Managing General Agents (MGAs) are leaders of the wholesale insurance market place and function as an intermediary managing the relationships among policy holders, retail producers and the insurance carriers. These agents provide underwriting and administrative services and have the authority to accept and appoint placement from retail agents on behalf of the insurers they represent. Generally, MGAs market more unusual coverage, such as professional liability, for which a particular expertise is required. Insurers benefit from MGAs where such expertise is not available within the company and would be costly to develop.
The purpose of MGAs hired by insurance companies is to supervise their business in a particular territory and they are often referred to as wholesalers, but in no way do they compete with brokers and do not deal with customers directly. MGAs have a unique relationship with their carriers. Depending on the relationship, a MGA may perform tasks normally performed by an insurer; which include, handling claims, issuing policies, sub-contracting with independent agents, collecting premiums and negotiating commissions to name a few. As agents of the insurer, they perform the basic insurance functions for the carrier of underwriting and policy issuance.
According to the American Association of Managing General Agents, an MGA can be used in any line of insurance and includes insurers who are “admitted or not, direct or otherwise, broker or agent system, contract/appoint or open-broker sub-production, or any combination of these.” Typically, MGAs are utilized most in the excess and surplus lines insurance market, but are also found in the commercial and personal insurance market.
When thinking about how MGAs work, it’s best to consider traditional insurance market access where it flows from the insurance company to the retail agent and finally to the insurance buyer. Now consider how the surplus lines market access flows. It works in much the same fashion with one major difference. The MGA acts as the intermediate between the insurer and the agent. In this way, market access flows from the insurance company, to the intermediary, the retail/out of state agent and finally to the buyer.
MGAs are generally entitled to a contingency commission on all business written within their territory. They take a percentage of the commission that would usually go to the producing insurance agent. Being an MGA means personal accountability as well as responsibility for producers. MGAs take on the significant costs involved in being a wholesaler and the investment needed to succeed.