The triumvirate

Success as an MGA depends on three principal ingredients…it's people, people, people

By Dennis H. Pillsbury

In the real estate business, it’s location, location, location. For an MGA, it’s people, people, people.

We talked to a number of MGAs about what it takes to get started and succeed as an MGA and that invariably was the answer.

As Paul LoVullo, senior vice president of LoVullo Associates in Depew, New York, explains, “You need a staff. You need people who are experienced in the MGA business.”

Bryan Baird, president of K&B Underwriters, LLC, Vienna, Virginia, left his partnership at another wholesaler to set up K&B at the end of August 2004. “I took the money from the divorce and bet on people rather than products. People build companies; products don’t. I took a lot less than full value for my interest in the previous firm and in return was not burdened with a non-compete. I also had the right to hire some of the employees from the firm and they also would not have a non-compete. Everyone I asked to come to K&B did so.”

T.J. Derella set up Kingstar Co. in Kingston, New York, in December 2000, with a staff that included the CFO and two lead underwriters from the insurance company with which he previously had worked. “We were well known and well respected by the reinsurers with which we had dealt. They recommended us to carriers. That’s how we got our first MGA deal. It was for 900 classes with our acting as the underwriter for the carrier. We had the pen for policy issuance, rating, and underwriting. You have to have quality people who will deliver quality business to the carrier.

“True MGA deals are extremely rare,” T.J. points out. “Most are processing and underwriting deals with claims and back-end accounting staying with the carrier. The carriers want the control and the money.

“We had instant credibility when we went into this business because we had worked for a small regional carrier that reinsured most of its risk. When you really look at it, the carrier really was an MGA.”

Charles Conway set up his MGA, Conway E&S, Inc., Warrendale, Pennsylvania, in 1996 after working for another wholesaler for many years. He started out with three people who knew the business and whom he could really trust—himself, his wife and his son. “I had been in the business a long time and had a good reputation. My son was grown and I thought it was time to build something of our own. Today, we have 45 people. We’ve focused on bringing in good people who know the business. We’ve had almost no turnover.

“One of the most important lessons to learn in this business is: Never make enemies. All my former employers have been very good to me.” In return, Charles is good to them. “We’re a generalist,” he says. “But we can’t do everything. If I can’t place the business for one of my retail agents, I try to help them find someone. I will recommend a competitor.”

Charles continues: “This business is all about relationships. It’s always been about relationships. We partner with a few selected retail agencies and a few selected company partners. The retailers know where we stand. We have a small client base and actually return phone calls and give good service. It’s worked out well. Right now, our business is mainly in western Pennsylvania, but we’re expanding eastward.”

Another key to success, Charles adds, is “don’t take things personally and don’t get complacent. You need to be flexible. What’s happening now is niche underwriting. You need to come up with a specialty. Retailers are surfing the Web, so you need to be there. We formed Conway Programs with online quoting for garage liability, liquor, and environmental programs.

“It’s been fun. I have no regrets. We put in a lot of hours, but it’s paid off. This is a great business.”

Bryan Baird was starting to feel some regrets about two months into the start-up. “We started off with a champagne cork-popping ceremony, but two months into it, we didn’t feel very celebratory. We were quickly burning through the seed money and I was in denial. In mid-November, I saw the balance sheet and felt we were going to be finished soon. We had to do something. We are all sales people so we began daily sales meeting the first thing in the morning. We have breakfast together and go through planning and strategy.

“At our first meeting in November, we decided on an aggressive lead generation program where we all got on the phone and telemarketed to retail agents. Everybody got involved. Today, we continue to make calls. Everyone makes calls for at least a half an hour a day. That helped us to focus. When we started the business, the concept was to build a wholesaler in the eldercare market that was easy to do business with. Our calls focused on that and invited retailers to check us out. We provide fast, efficient service. Markets come and go, but service remains. Since that day in November, we’ve turned things around. We’ve emphasized the better hit ratios retail agents enjoy when they come to us because of our speed of service. We’ve been running cash flow positive since then. We’re excited and we’re going to make it.”

Technology plays a key role in K&B Underwriters’ ability to deliver speedy service. “One of the people I brought on board is a full-time IT guy,” Bryan says. “We looked at a lot of systems that were made by wholesalers for wholesalers, but weren’t able to find one that would do what we wanted, so we built our own. We started with a CRM system and built on that. I’ve been pretty amazed at how we’ve been able to customize the system. We’re getting more and more Web-based and heading toward a paperless environment.”

Bryan concludes, “We are dedicated to providing independent agents serving the eldercare industry with superior products and world class service. We have the expertise in this area and a number of insurance company partners who have given us their trust.”

Bryan chose eldercare as a niche because of his team’s expertise in the field, and Paul LoVullo also recommends that anyone starting in the business “let his or her people determine the niche. You need to adapt to the people that you bring in. If you hire a person whose forte is professional lines, then that’s where you start. No company will appoint you without the expertise.”

He echoes Bryan by confirming the need for a strong computer system. “Go to someone with insurance automation background,” Paul says, noting: “We built our own system after buying the source code from a vendor. A strong system is absolutely necessary to be profitable in most lines of business.”

Paul concludes, “You need to get the people first, then you can get appointments from the carriers. Then you need programmers and computer people on staff to build a system that is tailored to your needs and the needs of your markets. Then you need to find customers.”

Paul also recommends getting involved in associations as a way to enhance expertise and find automation vendors that have expertise in insurance automation. *