Last weekend my niece showed me a small carton with crazed character on the front. She was so excited. It was a blind-box Labubu, the latest phenomenon in collectible plush toy characters from Japan. My brother-in-law had paid a cool 25 quid for it.

My niece soooo wanted to take it out of the box, but she knew that if she did it wouldn’t be worth as much.

“What’s the fun in having something when you don’t know quite what it is?” I asked her.

“The surprise!” she said, as if that was obvious, adding more seriously, “and the value. I already have BaBa and I think this one is ZiZi, but if I open it and it isn’t DuoDuo, then it’s not worth it. So it has to be ZiZi. I don’t have to open it.” The logic seemed extremely clear to her.

To me, it resonated in the context of MGA-investment strategies.

MGAs are the hottest properties in the insurance sector. We keep hearing about their growing role and top line, their flexibility, nimbleness, added value, and general virtuosity. Most of the accolades I agree with, but note: the virtues are spread extremely unevenly across the MGA population.

The general presence of those positive qualities has made MGAs an irresistible property for some investors. They want exposure as much as my niece wants another Labubu in a box. But the similarity doesn’t end there.

If you get the right furry toy monster (specifically, DuoDuo, who’s a different colour from the rest), it’s worth vastly more than any of the others. But it’s a pretty pricey lottery, given the potential return.

You can say the same about blindly injecting money into MGAs. If you get it right, the rewards will be outsized. But if you get it wrong, you may as well just have kept it in the box.

Only one good reason exists to buy an MGA: it has great underwriters. Trust me, any other reason is a bad reason, unless the underwriting talent is top end. You don’t buy an MGA to gain access to a specific market segment, unless the target MGA’s underwriters are leaders in that segment.

You certainly don’t buy an MGA because of its technology (please, don’t). That means, if you’ve bought a great MGA with superb underwriting, and therefore excellent profitability potential, you can look at its IT software with a fresh pair of eyes, and without preconceptions. If you like, think of it as something that came free with the underwriters (since it probably did; platforms add nothing to valuations).

First and foremost, ask the underwriters if they are happy with their technology, does it work for them, make their job easier. They’re bound to have quibbles, but if they’re basically happy with their underwriting platform, that doesn’t necessarily mean you should stick with it. It only means you need a really good reason to change. If that’s the direction, find out what they like, and make sure the new system incorporates all that and more.

If they have absolutely nothing good to say about it, take note. That doesn’t mean it’s not a good platform. It might mean it’s the wrong platform for them. Find out again why they’re unhappy with it. See if the incumbent system can be improved.

Find out if the platform they use lacks functionality that your underwriters would really like, or if it has essential features which would be difficult to replicate. Weigh the pros and cons of moving them to another system, and remember these fundamentals:

• You don’t have to make everyone use the same platform. All you need is for the system to be API ready, to connect with others.
• Make sure the system they have, or you give them, is fit for purpose. If it’s a system built for property, it probably shouldn’t be used for marine, no matter how much the property MGA team likes it.
• Don’t make the “nobody-was-ever-fired-for-buying-IBM” trap. The market leader is rarely the best option. Platforms built to suit everyone cannot be ideal for anyone, and the company with the largest number of support personnel rarely has the best support personnel.
• Think carefully too about the cost. Don’t get hoodwinked into handing over a share of your top line to your software vendor.
• Equally, don’t underestimate the value of a system which will notably increase the productivity of your underwriting team. Remember, the contribution of systems to the valuation of an MGA is nil. It’s all about the underwriting.

Finally, open this box before you buy the MGA. Even if the star underwriters you find in there are using monstrous, scary technology, you will at least forego the surprise.

* Readers, I shall be closing my Insurance Technology Diary for the month of August. See you here in September!

Guillaume Bonnissent is CEO of Quotech.