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How a Managing General Agent Business Model Works

An independent insurance agent has many reasons to work with a managing general agent, or MGA. From the requirement of expertise to the availability of a particular product or the competitive price, MGAs provide a variety of services and competitive advantages to independent agents. In fact, Insurance Journal argues there are at least 50 possible reasons for partnering up with an MGA. To get a better understanding of how the managing general agency business model works, and how to benefit from working with an MGA, let's first look at what precisely a managing general agent does.

What is a Managing General Agency?

The Intermational Risk Management Institute (IRMI) has a straightforward definition for managing general agent: "a specialized type of insurance agent/broker that, unlike traditional agents/brokers, is vested with placement authority from an insurer.” As an agency, an MGA has granted authority to perform specific functions that are ordinarily handled only by insurers. Such duties include binding coverage, placement and pricing, appointing retail agents within a particular area, and settling claims. As noted by William Harger, an insurance and reinsurance arbitrator, “the range of authority given to an MGA can be very narrow or broad, depending on the needs of the insurer.” In any case, an MGA acts as an intermediary between carriers and independent agents and / or the customer. MGAs comprise one of the fastest-growing segments of the insurance industry. According to a study by global investment management firm Conning , the MGA and program market growth in 2016 exceeded that of the total property and casualty market by 32 percent.

The Managing General Agent and its Role in the Insurance Industry’s Ecosystem

Kyle Nakatsuji, a principal at American Family Venture, provides an excellent overview of the ecosystem in the insurance industry. There exist four insurance distribution models: lead generation, agency, MGA and carrier. Each group is distinguished by the amount of insurance risk they bear and the controlling authority they have over a transaction. Most MGAs have the authority to underwrite and quote. Some also handle loss control and claims for insurers with whom they have an affiliate relationship. As Bizfluent writes: “MGAs are generally entitled to a contingency commission, or override, on all business written within their territory. They will take a percentage of the commission that would otherwise go to the producing insurance agent.” If an MGA has “skin in the game,” or a risk-sharing function, they also participate in placement profit or loss. There is a difference between a program administrator and an agency with binding authority. In the former case, an MGA can underwrite, rate, quote, bind, issue and service policies. According to Victoria Webb, the MGA is, in fact, the carrier bearing the profit and loss that comes from placement. When an MGA only has binding authority, it is the insurer who does the placement job. The insurer can also cancel a policy when they review the risk after binding.

The Two Managing General Agent Business Models

An MGA can be used in any line of insurance for any form of insurers. According to the American Association of Managing General Agents, this includes insurers who are "admitted or not, direct or otherwise, broker or agent system, contract/appoint or open-broker sub production, or any or all combination of these." At the Insurance Journal, Dan Fash argues that MGAs have certain competitive advantages in the industry, and those advantages tend to be levered via one of two common business models, which are either niche or general. Let’s take a look at each model.

Specialized Managing General Agents

Traditionally, an MGA enters the market with specialty coverages. They have the expertise or distribution channels to reach a niche insurance segment. When a carrier wants to insure a specific risk or entity in that niche but doesn’t own the requisite placement expertise, the carrier partners with a specialized MGA to establish placement guidelines and roles in the customer experience. The two parties share risk and responsibilities for claims and services. Some insurance classes are not good fits for big insurers, who then choose not to invest in the knowledge and expertise to underwrite such cases. By catering for such market, an MGA can create competitive advantages. As Tony Campisi, president and CEO of Glatfelter Insurance Group, puts it: "There is room for specialization in virtually every area of our business. Where the general market isn't as responsive, MGAs can differentiate themselves and bring significant value.” The traditional MGA model is known for its lean operation and ability to underwrite niche lines of business. Often supported by technology advances, these nimble MGAs can also offer access to new business through alternative distribution channels.

Diversified Managing General Agents

According to John Holm, an MGA executive with 30 years of experience in corporate banking, there are new kids on the block when it comes to MGAs. “A new breed of generalist/multi-class MGAs are beginning to appear on the scene. These vary from small-scale ‘app’ driven MGAs to large-scale, diversified players targeting generalist business.” These general MGAs don’t target niche markets. They are larger and more diversified players that offer independent agents access to many carriers. Their systems often integrate the latest technology in the insurance industry to provide efficient operation and low distribution costs. Through these efficiencies, they encourage new forms of partnership with insurers, says Steve Weberson, head of insurance research at Conning.

How a Managing General Agent Can Help Independent Agents

When working with an MGA, either specialized or diversified, independent agents realize certain key benefits:

• Access: When working with MGAs, independent agents gain access to market and carriers that would be difficult for them to gain on their own.
• Efficiency: MGAs are often smaller businesses than carriers, which allows them to stay agile and responsive. There are few, if any, barriers to communication between an MGA and the insurers or reinsurers they partner with. Thus, independent agents can benefit from this lean operation to serve their clients more efficiently.
• Technology: Cory Crosland argues that MGAs can offer digital products to speed up the quote process as well as online platforms that integrate with wholesale channels. Therefore, MGAs not only help independent agents provide better services to their clients but also work seamlessly with insurers.
• Higher commissions: By working with a diversified MGA who has established relationships with a network of different carriers, agents will be able to review the commission structure and have the option to sell products from carriers that offer the best rates. That means higher commissions for the same amount of work.
• Continued independence: An MGA partnership can introduce knowledge, efficiencies and technology that will help independent agents better serve their customers, but the agent need not sacrifice independence to secure these advantages.

By working with a managing general agency, then, independent agents retain the flexibility that engenders trust among their customers. They remain independent in choosing the providers they want to work with and the workflows that fit their business.

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The quick start guide to building an insurtech MGA in 2022

Insurers today have access to more data than ever before, enabling them to improve risk assessment, reach untapped markets, and deliver outstanding customer experiences. As a result, a new class of tech-driven  managing general agents (MGAs)  is emerging, blazing trails and building innovative products for underserved customers.

The founders of these emerging MGAs may come from various backgrounds, but what they have in common is the understanding that technology is the key to unlocking these fresh opportunities. Building any new business from scratch, however, comes with its fair share of challenges . That’s why we’ve come up with three key steps to put you on the right path to bringing your insurtech MGA from concept to launch.

Step 1: Develop a business strategy that differentiates your rating, underwriting, and distribution

Many MGA founders get into the insurance industry because they’ve found a gap in the market or an underserved niche. As a founder, the first thing you should do to validate the economic feasibility of this opportunity is to conduct extensive research on the target customer and their preferences, and assess the total size of the addressable market. If you’re considering selling a product that already exists in the market, figure out how it’ll be better than the competitors. If you’re pursuing an entirely new category of products, get a sense of the market demand by conducting customer interviews.

Once you’ve developed a stronger understanding of who your customers are and what they need, it’s time to draw up a business plan. Investors and carriers will look to this business plan before committing, often focusing on the rating model and distribution strategy.

• Rating and underwriting . Insurers now have access to a wealth of data sources and predictive models that allow them to improve risk assessment and deliver more personalized pricing to their customers. They’re also using technology to automate the underwriting process with straight-through-processes that help reduce customer acquisition costs. Consider how your MGA can personalize pricing and coverage or lower premiums for customers.
• Distribution . Today’s customers expect the convenience and ease of buying insurance through a website or app. MGAs are responding by offering insurance products through digital distribution channels or even embedding them at the point of sale for third-party products. Think about how you’ll give customers easier access to insurance coverage and reduce friction in the buying process. Would your product fare better if an independent retail agent could sell it to their existing clientele? If so, how will you attract, train, and engage with those independent agents? Defining your strategy for distribution is the first step to attracting key investor and carrier relationships you’ll need in order to be successful.

Remember that it takes time to develop a business plan, and you’ll likely go through multiple iterations before locking in a truly unique value proposition.

Step 2: Define your technology strategy and find a partner that makes it fast and affordable to launch, iterate, and integrate your products

The core platform is arguably the most important piece of an MGA’s tech stack, acting as a central hub that connects mission-critical policyholder data to third-party data sources and distribution channels. MGA founders must decide whether they should build a new platform or leverage an existing one to handle core underwriting, policy administration, billing, claims, and reporting functionality.

This decision will also impact your overall technology and go-to-market strategies. For example, if your distribution strategy requires you to offer highly personalized customer experiences, then it may make more sense to purchase a SaaS core platform so your IT resources are not spread too thin. Many founders choose to keep their operations lean in the beginning, which means prioritizing your limited resources where you’ll have the best chance of success.

Building your own platform offers greater control, but it has drawbacks in terms of speed-to-market, cost, business focus, and long-term features and upgrades. A modern, out-of-the-box core platform is the faster, easier, and more cost efficient option.

When choosing a core platform, beware of  common traps  and red flags and focus on looking for:

• Flexible integrations and distribution channels.  High-growth MGAs often differentiate their insurance products by leveraging technology to improve risk assessment, underwriting, and distribution. Look for a core platform that can seamlessly integrate with third-party data sources and enable omnichannel interactions, whether it’s on a mobile app, over-the-phone, or with an agent.
• Accelerated speed-to-market.  For startups, getting your product to market quickly is essential. The faster you launch, the sooner you can lower your cash burn rate, test and iterate a live product, and begin the process of raising additional capital. That’s why it’s important to find a technology vendor that can accelerate speed-to-market with flexible implementation approaches,  publicly-available documentation , and intuitive APIs.
• Lower total cost of ownership.  When comparing platforms, pay attention to implementation timelines and how many in-house developers are required to deploy each platform, which significantly impacts costs. Most platforms charge millions of dollars in maintenance and upgrades fees, but a cloud-native core platform will provide upgrades for free.
• Rapid product iteration.  MGAs need to deliver exceptional pricing and experiences to win over customers, which requires a core platform that can make product iteration and optimization fast and easy. With legacy software, product changes often take months—even years. Look for a modern platform that enables intuitive and rapid product updates in minutes, not months.

Once you’ve found a technology partner that offers speed, affordability, and control, it’s time to make a purchase decision. But before you can sign the check, you’ll need to have funding, which means it’s time to start searching for investors.

Step 3: Leverage investor, carrier, and technology relationships to the fullest

Partnering with investors is a necessary step to secure growth for your MGA. But securing this type of relationship isn’t always easy, and it’s important for startups to have patience when obtaining introductions and building relationships.

These days, MGA startups are gaining interest from venture capital and private equity firms as part of a larger trend of growing investments in insurtech. These types of investors will look at your business plan, technological capabilities, and budget. Lean on your technology partner to enhance your investor pitch by illuminating the value proposition of how technology will differentiate your products and distribution against the competition. In addition, the right technology partner will have investor connections and be able to make introductions.

MGAs must also set up a fronting program with a carrier in order to access their regulatory licenses and capital reserves to meet the statutory requirements for selling insurance. This can be the longest and most difficult step for many MGA founders, as it can take up to a year for a carrier to approve a program. Many programs fail to secure underwriting capacity at the application stage.

Carriers, like investors, will require your MGA to carefully articulate a unique underwriting or distribution strategy. But they’ll also scrutinize your risk exposure and rating algorithms more closely than investors, and poke holes in your product. Again, the right technology partner can help you resolve these questions by providing you with a comprehensive plan for your reporting and underwriting rules, reinsurance requirements, and more.

Although there are significant hurdles to obtaining capacity, remember that insurance carriers also rely on MGAs to provide knowledge and expertise they don’t have. The most successful partnerships are ones where MGAs and carriers work collaboratively to build trust, set guidelines, determine objectives, and decide on limits to that authority.

Look to both investors and carrier partners to enrich your value proposition and provide resources. The ideal investor can add value beyond their capital by providing networking opportunities, sector knowledge, or specific skill sets. Carriers can often provide legal resources to help with regulatory filings, which can be a time-intensive and complicated process.

Setting up your new MGA for success

Launching an MGA is a lengthy process, requiring multiple steps that often overlap or run in parallel. Remember that it takes time to validate a business concept. What’s most important is that you:

• Understand your customers and differentiate your rating, underwriting, and distribution strategy as you develop your business strategy and value proposition
• Choose a technology provider that can easily integrate data sources, get you live quickly and affordably, and make product updates seamless
• Leverage your investor, carrier, and technology partners to the fullest to add value and accelerate your development

Ready to get started? See why Socotra is the partner of choice for innovative and ambitious MGAs.

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Insurance MGAs: Opportunities and considerations for investors

After more than a decade in which private equity has made strong returns by focusing on intermediaries in the insurance sector—notably retail brokerages—attention in the United States and Europe has turned to another compelling niche play: managing general agents (MGAs). Private-equity investment in MGAs has accelerated in the past two years, increasing the competitiveness of each deal and pushing valuations higher.

Investors have been looking to understand how MGAs fit within the insurance ecosystem, how they differ from other insurance intermediaries such as retail brokers and wholesalers, and how MGAs compare with other parts of the ecosystem as an investment opportunity. In this article, we provide an introduction to MGAs and an overview of the major trends affecting their competitive dynamics. We conclude with a perspective on MGAs as an investment opportunity for private-equity investors.

What is an MGA?

MGAs are insurance intermediaries, but unlike retail and wholesale brokers, they are often granted binding authority from insurance partners. This means they can quote and bind policies that fit within the agreed-upon risk parameters of their insurer relationships. This feature distinguishes MGAs from other insurance intermediaries. MGAs often further differentiate themselves either by having expertise in nonstandard, niche, or specialty lines of insurance or by having privileged access to specific customer segments.

Role within the value chain

MGAs can play an integral role in the insurance distribution value chain, often sitting between other intermediaries, such as retail or wholesale brokers and insurance companies, providing a unique value proposition for all parties.

