What’s an Insurance MGA? A Guide to Managing General Agents

In the complex world of insurance, you’ve likely come across the term “MGA” without knowing exactly what it means. MGA stands for managing general agent, a specialized role within insurance markets. Keep reading to understand what an MGA is, what they do, and how they can benefit insurance brokers and policyholders.

What is an MGA?

An MGA, or managing general agent, is a type of insurance wholesaler that has been granted underwriting authority by one or more insurance carriers. This allows the MGA to perform certain functions usually reserved for the insurance company itself.

Specifically, key characteristics of an MGA include:

• Authority to underwrite and bind policies on behalf of insurers
• Ability to settle claims for policies they underwrite
• Appoint retail agents and brokers in designated territories
• Specialize in niche insurance markets and products
• Wholesale distribution model focused on selling to brokers, not consumers directly

The MGA essentially serves as an extension of the insurer. They use their expertise in specialized insurance markets to source and underwrite policies the carrier may not be able to on its own.

The term MGU or “managing general underwriter” is sometimes used as well, referring specifically to the underwriting authority granted to these wholesalers. But MGA is the most common industry term.

Why Insurers Use MGAs

There are several key reasons insurance carriers partner with and utilize MGAs as part of their business models:

• Access niche markets: MGAs allow insurers to access niche sectors and products outside their normal purview through the MGA’s specialized expertise.

• Improve distribution reach: By leveraging MGAs’ networks and relationships, insurers can expand their distribution into new territories and market segments.

• Remain nimble: MGA arrangements allow insurers to stay flexible and respond rapidly to changes in certain insurance markets.

• Cost savings: An MGA’s infrastructure and underwriting knowledge can minimize an insurer’s expenses to underwrite unique risks independently.

• Claims handling: MGAs may take on claims adjustment and settlement for the policies they underwrite, reducing the carrier’s internal claims processing costs.

Essentially, MGAs allow insurance companies to respond to market opportunities, expand their capabilities, and operate more efficiently.

Key Functions of an MGA

While giving the MGA underwriting and other authority, insurers do maintain oversight and set guidelines for the MGA’s scope. But within those guardrails, some key functions typical MGAs can provide include:

• Underwriting authority: Assess risks and bind policies inclusive of pricing, terms and eligibility

• Policy administration: Coordinate policy issuance, premium collection, endorsements, renewals, cancellations

• Claims handling: Administer and settle claims for policies underwritten

• Risk selection: Choose which risks to underwrite that fit the insurer’s guidelines and appetite

• Product development: Design customized insurance products for niche sectors

• Agent appointment: Appoint and manage relationships with retail agents in designated areas

• Broker partnerships: Develop relationships with brokers to distribute products

• Regulatory compliance: Maintain licenses and ensure adherence to state laws and regulations

MGAs essentially act as the back-end insurance operations arm for the carriers they work with. This allows the insurance company to focus on other strategic initiatives.

MGA vs Insurance Company

Given their underwriting authority, MGAs may appear similar to insurance carriers. But there are a few key differences:

• Insurance contracts issued in insurer’s name: The policies are contracts between the insurer and policyholder. The MGA binds policies on the insurer’s behalf.

• MGA assumes no policy financial risk: The insurer retains all liability for claims. MGAs do not take balance sheet risk.

• MGA has limited authority: The insurer sets guidelines on the MGA’s allowable scope and activities through contracts.

• MGA represents multiple insurers: Most MGAs partner with several insurance companies, while insurers only represent themselves.

So while MGAs take on core insurer functions, the insurance company still oversees them and ultimately bears responsibility for underwriting outcomes and claims. The MGA simply provides services to the insurer under contract.

How Agents & Brokers Utilize MGAs

For independent insurance agents and brokers, partnering with MGAs can provide significant advantages:

• Access niche or surplus lines markets: MGAs provide access to specialty products not available from standard carriers.

• Obtain coverage for hard-to-place risks: MGAs have authority and expertise to underwrite unique exposures other carriers may decline.

