What is an MGA?
A managing general agent (MGA) or a managing general underwriter (MGU) is a specialized type of insurance agent/broker who is granted underwriting authority from an insurer. Specific functions in the insurance sector such as binding coverage, underwriting and pricing, appointing retail agents within a particular area, and settling claims that are generally handled by the insurers can also be performed by MGAs.
Unlike traditional insurance agents, MGAs also play role in unusual lines of coverage, such as professional liability and surplus lines of insurance. Generally, MGAs execute the insurance-related activities in which specialized expertise is required to underwrite the policies. However, MGAs are also involved in some personal lines business, especially in geographically separated areas (e.g., western Oklahoma, North Dakota) where insurance companies are unable to set up their own branch office.
MGAs can benefit insurers in a way as the expertise MGAs retain is not always available within the insurer’s home or regional offices. Moreover, sometimes it would be more expensive for the insurance companies to develop on an in-house basis
How MGAs work as a distribution channel in the Insurance Sector
Most of the time the wholesale brokers act as a mediator between a retail broker and an insurer. Traditional wholesale brokers work with insurers to attain specialized coverage for clients while having no direct or indirect contact with the insured. Rather than this, an MGA is one type of wholesale broker that operates on the behalf of an insurer while also working closely with clients to attend to their requirements. Some other types of wholesalers are surplus line brokers who work with retail agents and insurers to obtain coverage for the insureds. The thing that makes MGAs unique is their binding authority from the insurer.
An MGA delivers and services an insurer’s product to both insurance agents and directly to the clients. MGAs can work with several insurance companies to formulate a specific mix of products to deliver to agents/brokers or directly to consumers.
How MGAs benefit insurance companies and the insurance agents
According to IRMI, working with MGAs can be helpful for the insurers, because insurers can pass their time-consuming and complicated tasks to an outside entity that already has the knowledge to address them.
MGAs tend to deal in multiple lines of coverage such as professional liability, employee benefits, or surplus lines. Though MGAs can be active in any line of insurance, and work with all types of insurers. Thus, if an insurer wants to analyze a particular line of business but does not want to take on the risks or uncertainty of doing so, they can turn to an MGA to offer up that expertise, and give the MGA the authority to underwrite and issue speciality policies because they are already familiar with the risks.
Similar to insurers, insurance agents can also gain expertise about specific types of insurance products on more attractive pricing by working with MGAs. Agents take the benefits from the MGAs to gain entry to markets and insurance companies that could be challenging to access on their own. Because of the smaller size of the MGA business, there are fewer barriers for a broker to communicate with them. Moreover, agents can earn higher commissions by working with an MGA because they have a diverse network of insurers that allows agents to review the commission structure and have the option to sell insurers’ products at the best rates.
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Originally published at https://blog.webnersolutions.com on March 7, 2022.