What is an MGA in Insurance?

To understand MGA insurance, you need to understand the inner workings of the insurance industry. Retail Agents, wholesale brokers, and MGAs all operate within the industry, catering to various needs.

Retail Agents interact directly with insurance clients. They evaluate risks, explain policies, and work with their appointed insurance carriers.

Wholesale brokers are intermediaries, working between traditional insurance agents and insurance carriers. When a client has a unique or risky situation, wholesale brokers find products to help agents support their clients.

Through this blog, we’ll discuss how MGAs fit into the mix, what they do, and how MGA insurance benefits insurance agents.

WHAT IS AN MGA?

Managing General Agent, or MGA, is a wholesale insurance broker/agent specializing in specific insurance products and/or industries. MGAs have underwriting authority to administer or negotiate the policies on behalf of an insurance carrier.

MGAs evaluate risk for pricing and have the authority to bind coverage, underwrite, or appoint retail agents. In short, the MGA acts as the insurance carrier.

MGA insurance refers to insurance products provided by an MGA. This insurance caters to unique needs and functions, filling gaps in the traditional insurance product market.

What is the Role of an MGA in Insurance Distribution?

The insurance distribution chain is a complex machine with lots of moving parts. One of the pieces in the structure is the MGA. The MGA creates a bridge between insurance carriers and insurance retailers or agents. They don’t work directly with clients but rather underwrite and bind coverage for insurance companies.

MGA VS. TRADITIONAL BROKERS/AGENTS

Traditional brokers work between clients and insurance companies. They act as an intermediary, bringing policies to clients. Brokers understand the policies sold by insurance companies. They help clients understand the best coverage for them.

MGAs don’t work with insurance consumers. They can sell insurance products and underwrite some risk types. They work between insurance companies and insurance brokers, or agents. MGAs have underwriting authority whereas traditional brokers do not.

Working with MGAs: Benefits for Agents

Working with MGAs provides agents with an intermediary and a specialist. For agents, an MGA can offer products outside of the traditionally available ones. Here are a few of the major benefits agents receive:

• Access to specialty markets: MGAs have diverse portfolios. They operate in niche segments of the market. They are also localized experts with deep knowledge of the niches they represent.
• Highly customized insurance plans: MGAs provide flexible access to otherwise rigid insurance policies because of their underwriting authority. They offer tailored and innovative solutions for diverse market needs.
• Simplified underwriting process: A dual role of underwriting and distribution lets MGAs expedite the entire underwriting process. Their specialized knowledge of unusual risks or industries lets them create realistic prices and terms.

MGAs vs. Wholesale Insurance Brokers

MGAs are very similar to wholesale insurance brokers, with a few differences. Wholesale insurance brokers:

• Act as intermediaries: Wholesale insurance brokers act as a go-between for retail agents and insurance carriers. They give great market access and expertise to retail agents.
• Focus on niche risks: As a wholesaler, they have access to specialty markets not otherwise accessible to retail agents. Seek the best coverage: Wholesale brokers provide options from various carriers. They aren’t limited to a single brand or niche of insurance.
• Have a broad market: Wholesale brokers have access to expertise in unique industries and insurance products. They understand the way these products work, and the types of risks involved.

Managing General Agents do some of this, and they also:

• Have special authority: MGAs can be given authority by insurers to underwrite and bind policies. In this way, they not only provide niche products but can customize them to suit consumer needs on behalf of an agent.
• Have a say in cost: MGAs have more control over pricing and underwriting decisions than a wholesale insurance broker. They can modify set insurance plans to fit unique needs.
• Specialize in niche products: MGAs specialize in narrow lines of insurance. They know the products in these lines well and understand the industries enough to modify coverage as needed.

The core difference between MGAs and wholesale insurance brokers is that wholesale brokers connect retail agents with a wide range of insurance carriers. MGAs have underwriting authority of their own to directly issue policies.

MGAs adjust pricing and coverage based on their own assessments of an agent’s client. They offer a level of flexibility that wholesale brokers don’t. However, wholesale brokers usually represent a greater number of insurance carriers and products to offer to a retail agent.

What is Delegated Authority in Insurance?

