IRDA considering Managed General Agencies in insurance

A managed general agency is similar to a non-banking finance company in the banking space. An MGA can onboard customers, manage products, underwrite customers and also share the risk with larger insurance manufacturers.

Such entities do not exist in India as yet but are popular in the US and Singapore. But now, following conversations with founders of large insurance intermediaries, the IRDAI (Insurance Regulations and Development Authority of India) is thought to be receptive to the idea of MGAs.

“We have shared our thoughts with the regulator on the idea of MGAs already, they have heard us out as well and told us that they will examine its scope for India,” said a founder of a major insurtech startup on condition of anonymity. “On these matters the regulator has been extremely receptive to suggestions.”

A go-ahead for MGAs would see current insurance intermediaries such as Policybazaar, Turtlemint and others — who are focussed only on distribution – having a larger role to play around manufacturing of products and managing the life cycle of the customer. Even new generation players like Even could assume this role.

Another founder of an insurtech startup pointed out that after the Reserve Bank of India came out with first loss default guarantee or FLDG guidelines, the insurance industry is discussing the idea of setting up MGAs in India too. They will also enter into risk sharing with insurance companies, just like fintechs do with balance sheet lenders like banks and NBFCs.

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Need to push penetration in the market

Under the current chairman Debasish Panda, the insurance regulator has been given a major mandate by the Union government — that of pushing penetration. As of 2021-22 insurance penetration in India stood at a meagre 4.2%, according to data from IRDAI. This has remained constant over the last two years.

Industry insiders have however pointed out that the reach of the industry cannot be increased without the implementation of technology. And new forms of licences will create new companies which eventually will help popularise insurance products among the masses.

“If you look at it the regulator has been coming out with industry friendly regulations for a while now, the idea is to get more companies to participate in the space and transform the sector like banking,” said a top executive at a large insurance company.

The IRDAI has proposed a perpetual licence for insurance intermediaries. Also the regulator has come up with fresh licences in the general and life space for new generation companies.

With MGAs, the opportunities for the new-generation tech companies will open up further. They can partner with a large balance sheet insurance company, enter into risk sharing partnerships, underwrite customers with increased use of technology and offer more customised insurance products.

Too much on the plate

So what is it that MGAs can bring to the table?

For one, they can offer customised products for any specific coverage, which a large insurance company might not be familiar with. They can also help create regional products for insurance companies, specifically in areas where they might not be physically present.

Additionally, MGAs can solve problems linked to distribution. They can focus on clients while insurance companies can focus on risk-taking. Together they can create new products aimed at unserved segments of the society.

But this may be an idea whose time is yet to come. For the country’s insurance regulator, this might not be a priority yet, a top executive at a new generation insurance company admitted.

“MGAs will be very good for penetration of the sector, but in terms of priority the regulator is focussing on putting its house in order first,” he said. “But eventually there will be these companies coming up.”

Also, one of the founders quoted earlier, pointed out that many insurtech startups who might be applying for an insurance manufacturing licence are doing so, given there is no MGA in the country. Ideally, these startups could have been better as MGAs working with traditional insurance majors. So once the licences get announced there could be many takers too.