid to the agent whether or not they still worked for the company. The income for many insurance advisors is like a pension. Once the agent died, commissions were paid to their estate.

Today, those contracts are creating headaches for MGAs who don’t collect the commissions but still need to service the business. “Many of us spent the 80s and 90s convincing the brokers this was a great idea. Now we’re saying ‘What were we thinking?’ ” says Juvet.

Even with this lesson from the past, MGAs still have difficulty seeing past the front end of contracts and agreements they make with insurance companies and top producers to consider their long term commitments and liabilities.

“MGAs as a whole do a terrible job of looking at the contracts we sign with the insurance companies and giving it up to producers without considering the back-end needs to service a block of business,” says Woodyatt.

“Really the crux of the industry right now is how do we renew ourselves? The discussion today was inconclusive but very healthy,” adds Scott Sinclair, president and CEO of National Financial Insurance Agency. “We need to find a way to renew. I don’t think anybody quite got through how much help they want (from insurance companies), but it’s the first time I’ve heard this discussed so frankly.”

Apart from a healthy collaborative effort, solutions to some of the problems MGAs confront could come from the banks and older retiring advisors. Older advisors who realize they need help and a succession plan to maintain the equity in their books of business will be part of the force addressing the industry’s recruiting problems. Banks coming into the insurance space present an opportunity to repopulate the industry with suitable replacements for retiring advisors, much the way career agencies in the past had a farm team of new recruits.

Although welcoming the banks to the channel is not without controversy, the logic of diversifying this segment of the industry does have its appeal. “It’s good as long as you’re ready to step up and benefit from it,” agrees Sinclair, “But you can only benefit from it if you have a plan. Right now, it was clear today most people don’t have a plan yet.”

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com