How MGAs fit into the distribution channel
Wholesale brokers act as an intermediary between a retail broker and an insurer, and work with insurers to attain specialised coverage for clients while having no contact with the insured. An MGA is one type of wholesale broker, and operates on the insurer’s behalf while also working closely with clients to attend to their needs. The other type of wholesaler is a surplus lines broker who works with a retail agent and an insurer to obtain coverage for the insured. What makes MGAs unique is their binding authority from the insurer.
An MGA will deliver and service a insurer’s product to both insurance agencies and clients. MGAs can work with several insurers to formulate a specific mix of products to deliver to agents/brokers or directly to insureds.
How MGAs benefit insurers and agents
Working with MGAs is beneficial to insurers because they possess expertise that insurers may not have in their head or regional offices, and which can be costly to develop in-house, according to IRMI. Working with an MGA, companies can pass time-consuming and complicated tasks to an outside entity that already has the knowledge to address them.
MGAs tend to deal in lines of coverage such as professional liability, employee benefits or surplus lines where specialised expertise is needed to underwrite policies, though they can be active in any line of insurance, and work with all types of insurers. If an insurer wants to explore a specialty 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 specialty policies because they are already familiar with the risks.
MGAs can also write business in geographically isolated areas where insurers do not want to open an office. A small town or rural region might not warrant the opening of a branch for an insurer, but working with an MGA in that area provides the company with access to new customers without spending money on staff or rent.
Similar to insurers, agents can get expertise about a particular product or more competitive pricing by working with an MGA. They can likewise gain entry to markets and insurers that could be difficult to access on their own, and because of the often-smaller size of the MGA business, there are fewer barriers to communication for a broker. MGAs also bring technology to the table, such as online platforms that integrate with wholesale channels or products that speed up the quoting process, that help independent agents provide better services to their clients. Agents can realise higher commissions by working with an MGA that has a diverse network of insurers, allowing agents to review the commission structure and have the option to sell insurers’ products that offer the best rates.
MGAs around the world
Many MGA models were created during the 1990s and 2000s, though the role of the wholesale broker, a category that MGAs fall into, dates back to the 19th century. Associations that represent MGAs in specific regions today include:
- Managing General Agents’ Association (MGAA) in the UK, which was formed in 2011
- American Association of Managing General Agents (AAMGA), which was established in 1926 and has since merged with the National Association of Professional Surplus Lines Offices (NAPSLO) to form the Wholesale & Specialty Insurance Association (WSIA)
- Canadian Managing General Agents (CAMGA), a relatively new association formed in 2017
- Underwriting Agencies Council, based in Australia and formed in 1998
In Australia and New Zealand, MGAs are referred to as underwriting agencies, though they have the same functions as managing general agencies. According to the UAC, its 116 members account for more than AU$6 billion of premiums spent by Australian businesses and consumers annually.
In the UK, the term ‘MGA’ has been adopted by the market to refer to what was once known as a ‘coverholder.’ Today, more than 300 MGAs underwrite over 10% of the UK’s £47 billion general insurance market premiums, according to the MGAA.
Worldwide, MGAs fall into one of the fastest-growing segments of the insurance industry. Global investment firm Conning reported that MGA and program market growth continues to outpace the growth of the property and casualty market, with direct premium growth of 7% higher than the previous year compared to the 5% seen in P/C market growth. The analysis also showed that 21 of the top 25 P/C insurers have relationships with MGAs.
The role of the MGA today
With technology bridging the gap between insurers and clients today, some insurers are moving away from relying on MGAs, which has thrown the identity and future of the MGA into question.
“By virtue, MGUs and MGAs, program administrators, are the middlemen,” said Rekha Schipper, president of Tangram Insurance Services. “How can we make sure we stay ahead, make sure that we take advantage, and make sure that we continue to be relevant and meaningful to a broker, to a insurer, to a tech investor, to say, this entity still belongs in the middle of all of this?”
However, an MGA is a natural outlet for technology solutions to plug into because of its established distribution channels. These agencies can also react to market changes quicker than typical insurance companies because they are smaller businesses that are acting on behalf of larger insurers.
“We can bring programs to the market faster. We can get out to more brokers because they can get on our platform. We can reduce our expenses as an MGU because now we’re automating a lot of things,” explained Schipper, adding that there’s “an unprecedented opportunity” for partnerships between technology vendors and MGUs.
During hard market periods, MGAs can be used by insurers to decrease costs and increase profitability. The MGA model is also flexible. Following the 2008 financial crisis, Ironshore, a Liberty Mutual company, established its managing general underwriting agency as its commercial clients were facing heightened risk since the viability of some insurance insurers that offered high coverage limits across many lines of business for major companies was uncertain. Brokers were meanwhile also under pressure to find alternative coverage solutions. The Ironshore MGU model involved underwriting as well as claims management, the latter of which made it unique from a traditional MGA, which can have limited authority on claims management and payment.
(Updated September 21, 2021)