MGAs typically have relationships with insurance carriers that focus on more specialized businesses and risks. Thus, retail brokers can expand the number of insurance carriers through which the final client can obtain insurance. MGAs’ expertise in their specialist niches also helps brokers structure risk appropriately for insureds.

MGAs can also make the value chain more efficient, given that they operate without the type of legacy placement platforms seen elsewhere in the sector. MGAs also tend to have lean operations because they are often smaller, younger, and unencumbered by the operational complexities found at insurance carriers. They may also offer enhanced technology for policy management, quotation, or claims management, making binding and policy management processes more seamless.

For insurance carriers, MGAs provide expertise and underwriting sophistication for specific lines of business, such as cyberrisk. They also make market entry easier because insurance carriers can leverage MGAs to enter new markets without having to build their own infrastructure, which typically involves hiring an underwriting team, building new pricing models, sourcing external data relevant to specific risks, and incurring the new development costs associated with an in-house build. Some MGAs also handle loss-mitigation strategies for insureds and process claims.

Among the top 100 US property and casualty (P&C) insurers, 43 percent—including seven of the top ten—have at least one MGA relationship through which to source new premiums. 1 “2021: Managing general agents - rising to the challenge,” Conning, 2021. However, the amount of premiums sourced through MGAs varies significantly. Some may leverage MGAs to source new business around the margins—typically representing less than 5 percent of their overall premiums. Others maintain a hybrid model, with certain programs maintained by in-house underwriters and others by MGAs (typically 25 to 75 percent of the overall premiums). Also, some insurance carriers rely on MGAs for most, if not all, of their distribution and underwriting. In this case, the insurance carrier acts purely as a capacity provider or, as in the case of some fronting insurers, as intermediaries between reinsurers and MGAs.

Among the top 100 US property and casualty (P&C) insurers, 43 percent—including seven of the top ten—have at least one MGA relationship through which to source new premiums.

Assessing market size

The United States and United Kingdom are the two most developed MGA markets. Several MGAs operate in both, which may involve placing US-originated risks in the London market, maintaining London outposts for US MGAs, or expanding London-based MGAs into the United States.

In the United States, there are about 600 MGAs, which collectively place $47 billion in premiums—equivalent to roughly 7 percent of the overall commercial and personal insurance markets. 2 “2021: Managing general agents - rising to the challenge,” Conning, 2021. There are three types of MGAs in the United States:

• Affiliated MGAs ($26 billion in direct premium written, or DPW) generate premiums while being wholly owned or majority-owned by an insurer. The DPW at these MGAs has been growing at an average of almost 7 percent annually since 2012. 3 This is estimated based on National Association of Insurance Commissioners (NAIC) reporting regulations. Growth could be stronger if MGAs’ DWP has grown in insurance carriers with less than 5 percent share of their overall DWP.
• Nonaffiliated MGAs ($16 billion in DPW) are third parties and can establish relationships with multiple insurers. The DPW at these MGAs has been growing by about 3 percent since 2012. 4 This is estimated based on National Association of Insurance Commissioners (NAIC) reporting regulations. Growth could be stronger if MGAs’ DWP has grown in insurance carriers with less than 5 percent share of their overall DWP.
• Crop MGAs ($5 billion in DPW) are niche MGAs that participate in the Multi-Peril Crop Insurance Program (MPIC), which is tied to the agricultural sector. The DPW has fallen since 2012.

In the United Kingdom, there are more than 300 MGAs placing more than 10 percent of the United Kingdom’s £47 billion in general insurance premiums. 5 Managing General Agents’ Association home page, accessed July 25, 2022. Lloyd’s is the largest global market for MGAs; in 2020, Lloyd’s had 76 syndicates managed by 50 general agencies. 6 “How the market works,” Lloyd’s, accessed July 25, 2022.

Financial profile

Like other parts of the insurance distribution value chain, MGAs maintain attractive financial profiles, with EBITDA margins in the high 20s to low 30s, low capital intensity, and high free-cash-flow conversion. MGAs generate revenue through three sources:

• Commissions paid by insurers, which typically constitute 60 to 80 percent of an MGA’s revenue. These are often called “overrides” to distinguish them from retail agents’ commissions.
• Profitability contingents, which are are performance-based commissions paid by insurers based on the underlying performance of the risk that the MGA placed. They typically account for 20 to 30 percent of an MGA’s revenue.
• Additional services (for example, claims administration and inspection), which can generate the final 5 to 10 percent of an MGA’s revenue.

Tracking industry trends

Investors must be aware of today’s industry trends when evaluating MGAs.

Emerging risks

One of the core value propositions of MGAs is their ability to bring their specialized underwriting skills and market expertise to new, emerging risks. Examples of these new risks include casinos on Native American reservations, cannabis, transactional liability insurance for smaller deals, and cyberrisk. The increased frequency, severity, and ongoing threats of cyberattacks have given rise to the fast-growing cyber-insurance market. According to our estimates, the cyber-insurance market is set to grow from about $6 billion in premiums to more than $20 billion within the next five years. As a result, several cyber-focused MGAs have emerged, touting superior risk identification and prevention. Another area in which MGAs are increasingly active is specialty coverage in personal lines. This is driving better underwriting quality, customer experience, and access to specialized risks for MGAs’ capacity backers. One example of this is pet insurance, with leading brands in this sector in the United Kingdom and the United States both employing the MGA model.

The increased frequency, severity, and ongoing threats of cyberattacks have given rise to the fast-growing cyber-insurance market.

Digital MGAs

The past several years have seen the rise—and significant venture funding—of digital MGAs. These often target specific end customers (for example, small businesses and homeowners) and provide certain lines of insurance, including pet, auto, homeowners, and small-commercial insurance. While several digital MGAs initially started as MGAs backed by insurance carriers and reinsurers, we have seen multiple instances of digital MGAs retaining a portion of the risk on their own balance sheets, often through the acquisition of a partner insurer, enabling them to control some of the capacity they place. Still, many continue to partner with other insurance carriers to retain flexibility, especially in admitted lines.

Mergers and acquisitions

The MGA M&A market is increasingly active. While the level of acquisitions pales in comparison to the more than 1,000 completed in 2021 in the US retail brokerage market, there were 39 acquisitions in 2020—the latest year for which data are available. This was an all-time high at that point. 7 “2021: Managing general agents,” 2021. As a result of fierce competition, valuations have grown significantly, with recent acquisitions valued in the mid to high teens in terms of EBITDA multiples. Three types of buyers have emerged:

• Insurance carriers, which are acquiring high-performing MGAs that operate in desirable markets and have exhibited enhanced underwriting expertise or maintained unique customer access.
• Retail and wholesale brokers, which are looking to expand the volume of business they can source through the added relationships and expertise of acquired MGAs.
• MGA aggregators, often backed by private-equity investors, which are seeking diversification across multiple lines of business and creating multiline propositions to capacity providers, thereby minimizing risks associated with the cyclicality of certain types of business.

Verticalization and assumption of balance sheet risk

In the current climate of significant claims inflation across multiple lines of business, some insurance carriers have started to restrict balance sheet capacity, which has in turn divided the fortunes of MGAs. Some MGAs have been forced to exit or reduce their presence in certain asset classes, such as catastrophe-exposed property or cyber. Others have started to explore raising their own capital to assume some of the balance sheet that typically had been provided by insurers, effectively building “verticals” into their business models. They may also tap into alternative sources of capital, such as pension funds or Lloyd’s syndicates with diverse capital backers. This step, however, has significant implications for risk management and investment capabilities, as well as for the overall operating model of MGAs. Nevertheless, this “verticalization” has boosted the resilience and capacity of MGAs.

In the current climate of significant claims inflation across multiple lines of business, some insurance carriers have started to restrict balance sheet capacity, which has in turn divided the fortunes of MGAs.

The private-equity investment opportunity

Private-equity investors are attracted to MGAs for at least three reasons. First, MGAs have financial characteristics that typically attract investors: high EBITDA margins, low capital expenditure, high free-cash-flow conversion, and relatively high recurring revenue. Second, private-equity investors that own other insurance intermediaries find value in acquiring MGAs to compress the distribution value chain and capture more of the economics. Third, the opportunity for significant value creation through data, analytics, and technological streamlining is meaningful, including digitalizing distribution via “legacy-free” placement platforms, more efficient quote-to-bind processes, and underwriting processes that leverage semiautomated pricing models.

Yet there are critical distinctions between MGAs and other insurance intermediaries. First, while management of any portfolio company is important, investors must pay particular attention to management’s underwriting history and expertise in the lines being written. Second, investors must evaluate the MGA’s relationships with insurance carriers. While retail brokers may leverage hundreds of insurer relationships to source capacity, MGAs typically have two or three relationships per program. The single biggest risk for an MGA remains the loss, or reduction, of an insurer relationship due to performance or insurers scaling back capacity. Last, MGAs rely on independent agents to source premiums. Continued concentration in the number of agents could increase competition among MGAs.

Perhaps the largest distinction, however, lies in the value creation thesis. With about 36,000 retail brokerages in the United States, private equity–backed consolidators have numerous acquisition targets with which they have been capturing a “multiple arbitrage” opportunity. By contrast, there are around 600 MGAs in the United States, meaning that the primary investment thesis needs to be different.

While retail brokers may have similar customers or risk needs, these will vary significantly among MGAs. This means that multiple arbitrage-fueled M&A is unlikely to be effective. Instead, investors’ value creation thesis must stem from the expertise, distribution, insurer relationships, diversity of earnings, and operational synergies offered by each MGA.

MGAs provide private-equity investors with access to an industry with high growth, exposure to balance sheet–free pockets of the insurance ecosystem, similarities with already-familiar private-equity insurance investments such as retail brokerage, and margin expansion via advanced analytics and technological innovation. However, the opportunity has already been recognized by many, creating real competition for high-quality assets. This means that it’s vital for investors to be confident in delivering an ambitious value-creation plan in their approach to MGAs.

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What is a Managing General Agent?

Managing General Agents (MGA) help insurers and reinsurers to grow their businesses and expand into new markets. MGAs are not insurance companies yet they do some of the work of insurance companies. They are intermediaries yet they are not insurance brokers, rather, they support insurance brokers. So what are they? Where do they fit into the insurance industry landscape? And how do they bring value to insurers, brokers, and insurance buyers?

Read the following article to find the answers.

Table of Contents Add a header to begin generating the table of contents

What is an MGA?

A Managing General Agent (MGA) is an agency that is contracted to perform various business functions, such as underwriting, binding, policy administration, claims, and distribution, on behalf of (re)insurance companies. Some MGAs specialize in a particular type of insurance or risk, for example: property, cyber, aviation, or construction.  MGAs are different from insurance brokers in that the insurer has given the MGA the power to underwrite and perform various other tasks that would normally be performed by the insurer inhouse. Some MGAs are independent businesses, others, insurer-owned or broker-owned.

According to AM Best , there were 663 MGAs in the USA in 2020. And, at the time of writing, the Canadian Association of General Managing Agents and the UK’s Managing General Agents Association websites give member numbers of 65 and >300, in Canada and the UK, respectively.

What is delegated authority?

Delegated authority is at the core of the mga business model..

The term ‘delegated authority’ refers to a contractual arrangement under which one party authorizes another party to act on their behalf. An insurer grants an MGA the authority to perform certain business functions on its behalf: underwriting, binding cover, claims handling etc. without having to obtain case by case approval from that insurer. These two parties have a ‘delegated authority relationship.’

AM Best  talks about the “delegated underwriting authority enterprise” which it defines as, “a third party appointed by a (re)insurer, through contractual agreements, to perform underwriting, claims handling, and other administrative functions on behalf of its partners.”  [1]  The MGA is the most common form of DUAE. This category of insurance entities also includes Managing General Underwriters (MGUs), coverholders (term used in the UK, primarily with respect to the Lloyd’s market ), and program administrators, among others. Note, it can be hard to distinguish the differences, and names are at times used interchangeably.

[1]  AM Best Market Segment Report:  Delegated Underwriting Authority Enterprises Gaining Market Traction , March 1, 2022.

How insurers use delegated authority

Entering a new market can require a significant investment, both in terms of money and time – dealing with local regulations, hiring staff, learning the market, putting infrastructure in place, etc. Delegating authority enables insurers to extend their reach into new geographies and specialized markets relatively quickly and with limited investment. MGAs are familiar with the business risks related to the specialized coverage they offer. They are better able to underwrite and price these policies than an insurer entering the market for the first time. Insurance companies enter into this type of outsourcing arrangement to test new products or markets, or when they consider doing so more cost effective or practical than keeping the work inhouse. 

The extent, nature and parameters of the services that the MGA provides on behalf of the insurer are stipulated in the contract between the two parties known variously as a Delegated Authority or MGA Agreement.

What do managing general agents do?

The breadth and depth of MGA’s operations depends on the extent of the delegated authority granted by the (re)insurer. The insurer may also specify a particular  line of business or set of insurance products. MGAs may contract to work for insurers and/or reinsurers .

The functions the M GA tak es on may include, but are not limited to:

• Soliciting new business – promoting insurance products to customers, agents, and brokers, a ppointing retail agents;
• Underwriting risk – assessing, rating, and accepting or rejecting risk within pre-agreed parameters , p ricing insurance policies
• Binding cover – committing the insurer to a new insurance policy, i ssuing insurance policies
• Policy administration – billing and collecting insurance premium, p rocessing, servicing and renewing policies
• Claims management – investigating, processing, settlement claims, a ssisting with loss control

Where do MGAs fit in the distribution chain?