Delegated authority refers to the power given by an insurance carrier to a Managing General Agent (MGA) to act on its behalf in certain areas, such as underwriting, pricing, and binding policies. This authority is granted through an agreement that outlines the specific powers the MGA has within the insurer’s guidelines.

An MGA with delegated authority typically performs tasks such as:

• Underwriting risks: Evaluating risks and determining whether they are insurable and under what terms.

• Binding coverage: Issuing insurance policies on behalf of the insurer without the need for direct approval from the carrier.

• Pricing and policy terms: Setting prices and tailoring coverage to better match the needs of specific markets or niches.

The delegation of these responsibilities allows insurers to offer more flexible, specialized insurance solutions, while also empowering MGAs to act quickly and efficiently without waiting for approval from the primary carrier. This relationship streamlines the insurance process, allowing for more tailored services and faster turnaround times for policyholders and agents alike.

How MGAs Add Value to Insurance Carriers

MGAs don’t just benefit agents and brokers; they also offer significant advantages to insurance carriers. MGAs provide:

• Market Access: Carriers can expand their reach by working with MGAs that have access to specialized or niche markets they might not directly serve.

• Risk Management Expertise: Many MGAs specialize in particular industries or types of risk, which allows them to assess and manage risks more effectively than traditional insurers, ensuring more accurate pricing and underwriting.

• Operational Efficiency: By delegating specific responsibilities to MGAs, insurance carriers can reduce their operational burden and streamline their processes, focusing their resources on broader market initiatives.

Types of MGAs: Specialized vs. Generalist

Not all MGAs are the same. They can broadly be classified into two categories:

1. Specialized MGAs: These focus on specific industries or lines of insurance. For instance, an MGA may specialize in insuring tech companies, medical professionals, or high-risk industries. Their expertise and in-depth knowledge of these markets make them invaluable partners for agents working with clients in those sectors.

2. Generalist MGAs: These handle a broader range of insurance products, typically offering more flexible solutions across a variety of industries. They may be suited for agents who need access to a wide range of coverage options without specializing in a specific field.

Understanding whether a specialized or generalist MGA is right for you depends on the needs of your clients. Specialized MGAs offer deep knowledge of a niche, while generalists provide broader coverage for diverse client portfolios.

The Role of MGAs in Claims Handling

While MGAs are often associated with underwriting and policy creation, they also play a role in the claims process. Depending on the specific authority granted by the insurance carrier, an MGA may handle claims processing, including:

• Claims assessment: Evaluating and verifying the legitimacy and extent of claims.

• Claims approval and payment: In some cases, MGAs may have the authority to approve claims up to a certain amount or under certain circumstances.

• Claims negotiation: MGAs may act as intermediaries in negotiating settlements between insurers and claimants.

This ability to manage claims helps streamline the process for agents and policyholders, reducing delays and improving customer satisfaction.

Regulatory Oversight of MGAs

MGAs are heavily regulated to ensure that they operate within legal and ethical boundaries. The regulatory oversight typically involves:

• State and national insurance authorities: In many jurisdictions, MGAs must be licensed and are subject to regular audits and compliance checks.

• Carrier agreements: MGAs must adhere to strict guidelines set by the insurance carriers they represent. These guidelines dictate how policies are underwritten, how claims are managed, and how financial transactions are handled.

• Consumer protection laws: MGAs must follow laws designed to protect consumers, ensuring that policies are sold fairly and that claims are processed transparently.

This regulatory framework ensures that MGAs operate responsibly and that the interests of both insurance carriers and consumers are safeguarded.

Is Working with an MGA Right for You?

This guide covered the role of an MGA, how MGA insurance works, and what MGAs bring to agent and insurer relations. So, is working with an MGA right for you? In most cases, the answer is yes.

Working with an MGA allows for market expansion, diversification of clients, and streamlined underwriting. Having an MGA in your corner gives you access to a broader range of coverage for clients in niche industries or with unique risks.

At Novatae, we can act as both a wholesale broker and MGA,. Our team is well-versed in a range of industry-specific risk exposures, offering access to outside-of-the-box insurance products.

For more information or to request a quote, contact us.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.