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Enhancing Onboarding Efficiency for MGAs: How RegTech Streamlines Compliance

7th May 2024

Enhancing Onboarding Efficiency for MGAs: How RegTech Streamlines Compliance

With constant economic uncertainties and a fluctuating political landscape, MGAs (Managing General Agents) are now faced with bigger regulatory and compliance burdens than ever before. Clyde & Co reports that 50% view the increase in compliance obligations as an obstacle to entering the market. 

These burdens significantly hinder MGAs’ capacity to start new business relationships with potential trading partners, halting growth and slowing innovation. 66% of insurance and financial services firms believe that regulatory and statutory obligations inhibit starting new business relationships, which in turn affects profitability. This is why it is imperative for MGAs to leverage new innovative technology that reduces regulatory challenges and facilitates streamlined onboarding of partners…

4 MAIN REGULATORY CHALLENGES FACING MGAS
1. The Consumer Duty

The Consumer Duty, issued by the FCA and enacted on 31st July 2023 sets stricter and clearer standards aimed to protect customers across the insurance sector, which expects businesses to always put their customers’ needs at the heart of all their business decisions - ensuring fair value and good outcomes for all. According to a recent FCA survey, 74% of all firms in the financial services sector have conducted a fair value assessment of existing products. While it can be difficult to meet these requirements, the numbers clearly show the proactiveness of the industry to comply with the rules. However, the FCA recently stated that fair price and value is still the biggest challenge under Consumer Duty. Assessments lacking solid data and credible evidence is a key area for improvement. The importance of MGAs' compliance with the Duty lies in the fact that it benefits all parties, by providing healthier competition, supporting innovation and growth, and improving trust and transparency.

2. Constant Updates from Regulatory Bodies

The FCA and other regulatory bodies continuously update or introduce new regulations to help mitigate unexpected economic risks and changing market landscapes with the end customer always in mind. Frequent regulatory inspection of the MGA sector is set to increase this year, with 74% of respondents across the insurance sector in REG's recent report in agreement that this scrutiny has skyrocketed over the last year.

3. Higher Compliance Costs

The compliance costs for MGAs are increasing year after year, with 45% of the insurance market stating compliance costs as the biggest challenge in meeting regulatory requirements. These barriers to compliant trade are only set to intensify over the next year as inflation and other economic burdens exacerbate the situation.

4. The Data Dilemma

MGAs relying on manual processes for due diligence and partner onboarding face significant data challenges. Insurers prioritise accuracy and quality, making manual processes insufficient for collating and exchanging data. According to REG's recent research, 82% of insurance firms still rely on spreadsheets and manual methods for managing regulatory risks. However, leading companies embracing RegTech solutions benefit from real-time, accurate data that streamlines compliance processes.

MGAS RESPONSIBILITIES WHEN ONBOARDING NEW TRADING PARTNERS

The success of onboarding new partners can only be optimised through using adequate technology. In that sense, MGAs are responsible for meeting key compliance requirements that will eventually accelerate building relationships with new partners. So, what are these requirements? 

Investing in Appropriate Technology

MGAs are responsible for adopting software that automates and speeds up the entire onboarding process, from customer due diligence to the exchanging of business agreements. In the wake of tighter compliance laws, relying solely on spreadsheets, emails and manual documents simply won’t cut it and will only lead to audit failure. In addition, adopting sophisticated technology will significantly improve MGAs’ onboarding efficiency, enabling them to focus on other crucial parts of the business such as better underwriting quality, relationship building and optimised customer experience.

Overseeing the Entire Distribution chain

There is one goal that is shared across the whole distribution chain, and that is to protect customers and act in their best interest. MGAs should ensure seamless oversight and information exchange across the whole distribution chain, making sure insurers and brokers meet the necessary compliance requirements before onboarding them as partners, as well as carrying out essential governance and ESR related checks. Navigating the complexities of full distribution chain oversight is hard and laborious, but is essential for sustained compliance in today's regulatory environment.

Ongoing Compliance Monitoring

Monitoring brokers continuously and staying alert of any adverse changes are an MGA's key responsibilities. Siloed data outlets and periodic checks do not suffice in today's volatile regulatory landscape. MGAs must continuously assess their partners’ regulatory and licensing information, credit health, and ensure due diligence on AML related activities including screening partners and key personal for adverse media, sanctions and PEPs. This is all in effort to avoid unauthorised trading, combat financial crime, avoid financial failures, mitigate risks and ultimately make informed decisions.

MGAS' ARCHAIC ONBOARDING PROCESSES AND THEIR CHALLENGES

MGAs reliant on long manual processes face numerous challenges. Onboarding trading partners takes weeks or months, resulting in missed important business opportunities.