Mgas are intermediaries..

• acts as a distributor and outsourced service provider for both insurers and reinsurers.
• to insurers on behalf of reinsurers; and
• to insurance buyers on behalf of insurers via insurance brokers and retail agents. While less common, MGAs may also support insurance buyers directly.

How do MGAs differ from brokers?

Insurance brokers work for the insurance buyer delivering professional advice, sourcing insurance solutions that meet the needs of the buyer, and providing ongoing guidance and support, through claims and policy renewal. While both MGAs and brokers are intermediaries, they are really very different. For example, MGAs work for the (re) insurer whereas brokers work for the insurance buyer. And because MGAs have binding authority from their insurance partners, they can provide a totally different set of services than can other intermediaries. The following chart provides more detail on the differences between MGAs and insurance brokers.

How MGAs add value

According to a 2022 survey by Insurance Business Canada, brokers use four key criteria when looking for an MGA: (1) responsiveness, (2) pricing, (3) ability to place niche risks, and (4) product range. (see IBC survey results )

Here’s a look at how MGAs are able to deliver

• One stop shop – MGAs that contract with multiple (re)insurance partners are able to offer a broad array of coverage options. 
• Dealing with the decision maker – Because MGAs have delegated underwriting authority, not only can they offer a range of insurance products, they also control the process. There is no need to defer to one or more insurers to put together even the more complex structured solution.
• Special solutions for special risks – MGAs that invest in developing strong technical underwriting expertise, especially in niche areas, can help brokers with difficult to place risk (i.e. new or uncommon risks). 
• Digital strategy – MGAs are adopting technology to make operational processes, such as policy and claim management, more efficient.

Key takeaways

• A managing general agent is an agency that is contracted to do business on behalf of (re)insurers
• Insurers delegate authority to MGAs to underwrite, bind cover, handle claims and perform other administrative tasks
• Delegated authority gives the MGA power to make decisions (i.e., underwriting) within pre-approved parameters.
• Insurers leverage MGAs for entering new markets and new geographies and to reduce costs
• An MGA’s duty is to the insurer, while a broker’s fiduciary duty is to the insured.
• MGAs play an important role in facilitating and enhancing insurance distribution.

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Unveiling the Mystery of MGAs: The Ultimate Insurance Agent

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Managing General Agents (MGAs) are integral to the insurance industry, serving as intermediaries between insurers and policyholders. Their key roles encompass finding competitive premiums, specialized underwriting services, risk management, and ensuring policyholders’ compliance with regulations.

MGAs often work for brokers, insurers, and reinsurers, providing services like customer support, claims handling, and risk assessment. They assess policy feasibility before insurer approval and periodically review policyholder data to ensure compliance.

These intermediaries offer various services, including underwriting, pricing, policy issuance, and claims handling. They may receive commissions from insurers for issued policies and provide additional services such as compliance consulting.

The primary role of an MGA is to advise customers on suitable insurance, inform them of their rights and responsibilities, and assess policy risks. There are two main types of MGAs: captive (directly employed by the insurer) and independent (free to shop for the best deals).

Benefits of using an MGA include flexibility in creating custom policies, local market expertise, and personalized customer service. However, potential risks include unregulated markets, financial instability, and reputational damage.

The regulatory landscape for MGAs varies by location but generally includes licensing, financial reporting, and adherence to specific regulations. Staying updated with evolving laws is essential.

Challenges faced by MGAs include increasing regulatory pressure, rising underwriting costs, competition from direct insurers, and talent recruitment.

In conclusion, MGAs are vital intermediaries in the insurance industry, offering specialized services and benefits to consumers. While there are risks to consider, understanding the regulatory environment and challenges can help consumers make informed decisions when working with MGAs.

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Table of Contents

What is an MGA in Insurance?

An MGA, or Managing General Agent, is an important part of the insurance industry. They have various roles and responsibilities including finding competitive premiums for their clients, providing specialized underwriting services, managing risk, and helping to ensure that policyholders are adequately informed and remain compliant with relevant regulations.

An MGA often works for brokers, insurers, and reinsurers. They act as a third-party intermediary between insurers and policyholders and can provide a wide range of services including customer service, claims handling, and risk management. In addition, MGAs are responsible for assessing risk and can assess the feasibility of a policy before it’s approved by an insurer.

MGAs are also responsible for ensuring that the policyholders comply with all insurance regulations and guidelines. This is achieved through periodic reviews of policyholder data and verifying that they are following all requirements.

An MGA (Managing General Agent) is a type of insurance agent who is responsible for the sale and servicing of insurance products for one or more insurers. They are not employees of the insurer, but instead are independent agents. The MGA acts as an intermediary between the insurance company and the customer, managing the underwriting process and providing advice and support to customers.

How Does an MGA Operate?

MGAs offer a range of services to their customers including underwriting, pricing, policy issuance, and claims handling. They typically receive a commission from the insurer for each policy issued and may also offer additional services such as compliance consulting and risk management. In some cases, they may even have the authority to bind coverage and issue policies on behalf of the insurer.

Role of an MGA

The role of an MGA is to provide advice and guidance to customers regarding the appropriate type of insurance for their needs. MGAs are also responsible for ensuring that customers are aware of their rights and responsibilities when it comes to purchasing insurance. They may also be responsible for assessing and managing the risks associated with the policies they sell.

Types of MGA’s

There are two main types of MGA’s: captive and independent. Captive MGA’s are directly employed by the insurer while independent MGA’s are not. Captive MGA’s are often offered exclusive rights to market the insurer’s products while independent MGA’s have the freedom to shop around for the best deals.

Benefits of MGA

By using an experienced MGA to handle the underwriting process, you can rest assured that you are getting the best possible coverage at the lowest price available. Moreover, MGA’s have access to a wider range of insurers than independent agents, giving you access to better rates and products. Additionally, MGA’s are experts in their field and can give you advice on the most suitable policy for your needs.

Risks of MGA

It is important to remember that MGAs work for a commission, so there could be the potential for bias when it comes to selecting a policy. Therefore, it is crucial to do your own research to find the most suitable coverage for your individual needs. Additionally, many MGAs are limited to offering products from certain insurers, so if you need a product that isn’t available through the MGA, you may need to look elsewhere.

Regulatory Landscape

The regulatory landscape for MGAs is constantly evolving as new laws and regulations are implemented. It is important to stay up-to-date with the latest developments in order to ensure compliance with all applicable laws and regulations. In the United States, MGAs are regulated by state insurance departments.

Challenges Faced by MGA’s

MGA’s face a number of challenges in today’s competitive insurance market. These include maintaining adequate staff levels in order to provide excellent customer service and staying up-to-date with changing regulations in order to remain compliant. Additionally, MGAs must work hard to build relationships with customers and insurers and to be seen as reliable partners in the industry.

MGA stands for Managing General Agent and it’s a type of intermediary between insurance carriers and insurance brokers. They are responsible for underwriting policies, servicing customers, handling claims, and providing agent support to brokers. MGAs also make their own business decisions such as setting the premiums to be charged and approving policy requests.

MGAs can be found working for carriers in order to increase their product portfolio and market reach. This may involve developing strategies to attract new business, creating new insurance policies, or even offering specific coverages that might not be available from the carrier directly. By working with MGAs, carriers can expand their portfolio and gain access to more markets.

MGAs also work directly with brokers and offer specialist advice and administrative services such as issuing documents, collecting premiums, and handling customer enquiries. This helps to free up the broker’s time, allowing them to focus on marketing and growing their business.

Role of an MGA in the Insurance Industry

An MGA (Managing General Agent) is a middleman between an insurer and an insured. They act as independent agents, brokers, consultants, and delegates when dealing with insurers. An MGA can offer advice to the insured about their insurance needs and provide a wide range of services, including risk assessment, claim settlement, policy servicing, and claims investigation.

An MGA operates in the insurance industry as an intermediary between the insurer and the insured. They are responsible for obtaining the best terms and the best coverage available for their clients. MGAs are also responsible for analyzing the risk associated with the policy and then recommending the most suitable coverage for the client.

MGAs act as an independent representative in the insurance market. They also provide advice to their clients on how to best manage their insurance policies. The main job of an MGA is to assess risks and provide solutions to the insured that best fit their needs. They will also negotiate better terms with the insurer on behalf of the client.

Thanks to the presence of MGAs, the insurance market is highly competitive. They allow customers to make informed decisions about their insurance coverage, as they have a better understanding of the products available. In addition, they can negotiate more favourable terms and conditions with the insurer, which in turn helps the customer save money.

MGAs, or Managing General Agents, come in a variety of forms. The most common types of MGAs are independent producers, program administrators, and wholesale brokers.

Independent Producers are those who act as the direct contact between the insurer and the insured. They are also responsible for prospecting, quoting, and binding coverage.

Program Administrators handle all paperwork related to specific insurance policies. They are typically contracted by insurers to provide administrative services.

Wholesale Brokers typically act as intermediaries between the insured and the insurer. They are specialized in providing access to multiple insurers, while also providing underwriting and service support.

In addition to these three common types of MGAs, there are specialty programs, such as those for specific industries or products. These MGAs often provide specialized advice to clients in their particular field or industry.

Benefits of MGA:

MGAs can be a great choice for insurance consumers, as they can provide a variety of benefits. Firstly, MGAs are typically small businesses, so they often have more flexibility when it comes to creating custom policies and rates. This means that insurance customers can find plans that fit their needs and budget, rather than having to settle for a ‘one-size-fits-all’ policy. Furthermore, because MGA’s are independent businesses, it’s likely that they will know their local market better than larger insurers. This can give them better understanding of the unique risks associated with that market, which can lead to cheaper premiums for customers. Finally, MGAs can often provide more personalised customer service than larger insurance companies.

Risks of MGA:

When an insurance company uses an MGA to offer their services, there are some potential risks they need to consider. These include:

• Unregulated markets: In some cases, the MGA may be operating in an unregulated market, which means they don’t have adequate oversight, which can lead to unethical practices or scams.
• Financial instability: An MGA may be financially unstable, which could result in the inability to pay claims if something goes wrong.
• Reputation risk: An MGA’s reputation can be tarnished if their consumer base is unhappy with the services being provided.

It’s important for insurance companies to be aware of these potential risks associated with MGA’s before deciding to work with one.

Regulatory Landscape of MGA’s in Insurance

MGA’s are currently subjected to certain regulations which can vary depending on the country or state the MGA operates within. Generally, most MGA’s are required to obtain a license from the local insurance regulator in order to operate legally. The purpose of this licensing requirement is to make sure that MGA’s are following all of the necessary rules and regulations. Additionally, they need to ensure that they have adequate professional indemnity insurance coverage as well as other policies in place.

MGA’s are also subject to certain statutory requirements, such as filing financial statements with the relevant regulator, providing evidence of capital adequacy and implementing appropriate Anti-Money Laundering (AML) guidelines. Additionally, MGA’s must comply with regulations specific to their line of business. For example, car insurance MGA’s may have to implement additional safety protocols as required by the local regulator.

In recent years, there has been an increased focus on regulating MGA’s in order to protect consumers and create a more secure market. As such, insurers and regulators are becoming more stringent in their requirements and expectations to ensure compliance with existing laws and regulations.

Managing General Agents (MGA) are an integral part of the insurance industry, acting as intermediaries between insurers and policyholders. However, these agents face several challenges that could potentially impact their businesses. Some of those challenges include:

• Increasing Regulatory Pressure: MGA’s are subject to a variety of regulations from different government agencies, which can make it difficult for them to stay compliant.
• Increases in Underwriting Costs: As the cost of underwriting goes up, the profitability of MGA’s decreases. Additionally, this can lead to higher premiums for consumers.
• Competition from Direct Insurers: More and more consumers are turning to direct insurers, bypassing the services of MGA’s. This can impact the MGA’s bottom line.
• Availability of Talent: Finding qualified personnel to staff an MGA can be a challenge due to the specialized skill set required.

All of these challenges have the potential to negatively impact an MGA’s business. It is important for MGA’s to recognize these challenges and take steps to mitigate any risks they may pose.

MGA’s, or Managing General Agents, are an important part of the insurance industry. They provide specialist support and services to insurers, brokers, and other agents. MGAs play an essential role in the purchasing, underwriting and managing of insurance policies.

MGAs can provide many benefits to insurance consumers, such as convenient access to specialized products, advice and services that may not be available elsewhere. However, there are a few risks associated with using them, such as the lack of regulation and transparency.

In conclusion, MGA’s are an important part of the insurance industry. They provide specialized services, products, advice and support to consumers. When used correctly, they offer many benefits to consumers, but there are some risks to consider. It is important to understand the regulatory landscape and the challenges associated with MGA’s before making any decisions.

It’s important to make sure the facts provided in this guide are correct and reliable. To ensure this, it is necessary to include sources that can be used for further reading and to support the information provided throughout the guide. Sources can be found from a variety of places, such as journals, newspapers, and blogs. It is important to note that not all sources are equal and it is wise to review any sources used to ensure they are credible and up-to-date. When citing a source, make sure to use the proper formatting style and format. Additionally, always provide a link to the source for readers to refer back to if they wish.

