Small managing general agencies will be able to survive in the future, however, they will have to play their cards right, say leaders from two large MGAs participating in a panel discussion at the Insurance and Investment Convention held in Montreal in November.
Michel Kirouac, vice president and general manager of Groupe Cloutier, said he believes that some MGAs who deal with a small number of insurers and work with about 50 advisers are doing very well. “There is room for the smaller players,” he told the audience of advisors gathered at the event.
James McMahon, president, Quebec Region, of Financial Horizons said he believes there will be further mergers and acquisitions in the industry. “Some smaller but very well-niched MGAs, with a distinct service offering, can survive,” he added.
McMahon says the smallest players who do not stand out will have trouble finding capital to finance the necessary expansion of their distribution network and tools to support the sales force.
Kirouac observes that the appetite for risk decreases with age. In this sector, as in others, entrepreneurs are getting older, he adds.
“Later in one’s career, it is less likely you’ll want to invest a lot of money and acquire a competitor. That’s why people are talking about selling or merging. Being the buyer yourself takes a lot of money as well as courage.”
The regulatory burden is a major challenge for MGAs, added Pierre Vincent, Senior Vice-President, Individual Insurance and Sales at iA Financial Group. The trend is observable across Canada. We want the advisor, especially when selling segregated funds, to be required to deal with a distributor who ensures compliance as is the case for mutual funds.
Kirouac said that mentalities have evolved in recent months. Quebec MGAs came together to submit a brief to the Quebec regulator, the Autorité des marchés financiers. They stated that an advisor should ideally be associated with one MGA.
Kirouac says he is not sure that it will go that far. “If the regulator forces the advisor to deal with a single MGA or a distributor for all his financial services needs, it will kill all the little players.” He explains that his MGA has contracts with 18 insurers, as do other large MGAs, but smaller ones may only deal with a few insurers. If an advisor is obliged to choose just one MGA, then these smaller players will be at risk, he observes.