1. The Agency Application Process

MGAs will typically send an application form to be completed by the broker, which sometimes can be tens of pages long and can take weeks to complete. This includes information about the company’s financial reports, directors, data protection, Officers and Ultimate Beneficial Owners (UBOs). Once received, MGAs will carry out the necessary checks to ensure the information provided is correct, including screening against sanctions. The time it takes to complete all these assessments hampers gaining commercial advantage. The last step after deciding to commence a relationship with the broker is sharing the TOBA (Terms of Business Agreement), which defines both parties’ responsibilities. Unfortunately, these statutory obligations can significantly impact on starting new relationships, especially with over 70% of brokers and intermediaries agreeing with this statement. 

2. Relying on Outdated Technology

Another major issue that arises is relying on outdated technology to open an agency application and onboard new trading partners. REG’s recent research identified that the predominant technology to manage these agency processes are spreadsheets, CRMs and policy admin systems. While these processes will eventually help with completing the necessary compliance checks, they are the most error prone and the least cost effective, which extensively weakens trade and makes them unsuitable for today’s competitive regulatory landscape. 

3. The Lack of Data Usage

MGAs that do not deploy powerful and smarter onboarding/due diligence solutions are not leveraging data and insights enough, debilitating trading opportunities. Thus, only the proactive MGAs that rely on automated technology to carry out due diligence and onboard partners will triumph in the long run. The laggers will struggle to create new business with potential brokers confidently and swiftly. 

HOW CAN REG TECH SOLUTIONS MAKE A DIFFERENCE IN MGAS' TRADING PARTNERS' ONBOARDING JOURNEY

As a game changer in the insurance industry, RegTech solutions have revolutionised the compliance landscape, freeing MGAs’ time to focus on increasing trade, while letting the technology excel in automating regulatory monitoring.

RegTech adopters note significant improvements in their processes, enabling them to capitalise on opportunities and increase revenue streams. Arc Legal centralised its partners’ data and onboarding processes into one single software database to ensure real-time oversight of all their counterparties, allowing them to focus on trade and growth. Moreover, four years ago, Generis Underwriting, who were a start-up at the time, were able to swiftly accelerate the growth of their agency relationships by having absolute confidence in RegTech’s governance and risk management abilities. 

MGAs that are leveraging the software are one click away from proving to regulatory bodies that they are respecting their compliance duties. Let’s break down how RegTech solutions automate and streamline MGAs’ onboarding and due diligence processes into one intelligent platform: 

1. Automating Agency Application Forms

RegTech facilitates and automates the creation of agency application forms, saving all parties time and resources. Forms are populated with verified counterparty data, pulled directly from the partner’s regulatory profile. This, in turn, removes the need for laborious checks and allows the focus to be on the commercial aspects of the relationship. As the software decreases delays, agencies can issue and complete their TOBA without headaches, getting to business and underwriting faster. 

2. Enhanced Visibility and End to End Oversight

MGAs have better visibility and oversight over different compliance activities, continuously monitoring important trading, regulatory, compliance and AML risks. By identifying and addressing issues instantaneously through RegTech’s real-time automated alerts and updates, MGAs can avoid possible costly penalties and protect against financial crime. RegTech also helps MGAs automate the sharing, analysis and acquiring of information across the full distribution chain, which is vital to champion consistent fair value and Consumer Duty assessments. The powerful supply chain oversight tool is designed to address the challenges of automating fair value assessment processes, allowing data to be collected from every link of a distribution chain, maintaining privacy throughout the chain, but giving MGAs complete oversight.  

3. Cost-Efficiency

RegTech proves to be economically advantageous over time by diminishing manual work, decreasing errors and optimising compliance procedures. In contrast, conventional spreadsheet methods may lead to unforeseen expenses due to inefficiencies. With that in mind, RegTech provides a comprehensive solution for regulatory compliance which significantly reduces operational costs.

4. Alleviating the Regulatory Burden

By automating the data collection process, RegTech leaves no space for human error, making sure that all MGAsregulatory assessments are completed adequately without extensive manual effort. The software enables MGAs to gather verified information on various parties faster and more efficiently, eliminating spreadsheets and silos. What’s more, RegTech allows MGAs to comply with both national and international regulatory requirements, allowing them to centralise their processes and focus on the customers experience instead. 

Amid increased scrutiny, today’s MGAs face a heightened obligation to manage compliance duties and mitigate risks linked to trading partners. In the past, reliance on outdated processes for due diligence checks, document exchange, and partner onboarding may have sufficed. However, such practices are no longer sustainable in today’s environment. The only way for MGAs to stay ahead of the curve is to adapt. A practical approach is to incorporate innovative compliance software solutions like RegTech, effectively alleviating the regulatory burdens confronting numerous firms. Integration of RegTech streamlines all compliance processes for MGAs, enabling them to focus on what matters most: building new relationships and generating revenue faster. 


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This article was published by:

Article author:

Manal Tjiou

Manal Tjiou is the Marketing Executive at REG Technologies. With a passion for digital marketing and creative strategy, she’s commited to increasing our brand awareness and thought leadership in the industry, ensuring our content resonates well with our audience.

020 3946 2880

info@reg.uk.com

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