Q&A: Answers to Common Questions Regarding MGAs in Insurance

MGAs, or managing general agents, play an important role in the insurance industry. As such, many people have questions about them. Here are answers to some of the most common questions:

• What is an MGA? An MGA is a type of insurance agent who works on behalf of another agent or broker. They typically handle aspects such as underwriting, policy issuance and other activities.
• How does an MGA operate? MGAs typically work with multiple insurance carriers to find the best coverage for their clients. They can also help manage administrative tasks such as billing and documentation.
• What is the role of an MGA? The primary role of an MGA is to act as an intermediary between the insurer and consumer. They are responsible for finding the best coverage available at a competitive price.
• What types of MGA’s are available? There are several types of MGA’s, including independent agents, brokers, wholesalers and reinsurers. Each type has a different focus or specialization.
• What are the benefits of using an MGA? MGAs can provide expert advice and assistance in finding the best coverage at the best price. They also take care of administrative tasks such as filing claims and issuing policies.
• Are there any risks associated with using an MGA? No, there are no inherent risks associated with using an MGA. It is important to research and choose a reputable MGA who will act in the best interest of the consumer.
• What is the current regulatory landscape for MGA’s? MGAs are regulated by state and federal laws. It is important for consumers to be familiar with the rules and regulations that apply in their state or country.
• What challenges do MGA’s face? MGAs may face challenges such as rising competition, increased regulation, and changes in the way that insurance products are distributed. It is important for MGAs to stay up-to-date on these issues.

By understanding what an MGA is and how they operate, you can make better informed decisions about your coverage and save time and money when looking for the best insurance products.

FAQ for What is an MGA in Insurance?

1. what is an mga.

MGA stands for Managing General Agent. It is a third party intermediary licensed to underwrite and manage insurance policies on behalf of an insurance company.

2. How Does an MGA Operate?

An MGA provides the administrative support required for the insurer to operate in the marketplace, such as helping with policy processing, claims management, and customer service.

3. What is the Role of an MGA?

An MGA acts as an intermediary between the insurance company and the customer. It provides advice to both parties in order to help them end up with the best possible outcomes.

4. What are the Types of MGA’s?

Types of MGAs include Managing General Underwriters (MGU) and Managing Insurance Brokers (MIB).

5. What are the Benefits of an MGA?

The main benefit of an MGA for consumers is better access to customized insurance solutions that may not be available through a traditional insurer.

6. What are the Risks/Challenges of an MGA?

MGAs face certain challenges such as regulatory compliance, rising costs, and cyber security risks. Additionally, MGAs may not be fully or properly capitalized, which can also lead to potential risks.

7. What is the Regulatory Landscape for MGA’s?

All MGAs must adhere to their particular state’s insurance regulations. They must also comply with other related laws, such as antitrust, consumer protection, and privacy legislation.

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Print edition, assessing delegated underwriting authorities, mgas: am best explains.

Over the last decade, as insurers and reinsurers have sought profitable opportunities for growth, they increasingly have handed the underwriting pen to managing general agents, managing general underwriters, program administrators and other underwriting agencies. These specialized distribution partners have not only grown in number, but they also have grown in their importance to the insurance value chain.

In the United States alone, there are more than 1,000 managing general agents. And while the United Kingdom market still has a high presence of broker-driven business, underwriting agencies have gained a greater share of the market as the number of brokers has steadily reduced due to merger and acquisition activity and specialist underwriters have moved into the MGA model.

The amount of premium generated by these entities has doubled in the last 10 years across the largest insurance markets. In the U.S., managing general agents generated $44 billion in premiums in 2019. In the U.K., these underwriting enterprises—which include Lloyd’s market “coverholders”—account for a staggering 10 percent, or £5 billion, of P/C business.

AM Best’s role, as a rating agency, is to ensure a strong insurance industry. This new Performance Assessment sits squarely within that objective The growing influence of this segment—which is also gaining traction across Europe and Asia-Pacific—raises the stakes on these relationships. These distribution partners are empowered to underwrite, price and bind coverage, as well as settle claims, on behalf of their carrier partners.

How do insurers know who to trust with their underwriting pen? How can MGAs, MGUs and the like prove their credibility as a partner?

It is against this backdrop that AM Best sought to develop a performance assessment to help insurers gauge the effectiveness of their existing and prospective underwriting partners. On March 15, we released draft methodology for a Performance Assessment for Delegated Underwriting Authority Enterprises. It is open for comment through May 3.

AM Best’s role, as a rating agency, is to ensure a strong insurance industry. This new Performance Assessment sits squarely within that objective. It aims to help insurers make more informed decisions when choosing underwriting partners.

To be clear, the proposed Performance Assessment is independent and distinctly different from a Financial Strength Rating. While a Financial Strength Rating measures an insurance company’s ability to meet policyholder obligations, the Performance Assessment will measure how effective a delegated underwriting authority enterprise (DUAE) has been in servicing its insurance partners.

The Performance Assessment methodology will include five factors: Underwriting Capabilities; Governance and Internal Controls; Financial Condition; Organizational Talent; and Depth and Breadth of Relationships.

The Underwriting Capabilities component would be similar to AM Best’s evaluation of the technical aspects of an insurance company. Because underwriting companies have authority to write business on behalf of their insurance carrier partners, it is essential that the quality of their underwriting is examined thoroughly.

Writing poor quality business may affect the financial standing of not only the underwriting agency but also its insurance carrier partners. Underwriting, therefore, is fundamental to the stability and longevity of these organizations.

In terms of Governance and Internal Controls , AM Best proposes these elements of consideration: alignment of interests (contractual relationships, mission statement); systems; audit and other management reports; policies and procedures; disaster recovery plan; key person risk plan; service measures; binding contracts; broker contracts; and partnerships with third-party administrators.

Because much of the risk associated with DUAEs is operational, having good governance and controls in place is critical to helping carriers and agents feel comfortable with the relationship.

Financial Condition would be assessed through evaluation of financial statements, sources of income, earnings trends, capital structure and the like. It would also take into account liability protection, premium trust accounts and deposit collateral/guarantees.

AM Best views these three factors as having the greatest importance, because they speak to the stability and longevity of an underwriting organization. As such, these factors would be weighted more heavily than Organizational Talent and Depth and Breadth of Relationships in our methodology.That’s not to say the final two factors aren’t important. They certainly are, which is why enterprises must perform well across all categories in order to achieve a high assessment.

DUAEs can receive up to a maximum of 10 points for Underwriting Capabilities, Governance and Controls, and Financial Condition. They can receive up to five points for both Organizational Talent and for Depth and Breadth of Relationships.

The sum of the points received for each of the components is translated into a PA ranging from PA-1 (Exceptional) to PA-5 (Weak).

The full methodology for the Performance Assessment for Best’s Delegated Underwriting Authority Enterprises is available on AM Best’s website. We encourage market participants to provide feedback.

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What is an MGA?

Elaine is a Marketing Associate at ReSource Pro Compliance

When I worked as a Compliance Coordinator, my most complex projects usually often began with the apparently simple statement, “I want to get licensed as an MGA nationwide.” It wasn’t that the folks on the other end of the call weren’t wonderful people (they were) or that the licensing process for an MGA was that much more difficult than any other type of agency licensing (okay, it kind of is). It was that so very few people I spoke with—even experienced agency owners and producers—met the regulatory definition of “managing general agent.” It’s a term that we use very broadly in the insurance industry on a day-to-day basis. But the actual definition is very specific.

What Is an MGA?

The  NAIC model regulation  defines a managing general agent as “any person who (1) manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office); and (2) acts as an agent for such insurer …”

The exact wording of each state’s MGA definition varies slightly, but the fundamental principle is the same. In other words, an MGA acts—in a limited way—as an underwriter. The contract between the MGA and the insurer spells out its specific duties, but generally MGAs perform some or all of the following tasks:

• Bind coverage and issue policies
• Process endorsements to existing policies
•  Underwrite and price policies
• Negotiate commissions
• Appoint retail agents
• Adjust losses and resolve claims
• Collect premiums and maintain agency balances
• Receive or prepare account reports and communicate them to the insurer and state regulators, as required

Who Can (and Can’t) Be an MGA?

Many of the people I spoke with performed some or all of the tasks listed above. But the definition of an MGA also includes some restriction that made many of them ineligible to be licensed as MGAs.

The NAIC model regulation goes on to explain that an MGA must underwrite “an amount of gross direct written premium equal to or more than five percent (5%) of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year …”

Additionally, an MGA must do at least one of the following:

• Adjust or pay claims in excess of ten thousand dollars ($10,000) per claim
• Negotiate reinsurance on behalf of the insurer

Again, the specific requirements vary from state to state, but it’s the minimum premium standard that’s the most common stumbling block.

An Overview of the MGA Licensing Process

Those who  do  meet the criteria to apply for an MGA license often find the process much more complex than that for applying for a producer’s license. (And speaking of producer licenses, lots of states require MGAs to hold active licenses that cover the products they will be managing and services they provide before they apply for an MGA license.)

First, a number of states still process MGA license applications on paper, often using state-specific forms. Next, some states offer MGA licensing for individuals and business entities, while others license only entities or only individuals. Some states require both an entity and an individual from that entity to be licensed while others require only the entity to be licensed.

In addition to the license application, states often require potential licensees to provide proof of financial stability. This proof usually takes the form of bonds, errors and omissions (E&O) policies, and financial audits completed by independent parties.

Bonds may be surety or fidelity bonds, depending on the state. The amounts vary widely. In many states, the bond requirement reflects the volume of monies the MGA handles. Most commonly, it’s a percentage of the gross direct written premium. Fortunately, states usually set a cap for bonds. These also vary from state to state, ranging from a minimum of $5,000 (thank you, Idaho!) to a maximum of $500,000.

E&O policy amounts vary, too. It may be a set figure for all MGAs or a percentage of the gross direct written premium. In those states that use the percentage system, there’s usually a minimum amount, too. The MGA pays whichever sum is greater.

States often want to review and approve the contracts between MGAs and insurers, too. This ensures that contract language meets the states’ regulatory requirements. Even in states that don’t “require” contracts be submitted, it’s a good idea to have them on hand. Several states require MGAs to be able to produce contracts on demand.

The states sometimes have other requirements as well. These range from fingerprint requirements to requesting a copy of Articles of Incorporation/Formation to state-specific questionnaires and forms. Insurers may also need to file appointments for their MGAs with regulators.

Several states don’t issue an MGA license  per se but require MGAs to go through a very similar process to obtain a registration, designation, or endorsement (Hey, a license by any other name).

Additionally, a number of states do not issue a managing general agent license at all. In these states, those providing MGA services will need to secure alternate licenses, such as property and casualty producer licenses, surplus lines licenses, and even adjuster licenses. The functions it will perform on behalf of an insurer in the state determine which licenses a managing general agent needs.

So, If I’m Not an MGA, What Am I?

For those who don’t meet the requirements for an MGA license, alternative licensing is essential. Licensing needs to reflect the products the “not-an-MGA” administers for its insurers. Most MGA-like agencies serve the property and casualty market. For them, P&C producer license(s) are a must. If they place business outside the admitted market, surplus lines licenses are also necessary. Additionally, adjuster licenses may be required if entities’ responsibilities include adjusting claims.

Remember that if the firm is being licensed as an agency, an individual license for the same lines of authority will likely also be required. This licensed individual serves as the Designated Responsible Licensed Producer (DRLP) for the agency’s licenses.

The Evolving Role of MGAs

Given the complexity of the process, you might ask, “Why would anyone want to be a managing general gent?” The answer is that the role of MGAs is evolving as we speak.

At the turn of the last century, MGAs were a way for insurance companies, who were typically based along the Eastern Seaboard, to meet the needs of geographically isolated clients throughout the western states. Insurers could serve such clients without maintaining full offices in the distant locale. Less than a century later, however, evolving communication technologies and the internet made it practical for insurers to deal directly with clients nationwide. The number of MGAs declined.

Now, however, MGAs are resurging. Carriers want to improve efficiency and reduce costs without sacrificing the client experience. MGAs, which can optimize their staffing and processes for specific functions, offer an ideal means to achieve this goal.

MGAs also serve as  gatekeepers of specialist insurance [EN1]   markets. Their smaller size and ability to focus on a narrow product range and/or a specific geographic region make them an ideal fit for specialty products such as cyber-risk insurance, flood insurance, etc. Partnering with MGAs gives carriers access to these niche markets without the start-up costs and investment of time required to develop similar expertise.

The MGA may have another role to play as well. Insurtech firm Next Insurance made the move from digital agency to insurance carrier . CEO and co-founder Guy Goldstein stated that their time as an MGA was a very intentional part of this business plan. Whether other MGAs, especially other insurtechs, will follow Next Insurance’s lead remains to be seen.

Additionally, many insurtech firms utilize the MGA structure as an intermediate step in their evolution from digital insurance agencies to insurance companies.

Two Great Resources for MGAs

Texas and Florida issue more MGA licenses than any other states. Here are links to the sections of their state statutes that pertain to managing general agencies:

• Texas Insurance Code – Managing General Agents
• Florida Statutes – Managing General Agents

Find out how ReSource Pro helps insurance agencies and producers meet their licensing and compliance needs by visiting our compliance page .

MGA or Not an MGA … That Is the Question

Reprinted with permission from the June 3, 2022, issue of New York Law Journal . © 2022 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.

What is a managing general agent? This question is one we are often asked by our producer-clients—typically after we advise them to remove the term “managing general agent” from their agreements with insurers. While we can spend time diving into the uses, history and evolution of managing general agents (often referred to as MGAs), this article will instead focus on what, exactly, it means to be an MGA.