• Improve insurer relationships: MGAs can match risks to the most appropriate insurer and secure coverage on the broker’s behalf.

• Save time: MGAs have direct carrier access and specialized expertise so brokers spend less time finding markets.

• Expand offerings: Brokers can use an MGA’s specialized product expertise to expand coverage offerings to clients.

Developing a working relationship with an MGA helps brokers serve clients, win new business, and operate more efficiently. Finding the right MGA partner is critical to maximize the benefits of these arrangements for independent agencies.

Types of MGAs

There are a few different types of MGAs that have emerged:

• Retail MGAs: Contract with retail agents to originate and underwrite policies. Examples are homeowners or auto MGAs partnered with local agents.

• Wholesale MGAs: Distribute through brokers and specialize in more commercial and niche sectors. Many focus on cyber, professional liability, or other specialized coverage.

• Cat MGAs: Specialize specifically in catastrophe property coverage like flood or earthquake insurance.

• Program MGAs: Administer standardized programs for affinity groups or industry segments, such as professional associations.

• Risk-bearing MGAs: Take balance sheet risk by issuing policies in their own paper and then retroceding to reinsurers. Less common.

The most common models are retail and wholesale MGAs working within specific market sectors. Wholesale MGAs that use brokers for distribution are the type most relevant to commercial lines agencies.

Benefits of Using an MGA

Here are some of the top benefits MGAs can provide to retail independent brokers and agents:

• Faster policy placement: MGAs can quote and bind niche coverages in days rather than weeks

• Specialized expertise: Taps into UKdicators with deep product and segment knowledge brokers may lack

• Access niche markets: Reaches unique capacity for challenging risks that standard insurers won’t assume

• Improved coverage options: Ability to tailor more customizable solutions to address client needs

• Wider carrier selection: MGAs provide access to numerous insurer partners

• Streamlined workflows: Leverage MGAs’ technology and infrastructure for greater efficiency

• Claims support: Settlement services on MGA-written policies reduces broker claims workload

• Expanded commission potential: Brokers earn standard commission on MGA-sourced policies

Overall, utilizing MGAs allows independent agents and brokers to enhance service for their customers. They gain efficiency and leverage specialized expertise and access.

Finding the Right MGA Partner

Not all MGAs are created equal. Finding the right partner as a broker involves assessing:

• Experience: Look for longstanding market presence and carrier relationships

• Reputation: Ask colleagues for referrals and research their reputation

• Carrier partners: Review the number of insurers they represent and their financial strength

• Capabilities: Ensure they specialize in your target niche sectors and coverage types

• Licensing: Verify proper licensing for your required lines of business and states

• Claims servicing: Understand their claims handling process and policyholder satisfaction

• Technology: Evaluate their online tools and integration capabilities to maximize efficiency

• Resources: Look for MGAs that provide helpful product info, marketing materials, and compliance updates

Taking the time to carefully vet and select your MGA partners is key to realizing the full benefits over the long-term.

Are MGU and MGA the Same?

MGU and MGA are often used interchangeably, and they do refer to the same type of entity. But the terms focus on slightly different aspects:

• MGA = Managing General Agent: Refers to their broad agency function of binding and servicing policies.

• MGU = Managing General Underwriter: Refers specifically to their underwriting authority from a carrier.

Most industry professionals default to using the term MGA. But some may use MGU to emphasize the underwriting aspect. In general, MGA and MGU can be considered the same type of insurance intermediary.

The Bottom Line

A managing general agent or MGA is a specialized wholesale broker that insurance carriers authorize to underwrite, rate, bind, and service policies on their behalf. MGAs provide valuable access to niche markets and specialized capabilities.

For retail independent agents and brokers, partnering with the right MGA can significantly improve service to clients, enhance efficiency, and expand revenue opportunities. But not all MGAs are created equal. Taking time to carefully assess and select your MGA partners based on reputation,