Managing General Agents (MGAs) are increasingly standing out in the insurance industry, with tech-enabled MGAs set to command even higher valuations. Automation plays a critical role in this, helping streamline operations, scale quickly, and enhance profitability. According to Forbes, many tech-enabled MGAs are trading at 15 to 20 times EBITDA, a stark contrast to their traditionally run counterparts.
The robust data infrastructure that accompanies automation is another major factor driving their higher valuations. Automated tools collect and analyse large volumes of data, giving tech-enabled MGAs a competitive advantage through better risk assessments, more accurate underwriting, and even the ability to develop new insurance products. This data-rich environment boosts long-term growth potential, which investors highly value.
Automation Unlocks Limitless Growth
Automation also enables MGAs to scale efficiently, breaking the traditional link between growth and operational costs. Traditionally, scaling in the insurance sector has been tied to increased staffing and infrastructure, but tech-enabled MGAs can expand their book of business without a proportional rise in costs. Automation allows them to swiftly adjust to new risk types or markets—like cyber insurance or environmental policies—without overhauling workflows. Automated systems can quickly process new data sets, build models, and generate risk profiles faster than traditional manual approaches. This agility helps MGAs capitalise on niche markets and trends, making them more valuable to investors.
Lowering Costs and Increasing Profitability
In addition to scalability, automation directly drives profitability by reducing operational costs. Manual tasks in underwriting, claims management, and compliance are labour-intensive and prone to errors, requiring significant resources to manage. Automation reduces the need for large teams, takes over repetitive tasks, and improves accuracy, leading to fewer errors and faster processing. This increased operational efficiency not only lowers overhead costs but also enhances profitability.
Automated systems provide real-time data and risk assessments, enabling MGAs to adjust pricing or mitigate risks immediately, which further reduces potential losses. This proactive risk management approach allows tech-enabled MGAs to maintain competitive pricing without sacrificing profitability, which enhances their appeal in the marketplace.
Investors Favour Tech-Enabled MGAs
The appeal of tech-enabled MGAs to investors lies in their ability to scale quickly and operate efficiently without massive increases in operational costs. The adoption of automation allows these businesses to grow faster and more profitably than their traditional counterparts, which translates into higher margins and an attractive acquisition prospect.
Investors place a premium on companies that can grow without adding substantial overhead, and tech-enabled MGAs fit this profile perfectly. Their strong data capabilities, coupled with the ability to expand into new markets and offer competitive pricing, make them highly valuable in acquisition scenarios. Tech-enabled MGAs are increasingly setting a new standard in the insurance industry as the benefits of automation continue to reshape the sector.
Conclusion
Tech-enabled MGAs are reshaping the insurance industry through automation, which drives operational efficiency, lowers costs, and enables rapid scalability. Their ability to eliminate manual tasks and streamline processes gives them a significant market advantage, making them attractive to investors and acquirers. By offering more accurate underwriting, faster risk assessments, and competitive pricing, tech-enabled MGAs are positioned to command higher valuations and lead the future of the insurance market. As automation continues to evolve, the potential for growth and success in the MGA space is virtually limitless.