Managing General Agent

General factors. The determinative factors for whether an individual or entity is an MGA can be broken down as follows:

1.  Any individual or entity who manages all or part of an insurer’s business (including the limited management of a division, department or underwriting office of the insurer); and

2.  Acts as an agent for such insurer, by performing the following three functions, either in its individual capacity or together with affiliates, regardless of the agent’s title (i.e., whether referred to as “agent,” “MGA,” etc.) and regardless of whether the MGA has authority from the insurer to perform these functions:

a.  Produces gross direct written premium equal to or more than 5% of the policyholder surplus of the insurer (as reported in the last annual statement of the insurer in any one quarter or year); and

b.  Underwrites gross direct written premium equal to or more than 5% of the policyholder surplus of the insurer (as reported in the last annual statement of the insurer in any one quarter or year); and

c.  Either

i.  Adjusts or pays claims in excess of $10,000 per claim; or

ii.  Negotiates reinsurance on behalf of the insurer.

See generally NAIC Managing General Agents Act, MDL 225.

Put simply—although it is not always all this simple—an MGA is an agent that manages an insurer’s business, produces and underwrites a certain amount of the insurer’s business, and either adjusts/pays a certain amount of the insurer’s claims or negotiates reinsurance on the insurer’s behalf.

State-specific nuances. As with any insurance-related topic, the foregoing summary is a generalization, derived from the National Association of Insurance Commissioners’ (NAIC) Managing General Agents Act (the Model Act) (id., § 2(D)); however, the thresholds and requirements established under the Model Act can vary across each adopting jurisdiction (in this case, all 50 states, the District of Columbia and the Virgin Islands).

For example, the definition of MGA under California law seems to indicate that simply negotiating reinsurance, on its own, could be enough for an individual or entity to be considered an MGA. See Cal. Ins. Code §769.81(c). In contrast, Texas law defines an MGA entirely differently, and perhaps more literally, than the Model Act, focusing only on whether the individual or entity has supervisory responsibility for the local agency and field operations of an insurer, and the ability to accept or process policies produced and sold by other agents. See 28 Tex. Admin. Code §19.1202(3). However, the New York regulation surprisingly tracks the definition of MGA set forth by the Model Act much more closely, without material deviation. See N.Y. Comp. Codes R. & Regs. tit. 11, §33.2 (which modifies the claims adjusting and payment threshold from the $10,000 threshold set forth in the Model Act to $25,000).

Exemptions. Of course, the Model Act provides various exemptions from being considered an MGA for certain individuals and entities who otherwise would qualify. Those exemptions are summarized as follows:

• An employee of the insurer;
• A U.S.-based manager of an alien insurer’s U.S. branch;
• An affiliated underwriting manager who contractually manages all or part of the insurer’s insurance operations, such that the manager’s compensation is not based on premium volume written; or
• The attorney-in-fact acting for the subscribers of a reciprocal insurer or inter-insurance exchange under powers of attorney.

As most MGAs are typically entities rather than individuals (given the high underwriting and production volume that would ordinarily exceed the capabilities of any one person), states like New York have done away with the first exemption, replacing it instead with the third exemption. See N.Y. Comp. Codes R. & Regs. tit. 11, §33.4(a) (which generalizes the holding company act exemption to exempt any affiliate, regardless of the services they perform for the insurance company). This move, in part, was likely due to the meteoric rise in the creation and use of captive agencies over the years, and gives a little more breathing room for such agencies and affiliated insurers who keep their underwriting and claims handling in-house and at-cost.

Licensing and Obligations

So, let’s say that you’ve determined you meet the statutory requirements for being an MGA in at least one state; what does that actually mean from a practical perspective? (MGAs must hold their license in the jurisdiction where the risk is located and/or where the insurer is domiciled (see NAIC Managing General Agents Act, MDL 225, §3).)

Licensing. With respect to licensing, requirements can also vary across states. Typically, the MGA will be required to hold an additional license—separate from its producer license—and may even be required to obtain additional licenses for each individual performing MGA functions. In other states, including New York, there is no separate license-type (e.g., an MGA is licensed by virtue of its producer license), and any additional registration obligations fall mostly on the insurer (i.e., to make sure proper MGA-specific appointments are made and forms are completed and filed). See Dept. of Financial Services, Managing General Agent Appointment and Termination; OGC Opinion, Dec. 18, 2002.

Obligations. Perhaps the greatest burden of being an MGA is not actually in the additional licensing requirements that may or may not have to be completed, but in the stepped-up regulatory scrutiny and reporting and contractual obligations that comes along with it.

To that end, the Model Act states, “[t]he acts of the MGA are considered to be the acts of the insurer on whose behalf it is acting … [a]n MGA may be examined as if it were the insurer.” See NAIC Managing General Agents Act, MDL 225, §6. To be clear, that quote makes up the entirety of Section 6 of the Model Act—a not-so-thinly-veiled threat from regulators that MGAs should take their roles very seriously. As those of us who have assisted producers through insurer-level regulatory examinations can attest, these examinations are not well-suited for your typical producer.

Additionally, while most reporting obligations fall on an insurer rather than the MGA (id. at §5), the Model Act is rife with burdensome obligations that must be contained in any contract governing the MGA’s services (id. at §4).

There are certainly many advantages to being an MGA, covered ad nauseam by other articles. To name just one, MGAs can provide an attractive option for insurers exploring a new or niche market, allowing those insurers to enter such market without making the typical expenditures required to do so. Inherently, this creates a lucrative position for any MGA with the capabilities to permit the insurer entrance into such market (i.e., by having experience underwriting certain products, etc.).

In light of the above, however, unless an agent actually performs the functions that satisfy a state’s MGA directives, there is no world in which such agent—who only produces business—would want to be considered an MGA. As such, we always advise these clients to remove the terms “managing general agent” or “MGA” from their contracts with insurers. While using that term alone appears to have no bearing on whether an individual or entity is, in fact, an MGA (see NAIC Managing General Agents Act, MDL 225, §2(D)(2) Drafting Note (“Individuals or agents calling themselves ‘managing general agents’ may not necessarily fall under the provisions of this Act … [i]n other words, if the individual or agent does not perform the activities set forth in Paragraphs (1) and (2) then, for purposes of the Act, the individual is not an MGA”)), why even give the indication that you might be providing services only an MGA provides? Even if minimal, doing so creates unnecessary regulatory scrutiny and risk. For example, if a regulator reviews an improperly titled agreement during an insurer’s examination, the regulator may inquire into the producer’s functions and licensing status. Additionally, improper use of the terms could create ambiguity about the services provided under the contract with the insurer, where no ambiguity about such services should actually exist.

Given the array of modifications made by implementing jurisdictions to the Model Act, the advice we give our producer-clients is to ask the following question: “do I underwrite insurance, adjust or pay claims, negotiate reinsurance or even simply manage elements of an unaffiliated insurer’s business?” If the answer to that question is “yes,” you should be consulting the managing general agent statute in each state in which you are a licensed producer—or (shameless plug) consult those like us familiar with such statutes. If the answer is “no,” pass “Go,” do not collect $200, and for the love of avoiding enhanced regulatory scrutiny—stop calling yourself an MGA!

Jonathan M. Goeringer

Senior Counsel

JillAllison Opell

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The Strategic Role of Managing General Agents in Insurance Distribution

Insurance business review | saturday, july 01, 2023.

Managing General Agents play a crucial role in the insurance distribution value chain, providing a unique value proposition for all stakeholders involved.

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Home > Finance > What Is An MGA Insurance?

What Is An MGA Insurance?

Published: November 17, 2023

Find out what an MGA insurance is and how it can help you manage your finances effectively.

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Table of Contents

Introduction, definition of mga insurance, roles and responsibilities of an mga, types of mga insurance, advantages of mga insurance, disadvantages of mga insurance, how to become an mga.

Welcome to the world of MGA insurance! If you’re new to the insurance industry or simply curious about the various facets of the financial world, you might be wondering, “What is an MGA insurance?” MGA stands for Managing General Agent, and it refers to a specialized type of insurance intermediary that plays a crucial role in the insurance ecosystem. In this article, we’ll delve into the intricacies of MGA insurance, exploring its definition, roles and responsibilities, types, advantages, disadvantages, and how one can become an MGA.

MGA insurance represents a unique partnership between insurance carriers and independent agents. In this collaborative relationship, an MGA acts as an intermediary, bridging the gap between insurance providers and agents. Their primary function is to manage and underwrite insurance policies on behalf of the carrier while allowing agents to access a wide range of specialized insurance products and markets.

As the insurance landscape continues to evolve, MGAs have become increasingly important in providing access and expertise within niche insurance markets. They offer valuable support to carriers by handling various back-end tasks such as policy issuance, claims administration, risk management, and marketing. By doing so, MGAs enable carriers to focus on their core competencies while benefiting from the extended reach and market knowledge possessed by the MGA.

To better understand the role and significance of an MGA, it’s important to grasp the dynamics between the three parties involved: the insurance carrier, the managing general agent, and the independent agents. Insurance carriers rely on MGAs to enhance their distribution channels, as MGAs have established relationships with numerous independent agents. These independent agents depend on MGAs to access a broader portfolio of insurance products and to navigate the complexities of underwriting and policy administration.

Overall, the MGA insurance model offers a win-win situation for all parties involved. Carriers can expand their market presence and tap into niche segments without diverting resources to establish a direct presence. Independent agents benefit from the support, expertise, and access to diverse products that MGAs provide. And, of course, customers gain access to a wider range of insurance options tailored to their needs and preferences.

MGA insurance, also known as Managing General Agent insurance, is a specialized form of insurance intermediary that acts as a bridge between insurance carriers and independent agents. It encompasses a range of services provided by the MGA to support and facilitate the underwriting and distribution of insurance policies. In simple terms, an MGA is an entity that has been granted authority by an insurance carrier to manage certain aspects of the insurance process on their behalf.

The primary function of an MGA is to underwrite and administer insurance policies on behalf of the insurance carrier. This involves evaluating risks, setting premiums, and issuing policies to customers. The MGA essentially steps into the shoes of the carrier and assumes responsibility for policy management and distribution.

MGAs typically specialize in specific lines of insurance, such as property and casualty, marine, professional liability, or specialty lines. They have in-depth knowledge and expertise in these niche areas, allowing them to provide tailored solutions to customers and agents. MGAs often work closely with independent agents, providing them with access to a variety of insurance markets and products that would otherwise be inaccessible.

It’s important to note that the authority granted to an MGA is not the same as being an insurance company. An MGA does not bear the financial risk associated with the policies they underwrite. Instead, they act as a front-end operation for the carrier, managing the policy administration, underwriting, and claims handling.

An MGA insurance arrangement is based on a contractual agreement between the insurance carrier and the MGA. This agreement outlines the responsibilities and authorities of the MGA, including the territories they can operate in, the types of policies they can underwrite, and the applicable commission structure. It also establishes the reporting and oversight mechanisms to ensure compliance with regulatory requirements and carrier guidelines.

In summary, MGA insurance is a specialized form of insurance intermediary that empowers independent agents by providing them with access to a wider array of insurance products and markets. MGAs assume the underwriting and policy administration tasks on behalf of insurance carriers, acting as their representative in the insurance process.

The role of a Managing General Agent (MGA) in the insurance industry is multi-faceted and crucial to the smooth operation of the insurance ecosystem. Let’s explore the various roles and responsibilities of an MGA:

• Underwriting: One of the primary responsibilities of an MGA is underwriting. This involves evaluating risks, determining the terms and conditions of insurance policies, and setting the premiums. The MGA uses their expertise and knowledge in a particular line of insurance to assess the risks associated with a potential policyholder and make informed decisions on coverage.
• Policy Administration: MGAs handle the administration of insurance policies on behalf of the insurance carriers. This includes policy issuance, endorsement processing, policy maintenance, and generating necessary documentation for policyholders. They ensure compliance with regulatory requirements, carrier guidelines, and maintain accurate records of policies and coverage details.
• Marketing and Distribution: MGAs play a critical role in marketing insurance products and facilitating their distribution. They establish relationships with independent agents and educate them about the insurance products they offer. They provide training, sales support, and promotional materials to help agents effectively market the insurance policies to their clients.
• Claims Management: Another responsibility of an MGA is claims management. They handle the processing and settlement of insurance claims, ensuring a smooth and timely resolution for policyholders. They work closely with the insurance carrier’s claims department, collecting necessary documentation, investigating claims, and facilitating communication between all parties involved.
• Risk Management: MGAs assist insurance carriers in managing risk. They evaluate potential policyholders’ risks and advise on appropriate coverage options. They may also offer risk mitigation strategies, loss control services, and help develop underwriting guidelines to minimize risk exposure for the insurance carrier.
• Compliance and Regulatory Oversight: MGAs are responsible for ensuring compliance with applicable laws, regulations, and industry standards. They maintain a thorough understanding of the legal and regulatory landscape and work diligently to meet all compliance requirements. They ensure that the policies they underwrite and the practices they follow align with the regulatory guidelines governing the insurance industry.

Overall, the roles and responsibilities of an MGA encompass a wide range of functions, including underwriting, policy administration, marketing and distribution, claims management, risk management, and compliance. Their expertise and support are instrumental in facilitating the insurance process, empowering independent agents, and ensuring the smooth operation of the insurance ecosystem.

Managing General Agent (MGA) insurance covers a diverse range of specialty insurance lines. MGAs are often experts in specific niches and offer specialized insurance products tailored to meet the unique needs of policyholders. Let’s explore some common types of MGA insurance:

• Property and Casualty (P&C) Insurance: P&C insurance is one of the most common types of MGA insurance. It encompasses coverage for property (such as buildings, equipment, and inventory) and liability (protection against claims of injury or damage caused by the policyholder). MGAs specializing in P&C insurance often focus on specific industries or types of risks, such as construction, hospitality, or professional liability.
• Professional Liability Insurance: Also known as Errors and Omissions (E&O) insurance, professional liability insurance provides coverage for professionals who provide services. This includes lawyers, doctors, architects, engineers, and consultants. MGAs specializing in this type of insurance understand the specific risks faced by professionals and offer coverage to protect against claims of negligence or errors in their professional services.
• Specialty Lines Insurance: MGAs often provide coverage for unique and specialized risks that may not be covered by traditional insurance carriers. These specialty lines can include insurance for events, entertainment industries, cyber liability, directors and officers liability (D&O), environmental liability, and many others. These MGAs have expertise in their respective niche markets and develop insurance products to meet the specific needs of policyholders.
• Program Business Insurance: Program business insurance refers to insurance programs designed for specific industries or groups of policyholders. MGAs partner with carriers to create customized and comprehensive insurance programs that cater to the unique risks and requirements of those insured. Program insurance can be found in various sectors, such as construction, healthcare, sports and recreation, or transportation.
• Excess and Surplus Lines Insurance: Excess and surplus lines insurance covers risks that standard insurance carriers are unwilling to underwrite due to their unique or high-risk nature. MGAs specializing in excess and surplus lines insurance work with non-admitted insurance carriers to provide coverage for policyholders who fall outside the normal parameters of admitted insurance markets. This type of insurance is often used for high-value properties, high-risk businesses, or non-traditional risks.

It’s important to note that these examples are just a snapshot of the various types of MGA insurance available. MGAs continually explore new markets and develop innovative insurance solutions to meet the evolving needs of policyholders.

By specializing in specific lines of insurance, MGAs offer a deep level of expertise and knowledge that allows them to provide customized and comprehensive coverage options to policyholders in niche markets. This specialization gives them a unique advantage in understanding the specific risks associated with these industries and effectively managing them through tailored insurance products.

Managing General Agent (MGA) insurance offers several advantages for both insurance carriers and policyholders. Let’s explore some of the key benefits of MGA insurance:

• Specialized Expertise: MGAs often specialize in specific lines of insurance, allowing them to develop a deep understanding of the unique risks associated with those industries. This specialized expertise enables MGAs to provide tailored coverage options and risk management solutions to policyholders, ensuring they receive comprehensive protection.
• Expanded Market Access: MGAs have extensive networks of independent agents, providing insurance carriers with broader distribution channels. This allows carriers to tap into niche markets and reach policyholders who may not be easily accessible through traditional distribution channels.
• Flexibility and Customization: MGA insurance offers flexibility in underwriting and policy administration. MGAs are often able to customize policies to meet the specific needs of policyholders, providing them with coverage that fits their unique circumstances. This flexibility allows for more tailored solutions and a higher level of customer satisfaction.
• Efficiency and Cost-Effectiveness: By outsourcing underwriting and policy administration tasks to MGAs, insurance carriers can streamline their operations and reduce costs associated with these functions. MGAs are equipped with the expertise, infrastructure, and technology to efficiently manage policies on behalf of carriers, allowing them to focus on core operations and cost-effectively expand their market presence.
• Improved Risk Management: MGAs play a crucial role in assessing and managing risks associated with insurance policies. Their expertise in specific industries or lines of insurance allows them to effectively evaluate risks and implement risk mitigation strategies. This helps carriers minimize their exposure to potential losses and ensures policyholders receive appropriate coverage.
• Access to Diverse Insurance Products: Policyholders benefit from MGAs by gaining access to a wider range of insurance products. MGAs work with multiple insurance carriers and have the ability to offer diverse coverage options that meet the specific needs of policyholders, including specialized or hard-to-find coverage.

Overall, MGA insurance provides a range of advantages for both insurance carriers and policyholders. By leveraging specialized expertise, expanding market access, offering customization, increasing efficiency, improving risk management, and providing access to diverse insurance products, MGAs contribute to a more robust and responsive insurance ecosystem.

While Managing General Agent (MGA) insurance has many advantages, there are also some potential disadvantages to consider. Let’s explore a few of the common drawbacks associated with MGA insurance:

• Higher Costs: Utilizing MGA insurance may result in higher costs compared to traditional insurance channels. As MGAs provide specialized expertise and customized solutions, they may charge higher premiums to cover the additional services and market access they offer.
• Dependency on MGA Performance: Insurance carriers rely on MGAs to effectively underwrite policies, manage claims, and perform other critical functions. In cases where an MGA fails to meet expectations or experiences financial instability, the carrier’s reputation and financial stability may be compromised. Therefore, choosing a reliable and reputable MGA is of utmost importance.
• Limited Carrier Control: Insurance carriers have less control over the underwriting and policy administration processes when working with an MGA. Since the MGA assumes these responsibilities, carriers must place trust in the MGA’s decision-making and management abilities. Lack of direct control may result in potential misalignment of carrier objectives and MGA actions.
• Potential Communication Challenges: With multiple parties involved (insurance carrier, MGA, and independent agents), effective communication can become complex. Lack of clear and consistent communication may lead to delays, misunderstandings, and potential friction between the parties, adversely impacting policyholder satisfaction and carrier-agent relationships.
• MGA Market Consolidation: The MGA insurance market has seen consolidation in recent years, with larger players acquiring smaller MGAs. This consolidation may reduce competition and limit the options available to insurance carriers and policyholders. It is essential for carriers and policyholders to actively monitor market dynamics to ensure a competitive and diverse MGA landscape.
• Potential Conflicts of Interest: Since MGAs act as intermediaries between carriers and policyholders, there is a potential for conflicts of interest to arise. MGAs may have incentives to prioritize certain carriers or products over others, potentially compromising policyholders’ best interests. It is crucial for carriers and policyholders to carefully evaluate the transparency and objectivity of the MGA in managing these potential conflicts.

While these disadvantages should be considered, it’s important to note that the specific challenges and drawbacks can vary depending on the individual MGA and the nature of the insurance relationship. It’s crucial for insurance carriers and policyholders to conduct thorough due diligence when selecting an MGA partner to mitigate these risks and ensure a mutually beneficial relationship.

If you’re interested in becoming a Managing General Agent (MGA), there are several key steps you can take to enter this specialized field of insurance. Here’s a guide on how to become an MGA:

• Obtain Relevant Industry Experience: Start by gaining experience in the insurance industry. Work for an insurance company or an agency to develop a solid understanding of insurance operations, underwriting, policy administration, and sales. This experience will provide the foundation for your future role as an MGA.
• Acquire Insurance Licensing and Education: Depending on your location, you may need to obtain insurance licensing to pursue a career as an MGA. Research the specific licensing requirements in your jurisdiction and complete the necessary education courses and exams. This will ensure that you have the legal authority to transact insurance business.
• Develop Expertise in a Niche Market: Focus on developing expertise in a specific line of insurance or niche market. Gain in-depth knowledge of the risks and challenges associated with that particular industry or specialty. This specialization will set you apart from competitors and enable you to provide valuable insights and tailored insurance solutions to potential policyholders.
• Establish Relationships with Insurance Carriers: Build relationships with insurance carriers that operate within your chosen niche market. Reach out to them, express your interest in becoming an MGA, and showcase your expertise and value proposition. Establishing strong partnerships with carriers is crucial for securing underwriting authority and accessing the insurance products necessary to serve policyholders.
• Create a Business Plan: Develop a comprehensive business plan outlining your MGA operation. This plan should include details about your target market, marketing strategies, risk management techniques, operating procedures, and financial projections. A well-structured business plan will not only guide your MGA’s growth but also demonstrate your preparedness to carriers and potential investors.
• Obtain Necessary Licensing and Appointments: Once your business plan is in place and carrier partnerships are established, work towards obtaining the required insurance licenses and carrier appointments. Carriers will appoint you as an MGA by granting you the authority to underwrite and administer policies on their behalf. Seek the necessary contracts and agreements to formalize your relationship with the carriers.
• Invest in Technology and Infrastructure: As an MGA, it is essential to have robust technology and systems in place to efficiently manage underwriting, policy administration, claims handling, and other business operations. Invest in insurance-specific software, data management tools, and infrastructure to streamline your processes and provide top-notch service to your policyholders.
• Network and Build Relationships: Actively network with industry professionals, attend insurance conferences, and join industry associations. Building a strong network of contacts within the insurance community will not only enhance your industry knowledge but also open doors to potential carrier partnerships and referrals from independent agents.
• Maintain Regulatory Compliance: Stay updated with the latest regulatory requirements and comply with all licensing and reporting obligations. Adhere to industry best practices, ethical standards, and applicable laws to maintain a credible and trustworthy image as an MGA.

Remember, becoming an MGA requires a combination of industry knowledge, expertise, relationships, and dedication. It is a journey that requires continuous learning, adaptability, and commitment to serving the needs of policyholders in your chosen market.

Managing General Agent (MGA) insurance plays a critical role in the insurance industry, providing specialized expertise, expanded market access, and tailored insurance solutions. MGAs bridge the gap between insurance carriers and independent agents, facilitating the underwriting and distribution of insurance policies in niche markets. They bring value to the insurance ecosystem by offering expertise in specific lines of insurance, allowing carriers to tap into new markets and providing policyholders with diverse coverage options.

Throughout this article, we’ve explored the definition of MGA insurance, the roles and responsibilities of an MGA, the types of MGA insurance available, as well as the advantages and disadvantages associated with this insurance model. We’ve also discussed the steps involved in becoming an MGA, highlighting the importance of industry knowledge, relationships with carriers, specialized expertise, and adherence to regulatory compliance.

While MGA insurance presents challenges, such as potential higher costs and limited carrier control, its benefits are significant. Insurance carriers benefit from the expertise and expanded distribution channels that MGAs provide, while policyholders gain access to specialized coverage and tailored solutions to meet their unique needs.

As the insurance industry continues to evolve, MGAs will remain a vital component of the ecosystem. Their ability to adapt to changing market dynamics, embrace innovative technologies, and foster strong relationships with carriers and independent agents will be crucial to their success.

In conclusion, Managing General Agent (MGA) insurance offers a valuable and specialized approach to insurance intermediation. It empowers carriers to access niche markets, provides independent agents with diverse insurance products, and offers policyholders tailored coverage options. As the insurance landscape evolves, the role of MGAs will continue to grow, shaping the future of the insurance industry.

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The rise of the MGA incubator

A growing regulatory burden has made it increasingly difficult for startup insurers to get off the ground. This has led to the rise of the so-called ‘managing general agent (MGA) incubator’ business model—which can be of real benefit to consumers, facilitating innovation and more choice in the market.

That is according to Danny Maleary, the chief executive of Vibe MGA Management (VibeMM), an independent MGA incubator business providing support for insurance entrepreneurs, which was launched by the Vibe group of companies earlier this year, backed by Quantum Strategic Partners (managed by Soros Fund Management) and Pine Brook Partners.

MGA incubators can provide an operational platform and specialist services for new and developing MGAs, offering a quick and cost-efficient solution to enable them to establish themselves and grow their businesses, Maleary says.

He has close experience of the difference this can make. During his 30 years working in the insurance industry for companies including Ambant Underwriting, R&Q’s MGA and Charles Taylor, he has helped launch several similar platforms. They can, he says, help innovative companies and quality underwriters launch products that can make a difference and succeed.

“A big driver for me is how such ventures can help establish something that gives customers what they want—and delivers a product in a different way,” he says. “MGAs have the ability to embrace the latest technology and give customers the journey they are looking for. Many of the incumbent players struggle with that but this helps us see what that journey would look like in the future.”

Smoothing the path

Maleary explains that now is a good time to launch an MGA and more entrepreneurial underwriters are realising this. They have the ability to integrate technology with no issues of compatibility with legacy systems and the opportunity to embrace new means of distribution. On top of this, larger insurers and reinsurers can be willing capacity providers as they seek diversification themselves in a soft market.

The main inhibitor to such a launch are the regulatory burdens, which have grown so much in recent years for companies.

“The incubator takes that problem away,” Maleary says. “A good underwriter doesn’t need to be a compliance expert, that’s our job. They just need a good understanding of what customers want and how to develop a good product.”

The business plan of VibeMM is not limited to the UK. The company wants eventually to embark on an international business plan whereby it helps startups achieve product distribution in other countries and launch fully fledged operations there. To do this, VibeMM will itself consider launching operations in several geographic territories.

“We are looking at having a hub and spoke model whereby we have a presence in continental Europe, North America and the Pacific Rim in the coming years,” Maleary says.

“There is a massive appetite for investors to embrace MGAs and that is a global phenomenon if they have the comfort that businesses are well run and being managed properly with all the regulatory boxes ticked.

“The fact is that MGAs can deliver opportunities they would otherwise not see. We can help facilitate that process.

“When you do something like this as an underwriter, there will be challenges and you will make mistakes. That is part of the journey, but with the right backers and support in place, we can help minimise those mistakes.”

VibeMM has got off to a quick start in life. Since launch in May, it is already working with five clients and Maleary expects that eight to 10 will have joined the platform by the end of the year. This, he stresses, is the tip of the iceberg in terms of the opportunities he has seen.

“We have looked at around 70 opportunities so far and around 30 of those are at different points in the development pipeline,” he says. “We have a good network and we are seeing a lot of opportunities in this current market environment. You have to remember that we are only an incubator—our clients will roll off needing us usually for an average of three to five years, and that’s fine.

“We are not looking for lifestyle businesses—we want them to grow into businesses that will make a difference.” VibeMM is more than an incubator in one sense. As well as effectively supporting its clients, it will also invest or source investment in some of them.

“I have the ability to provide capital to our clients, either directly from us or from investors we know or work with already,” Maleary explains.

“It is about finding the right mixture of what is right for them. We know different investment providers with different risk appetites. It is a question of matching investors with the right business partner.”

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Managing General Agent (MGA)

What does managing general agent (mga) mean.

A Managing General Agent (MGA) is an entity that acts as a broker, or agent, and is given underwriting power on behalf of an insurer.

Insuranceopedia Explains Managing General Agent (MGA)

Insurance brokers tend to act on behalf of the policyholder. However, an MGA acts on behalf of insurance companies.

Therefore, MGAs perform activities which are usually only handled by insurers, such as; underwriting, pricing and settling claims. MGAs are beneficial to insurance companies because they have skills, or expertise, that are not always available internally within the insurance company.

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Insurance Agency Business Plan Template

Written by Dave Lavinsky

Over the past 20+ years, we have helped over 3,000 entrepreneurs and business owners create business plans to start and grow their insurance agencies. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through an insurance agency business plan template step-by-step so you can create your plan today.

Download our Ultimate Insurance Business Plan Template here >

What is an Insurance Agency Business Plan?

A business plan provides a snapshot of your insurance agency as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for an Insurance Agency

If you’re looking to start an insurance agency or grow your existing insurance agency you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your insurance agency in order to improve your chances of success. Your insurance agency business plan is a living document that should be updated annually as your agency grows and changes.

Source of Funding for Insurance Agencies

With regards to funding, the main sources of funding for an insurance agency are personal savings, credit cards, bank loans, and angel investors. With regards to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to confirm that your financials are reasonable. But they will want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate the business.

The second most common form of funding for an insurance agency is angel investors. Angel investors are wealthy individuals who will write you a check. They will either take equity in return for their funding, or, like a bank, they will give you a loan. Venture capitalists will not fund an insurance agency unless it is based on a unique, scalable technology.

Finish Your Business Plan Today!

Your insurance agency business plan should include 10 sections as follows:

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of insurance agency business you are operating and the status; for example, are you a startup, do you have an insurance agency that you would like to grow, or are you operating multiple insurance agency locations already.

Next, provide an overview of each of the subsequent sections of your plan. For example, give a brief overview of the insurance agency industry. Discuss the type of insurance agency you are operating. Detail your direct competitors. Give an overview of your target customers. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.

Company Analysis

In your company analysis, you will detail the type of insurance agency you are operating.

For example, you might operate one of the following types:

• Direct Writer / Captive : this type of insurance agency only sells one insurance company’s products – like Allstate or State Farm
• Independent Insurance Agent : this type of insurance agency is privately-owned, and sells policies with may different insurance companies

In addition to explaining the type of insurance agency you operate, the Company Analysis section of your business plan needs to provide background on the business.

Include answers to question such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include sales goals you’ve reached, new location openings, etc.
• Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry analysis, you need to provide an overview of the insurance business.

While this may seem unnecessary, it serves multiple purposes.

First, researching the insurance industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your strategy particularly if your research identifies market trends. For example, if there was a trend towards weather-related policy purchases, it would be helpful to ensure your plans call for flood insurance options.

The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your insurance company business plan:

• How big is the insurance agency business (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key insurance carriers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your insurance agency. You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your insurance agency business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, households, businesses, etc.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of insurance agency you operate. Clearly baby boomers would want different pricing and product options, and would respond to different marketing promotions than recent college graduates.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, include a discussion of the ages, genders, locations and income levels of the customers you seek to serve. Because most insurance agencies primarily serve customers living in their same geographic region, such demographic information is easy to find on government websites.

Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.

Finish Your Insurance Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Insurance Business Plan Template you can finish your plan in just 8 hours or less!

Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other insurance agencies.

Indirect competitors are other options that customers have to purchase from you that aren’t direct competitors. This includes self pay and public (Medicare, Medicaid in the case of health insurance) insurance or directly working with an insurance carrier. You need to mention such competition to show you understand that not everyone who purchases insurance does so through an insurance agency.

With regards to direct competition, you want to detail the other insurance agencies with which you compete. Most likely, your direct competitors will be insurance agencies located in your geographic region.

For each such competitor, provide an overview of their businesses and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:

• What types of customers do they serve?
• What products do they offer?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide superior insurance agency products/services?
• Will you provide insurance agency products that your competitors don’t offer?
• Will you make it easier or faster for customers to acquire your products?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For an insurance agency business plan, your marketing plan should include the following:

Product : in the product section you should reiterate the type of insurance agency that you documented in your Company Analysis. Then, detail the specific products/services you will be offering. For example, in addition to P&C insurance, will you also offer life insurance?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the menu items you offer and their prices.

Place : Place refers to the location of your insurance agency. Document your location and mention how the location will impact your success. For example, is your insurance agency located next to the Department of Motor Vehicles, or a heavily populated office building, etc. Discuss how your location might provide a steady stream of customers.

Promotions : the final part of your insurance agency marketing plan is the promotions section. Here you will document how you will drive customers to your location(s). The following are some promotional methods you might consider:

• Making your insurance agency’s front store extra appealing to attract passing customers
• Advertising in local papers and magazines
• Reaching out to local bloggers and websites
• Partnerships with local organizations (e.g., auto dealerships or car rental stores)
• Local radio advertising
• Banner ads at local venues

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your insurance agency such as serving customers, procuring relationships with insurance carriers, negotiating with repair shops, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your 500th customer, or when you hope to reach $X in sales. It could also be when you expect to hire your Xth employee or launch a new location.

Management Team

To demonstrate your insurance agency’s ability to succeed as a business, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally you and/or your team members have direct experience in the insurance agency business. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in insurance agencies and/or successfully running small businesses.

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.

Income Statement : an income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenues and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you acquire 20 new customers per month or 50? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets : While balance sheets include much information, to simplify them to the key items you need to know about, balance sheets show your assets and liabilities. For instance, if you spend $100,000 on building out your insurance agency location and/or website, that will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $100.000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement : Your cash flow statement will help determine how much money you need to start or grow your business, and make sure you never run out of money.

In developing your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing an insurance agency:

• Location build-out including design fees, construction, etc.
• Marketing expenses
• Website development
• Payroll or salaries paid to staff
• Business insurance
• Taxes and permits
• Legal expenses

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your store design blueprint or location lease.

Insurance Business Plan Summary

Putting together a business plan for your insurance agency is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the insurance agency business, your competition and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful insurance agency.

Download Our Insurance Business Plan PDF

You can download our insurance business plan PDF here . This is a business plan template you can use in PDF format.

Insurance Business Plan FAQs

What is the easiest way to complete my insurance business plan.

Growthink's Ultimate Insurance Business Plan Template allows you to quickly and easily complete your Insurance Business Plan.

Where Can I Download an Insurance Business Plan PDF?

You can download our insurance business plan PDF template here . This is a business plan template you can use in PDF format.

Don’t you wish there was a faster, easier way to finish your Insurance business plan?

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to learn about Growthink’s business plan writing services .

Other Helpful Business Plan Articles & Templates

Insurance 101: What Is an MGA?

• Insurance 101

Insurance 101: MGAs and MGUs | AgentSync Ever wonder what the difference is between a Managing General Agent (MGA) and Managing General Underwriter (MGU)? Confused by their apparent similarities? Learn what’s in a name in our quick video, or read a more detailed answer here: https://agentsync.io/articles/insurance-101-mgas-and-mgus?utm_source=youtube&utm_medium=video&utm_campaign=youtube_video

In the neverending alphabet soup that is the insurance industry, two important terms beg for distinction. Managing general agency/managing general agent (MGA) and managing general underwriter (MGU) – these two terms frequently spur confusion in the industry, even by those who profess to be one or the other. 

So, what are the differences? What is an MGU anyway? How about an MGA? Agency or underwriter, how much does it matter?

What is an MGA in insurance?

An MGA is a special type of insurance agency/agent or brokerage that is given more authority than a typical agent. MGA and MGU responsibilities include tasks typically carried out by insurers such as binding coverage, underwriting, settling claims, and negotiating contracts.

MGA vs. MGU: What’s the difference?

Long story short, there are no key differences. Some MGAs or MGUs are set up to handle claims, and some terms are more common to different lines of authority, but there is no standard distinction.

Also, to prove that even total insurance industry wonks are a little muddled on the MGA vs. MGU discourse, you may be interested to know the NAIC drafters considered naming the MGA Act the MGU Act because of the synchronicity of managing general underwriter, but ultimately “MGA” Act held out because the term MGA had broader use. True story.

Insurance MGA definition competes with MGU definition

While many industry thinkpieces throw an aside about there being “just a few key distinctions” between MGAs and MGUs, we have yet to encounter any sources that elaborate on what those key distinctions are.

Some sources allude to the idea that one type of managing general something-or-other handles underwriting and claims ( see here , here , or here ). Although, as you’ll read if you check out those sources, some attribute claims handling to MGAs while others attribute it as exclusive to MGUs, which is hardly useful.

Other sources (such as this one or this one ) help out by saying MGU is a term more common to companies working in the life and health insurance business, while property and casualty insurance businesses are more likely to use MGA.

Both these so-called distinctions still leave readers asking, what is the difference between an MGA and MGU in insurance?

The answer we come away with is: There isn’t a difference. MGA or MGU, they both denote the same kind of business. To truly be an MGA or MGU, you must serve as an insurance agent or broker and, most importantly, you have the authority to underwrite insurance contracts on behalf of a carrier or carriers

How to know if you are an MGA

As we’ve covered in our post on Understanding the MGA Act , the 2002 NAIC model legislation regulating MGAs is the best place to figure out whether you are an MGA/MGU. Because many agencies that consider themselves MGAs have found they are, in fact, not, the NAIC’s MGA Act is helpful and clear in saying that, regardless of what you call yourself, what matters is how you are regulated. 

Your organization will be held to an MGA standard if you aren’t an employee of, manager for, underwriter on behalf of, or attorney for an insurer AND you are handling the total insurance business including underwriting as a separate entity, responsible for reinsurance, pay out claims for cases larger than $10,000, and produce and underwrite at least 5 percent of the policyholder surplus.

Clear as mud, right?

Basically, as far as an insurance MGA definition, if your organization is not legally part of the insurer, but you work with them in a way that puts you on the hook for underwriting and paying out insurance contracts, you might be an MGA.

Where do MGAs work within the distribution channel?

Like agencies, MGAs/MGUs fall somewhat in the middle of the insurance distribution channel. MGA’s typically work with insurers to formulate products that they then deliver to agents or directly to insureds. They can also be responsible for communicating with clients and attending to their needs. 

To engage the brain a little differently, close your eyes and imagine a two-circle Venn diagram. If one circle is a list of carrier responsibilities and the other circle is agency responsibilities, that marquise-shaped middle of overlap, where underwriting and recruiting downstream sales funnels live, that is where MGAs are in the insurance distribution channel.

History of the insurance MGA/MGU

An MGA in insurance (or MGU or whatever you’d like to call them) arose as a downstream result of the westward expansion. As businesses and commerce connected the East and West Coasts, insurance giants traditionally located in the Northeast looked to expand their business services across the continent. The Industrial Revolution and surges forward in communication technology enabled more collaboration with western states, as well.

However, most insurers weren’t interested in setting up shop with fully equipped physical locations or brand new ventures – building a brand new insurance company and keeping cash reserves on hand is not cheap . Instead, insurers developed MGAs/ MGUs, organizations that could build insurance policies specific to a region or even to a specific demographic.

Of course, as MGAs formalized and became more common, they somewhat became a Petri dish of insurance, a place to try out new policies and product types. Some MGAs were less than scrupulous about their reinsurance requirements, and found themselves under a regulatory microscope as a result . Yet, being a Petri dish of insurance also has massive benefits – many innovations of the last century were made because of the freedom of MGAs’ underwriting.

Current use case of MGA/MGU

MGAs and MGUs now fill two roles, one of specialization and one as the ongoing Petri dish.

While general life insurance, health insurance, property and casualty insurance, etc. may be obtained from a carrier, the carriers often have MGAs and MGUs fill the roles for more specialized insurance needs. 

Consumers may not be aware of it, but frequently those who are looking for particular niche insurance are working with MGAs that can underwrite for the very specific risks of a circumstance or situation. For example, if you run a golf business, having a general liability policy isn’t going to cut it. And you certainly don’t want to deal with a full auto policy on your fleet of golf carts. 

You’re more likely to have to deal with repairing and replacing motors from a cart rolling into a pond as opposed to worrying about the hazards of the open road. If you contact a carrier, they’ll likely refer you to an MGA partner that works exclusively with golf courses, so you can get coverage – and underwriting – that is most appropriate for your business.

That MGA may have various coverage options that are backed by a few different carriers. The point is the MGA’s particular experiences and niche specialty allows it to underwrite a policy tailored to your needs as opposed to you buying an expansive policy that covers a lot of unnecessary situations.

How do insurance companies benefit from working with an MGA?

MGAs can actually bring a lot of benefit to the agencies that work with them. One of the biggest being the access that working with an MGA can provide. Changing risk appetites and underwriting guidelines mean most agencies are limited in the number of carrier appointments they can secure. An MGA helps by broadening an agency’s reach to specialty insurers the agency may not have otherwise been able to reach. 

On top of expanding your reach, MGAs can provide various other benefits to an insurance agency including sales and marketing support as well as the advantage of online platforms and automated solutions and tools that can help streamline things like claims processing and renewals. Overall, MGAs can offer agencies the support they need to stay on top of industry challenges and remain competitive.

How MGAs foster technological innovation in the insurance industry

MGAs and their smaller sizes and personalized underwriting teams still allow them to be places of experimentation, as well. In fact, even as regulations have reigned in some of the riskier MGA practices that caused consternation in the industry in the 1980s, MGAs are on the rise. In fact, one organization that exclusively studies that segment of the insurance market says the number of MGAs in insurance has nearly doubled since 2012 alone.

This aggressive growth and speedy activity of startups, mergers and acquisitions play into their heavy influence in insurtech. While MGAs have long been places of innovation for insurance policies and distinctive insurance underwriting, they are also a great place of enterprise for digital processes and new technologies.

How can insurance MGAs benefit from technology?

As is the case with most of the insurance industry’s key players, MGAs that leverage modern technology solutions will reap some pretty mighty benefits. By integrating these automated solutions into everyday workflows, MGAs could see:

• Quicker and more efficient operations
• Reduced risk 
• Reduced costs
• Rapid growth, not at the expense of compliance
• Improved producer and employee experience

As those new technologies evolve, inevitably, so too will the role of MGAs and MGUs in the insurance distribution pipeline. Here’s to the next generation of an ever-evolving industry.

Beef up your MGA compliance tools; check out how AgentSync can help .

How do I know if an MGA/MGU handles claims?

This varies from business to business, and will depend on what is spelled out in the terms of that organization’s contract with its carrier(s).

Can an MGA/MGU underwrite for products of multiple carriers?

Yes. An MGA/MGU can underwrite for products of multiple carriers.

If an MGA contracts with a carrier to sell that carrier’s products, but doesn’t underwrite those products, is it actually an MGA?

Maybe. An organization could act in an MGA capacity in a relationship with one or more carriers while also acting in an agency capacity with others. For instance, XYZ MGA could underwrite and sell private swimming pool insurance for MegaCorp Carrier, but also subcontract a bunch of agents to sell GigaCorp Carrier’s home insurance contracts.

• Distribution Growth

MGA's Guide to Technology

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Future-proof your business.

Navigating the Managing General Agency Agreement Managing General Agents (MGAs)

The complexity of insurance program business.

Carriers are increasingly turning to Managing General Agents (MGAs) as a source of new business within the property-casualty industry. Carriers may use MGA, Managing General Underwriter (MGU), or program business, but all three terms refer to a relationship between an insurance carrier and an insurance broker. In this article, we will use either MGA or program business.

An Overview of the MGA Relationship

Managing General Agent business can run the gamut from commercial trucking risks to emerging coverages for cannabis oils and medical marijuana. Carriers consider MGA relationships due to talent and infrastructure constraints that might prevent a carrier from managing a line of business in-house. Whether due to a lack of skilled underwriters in a particular area or the need for specialized claims handling, carriers may consider awarding binding authorities to agencies and brokerages with the skills needed to manage that line of business.[1]

Ordinarily, the MGA has underwriting and policy issuance authority, but some MGAs also have claims-handling authority. The MGA also will market the business through its website and attendance at trade shows, provide policy maintenance and service and manage the premium submissions and payments to the carrier. The binding authority agreement – the contract between the insurer and the MGA – outlines the MGA’s responsibilities.

The Wholesale and Specialty Insurance Association (WSIA) is the trade organization representing members of the MGA insurance system, known as “wholesale insurance.” Over 800 member firms operate today in the organization, which provides education, recruitment, advocacy and support to the wholesale and specialty/surplus lines insurance industry. WSIA carefully vets its members prior to admission to ensure they will adhere to WSIA’s high service standards.

An Overview of Program Business

Program business represents approximately 10 percent of the commercial insurance premium volume, according to Conning, a global investment management firm working primarily with the insurance industry. According to Aon Benfield, MGAs produced $41.6 billion in premiums in 2015 and $42.4 billion in 2016.[2] MGA business has “significantly outpaced overall P&C growth during a five-year period.”[3] Excepting crop insurance, MGAs have “strongly outperformed the P&C markets in loss ratios,” according to Aon Benfield.[4]

Growth in MGA business occurs primarily in general liability insurance. However, property, inland marine and umbrella coverage, along with motor liability and workers compensation, make up a great deal of MGA growth. Personal lines coverage comprises a much smaller percentage of program business.

This business, however, is not without perils. Insurers have faced significant losses in transit business and casualty as well as in run-off business from various notable failures. In reaction to some of these failures, the industry began to change MGA agreements to include sliding-scale commissions, increased audits and a closer alignment between insurer and MGAs.

MGA Distribution Model

While there have been some significant program failures, the industry remains committed to the MGA distribution model, and 2014 saw a great deal of expansion from Everest Re, Monarch and Validus. Mergers and acquisitions of MGAs are in high gear, with Arthur J. Gallagher, AmWins, a wholesale brokerage, and others acquiring several MGAs in 2013 – 2014.

The National Association of Insurance Commissioners (NAIC) Managing General Agents Act is a model act accepted by 49 states. The MGA Act outlines the qualifications and procedures for resident and non-resident producers who achieve Managing General Agent status. The Act delineates the licensing requirements, the duties of insurers, the right of authorities to examine the MGA, penalties and liabilities as well as rules and regulations MGAs must follow.

New York is the only state that has not adopted the NAIC model.[5] According to one attorney who lectures frequently on regulatory practices, “New York has typically not enacted model laws as they believe theirs are equivalent or stronger.” The MGA Act is available here .

Risks Associated with MGA Business

One of the most important requirements of managing program business is to ensure all involved agents comply with the underwriting guidelines. The guidelines should describe the characteristics of a target risk.

Here are some examples of practices that can put the relationship between an MGA and the carrier in jeopardy.

• Failure to follow the carrier’s underwriting guidelines as set forth in the agreement
• Failure to attach appropriate policy language or endorsements required by the company
• Violating licensing laws in any state where you conduct business
• Allowing brokers to issue binders/endorsements/certificates of insurance in violation of the agreement
• Failure to follow state or company cancellation guidelines or to follow other state or federal surplus lines laws
• Failure to follow the agreement’s binding directions
• Failure to cancel as requested by insured or premium finance company
• Improperly cancelling or non-renewing policy

MGAs and Coverage Disputes

Coverage disputes in MGA business can be complex. While the program administrator is an independent contractor of the insurer, the MGA can expose the carrier to significant risks. Anywhere along the program chain, a mistake or inaction by one party can tie the carrier and the MGA to the error, even if they have done nothing wrong.

In one example of a misstep in MGA business, the MGA wrote a workers compensation policy for an insured. When the policy came up for renewal, the retailer provided a timely quote to the insured. However, the insured’s risk manager advised the retail agent that she had to speak to the owner of the company, who was out of town.

The MGA sent a notice of non-renewal, but the insured claimed she did not receive that notice. Ten days after the policy expired, the insured called the retail agent to renew. However, a fatality and another loss had occurred during that ten-day period. The MGA held firm on its refusal to renew. The insured sued the retail broker and the MGA for failure to provide proper coverage. In the ensuing litigation, the court in its summary judgment ordered the MGA to provide coverage until the time the insured could place coverage elsewhere and to pay the claims for the fatality and another loss that occurred during that period. Mistakes made by any party in the distribution chain can be problematic for the MGA and the carrier.

The Benefits of MGA Relationships

The benefits for insurers to do business with MGAs are numerous. For larger carriers like Zurich, which is very active in program business, entering emerging markets like cannabis coverage or active shooter coverage would be cumbersome. In a smaller organization with the correct infrastructure and management team in place, an MGA can move quickly to take advantage of these rapidly expanding markets.

MGAs that have been in business for a time have extensive databases of retail agents they can use to market a new program. As long as the carrier is confident in the MGA’s record of accomplishment with other lines of business, an insurer can quickly deploy a new program for maximum profitability. Experts in MGA management report that while many MGAs write nationally, many insurers prefer to develop relationships with MGAs on a local basis when that MGA has a strong reputation and a deep retail network.

Additionally, despite the recent focus on underwriting automation, it is extremely difficult to automate the underwriting of specialty risks, which still requires “judgment underwriting.” Therefore, experts predict that MGAs will remain a vital and profitable part of the insurance marketplace.

The Complex Nature of MGA Agreements and Performance

MGA relationships can be complex. The structure of the compensation agreement between the insurer and the MGA is important. Many insurers do not require the MGA team to contribute financially, or have “skin in the game,” which has contributed to past program failures. The MGA receives roughly 12 to 15 percent commission regardless of the program’s profitability. This may incentivize members of the managing team to write business without a thorough underwriting analysis.

MGAs should be aware of cases where they receive a portion of the reinsurance profit contingent in addition to the basic commission. Depending on how carriers arrange the reinsurance contingent commission, the MGA can receive large commission checks in the early years before losses mature only to be stuck later with long-term losses and reinsurance commission debits as loss costs develop.

From the start, both parties to the MGA agreement must structure the right deal with the best incentives. Contract or underwriting mistakes can put a binding authority at risk or lead to errors and omissions claims. Robert Anderson and The Anderson Edge has decades long experience in negotiating and performing as an MGA for multiple carriers. It can assist counsel in unraveling the multi-level insurance transactions that are characteristic of the MGA structure.

Footnotes :

1 Carrier, Benoit (2014). MGAs: How They Work, Industry Results, Market Trends. [PowerPoint slides]. Retrieved from https://www.casact.org/community/affiliates/MAF/1017/MGA.pdf. 2 Ibid. 3 Ibid. 4 Ibid. 5 Karlinsky, F.E. (2013). Managing General Agents: Overview of U.S. Regulation [PowerPoint slides]. Retrieved from http://www.imc-seminars.com/uploads/papers/MGA%20USA%20Regulation%20-%20Fred%20Karlinsky.pdf.

Insurance Business Plan Template

Written by Dave Lavinsky

Business Plan Outline

• Insurance Business Plan Home
• 1. Executive Summary
• 2. Company Overview
• 3. Industry Analysis
• 4. Customer Analysis
• 5. Competitive Analysis
• 6. Marketing Plan
• 7. Operations Plan
• 8. Management Team
• 9. Financial Plan

Insurance Agency Business Plan

You’ve come to the right place to create your own business plan.

We have helped over 100,000 entrepreneurs and business owners create business plans and many have used them to start or grow their insurance companies.

Essential Components of a Business Plan For an Insurance Agency

Below we describe what should be included in each section of a business plan for a successful insurance agency and links to a sample of each section:

• Executive Summary – In the Executive Summary, you will provide a high-level overview of your business plan. It should include your agency’s mission statement, as well as information on the products or services you offer, your target market, and your insurance agency’s goals and objectives.
• Company Overview – This section provides an in-depth company description, including information on your insurance agency’s history, ownership structure, and management team.
• Industry Analysis – Also called the Market Analysis, in this section, you will provide an overview of the industry in which your insurance agency will operate. You will discuss trends affecting the insurance industry, as well as your target market’s needs and buying habits.
• Customer Analysis – In this section, you will describe your target market and explain how you intend to reach them. You will also provide information on your customers’ needs and buying habits.
• Competitive Analysis – This section will provide an overview of your competition, including their strengths and weaknesses. It will also discuss your competitive advantage and how you intend to differentiate your insurance agency from the competition.
• Marketing Plan – In this section, you will detail your marketing strategy, including your advertising and promotion plans. You will also discuss your pricing strategy and how you intend to position your insurance agency in the market.
• Operations Plan – This section will provide an overview of your agency’s operations, including your office location, hours of operation, and staff. You will also discuss your business processes and procedures.
• Management Team – In this section, you will provide information on your insurance agency’s management team, including their experience and qualifications.
• Financial Plan – This section will detail your insurance agency’s financial statements, including your profit and loss statement, balance sheet, and cash flow statement. It will also include information on your funding requirements and how you intend to use the funds.

Next Section: Executive Summary >

Insurance Agency Business Plan FAQs

What is an insurance agency business plan.

An insurance agency business plan is a plan to start and/or grow your insurance business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.

You can  easily complete your insurance agency business plan using our Insurance Agency Business Plan Template here .

What Are the Main Types of Insurance Companies?

There are a few types of insurance agencies. Most companies provide life and health insurance for individuals and/or households. There are also agencies that specialize strictly in auto and home insurance. Other agencies focus strictly on businesses and provide a variety of liability insurance products to protect their operations. 

What Are the Main Sources of Revenue and Expenses for an Insurance Agency Business?

The primary source of revenue for insurance agencies are the fees and commissions paid by the client for the insurance products they choose.

The key expenses for an insurance agency business are the cost of purchasing the insurance, licensing, permitting, and payroll for the office staff. Other expenses are the overhead expenses for the business office, utilities, website maintenance, and any marketing or advertising fees. 

How Do You Get Funding for Your Insurance Agency Business Plan?

Insurance agency businesses are most likely to receive funding from banks. Typically you will find a local bank and present your business plan to them. Other options for funding are outside investors, angel investors, and crowdfunding sources. This is true for a business plan for insurance agent or an insurance company business plan.

What are the Steps To Start an Insurance Business?

Starting an insurance business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.

1. Develop An Insurance Business Plan - The first step in starting a business is to create a detailed insurance business plan that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast.  

2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your insurance business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your insurance business is in compliance with local laws.

3. Register Your Insurance Business - Once you have chosen a legal structure, the next step is to register your insurance business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws. 

4. Identify Financing Options - It’s likely that you’ll need some capital to start your insurance business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms. 

5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations. 

6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events. 

7. Acquire Necessary Insurance Equipment & Supplies - In order to start your insurance business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation. 

8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your insurance business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising. 

Learn more about how to start a successful insurance business:

• How to Start an Insurance Business

Where Can I Get an Insurance Business Plan PDF?

You can download our free insurance business plan template PDF here . This is a sample insurance business plan template you can use in PDF format.