A Managing General Agent (MGA) is hired by insurance companies to perform various tasks, including underwriting and administrative services. The range of authority given to an MGA can be very narrow or broad, depending on the needs of the insurer. Often, MGAs will perform tasks normally performed by the insurer.
While the competence and ability of a managing general agent to perform such a wide range of activities highlights its appeal, the value of an MGA lies in the expertise provided. An MGA will usually offer access to specialized markets. When an insurance company hires an MGA, it is often to oversee that insurance company’s business in a particular area like a targeted market segment. This access to certain niche markets offers many potential revenue opportunities that may not have been available otherwise.
MGAs also help insurers reduce costs because they generally have lower overall operating expenses than the carrier. Additionally, in the event that an insurer wants to move into a specific market that the MGA already has access to, by outsourcing to the MGA the insurer would not have to spend the time and additional funds to bring that expertise in-house.
The popularity of MGAs within the insurance industry can also be attributed to their production, remaining a strong source of direct premiums.
“The size of the MGA market relative to the broader commercial market confirms insurers’ commitment to using MGAs as producers of premium,” says a study on MGAs by the Connecticut-based investment firm Conning & Co. In “Managing General Agents, the World of MGAs: A Look at the MGA Specialists,” Conning’s analysis of statutory filings found that MGAs produced $25.7 billion of direct written premiums in recent years.
The wide range of potential responsibility and benefits available from MGAs underscore the role that managing general agents play in the wholesale insurance marketplace and indicates continued sustainability.
A person acting in the capacity of a managing general agent generally needs to be licensed as a producer in the state applicable to the hiring insurance entity. The MGA is normally required to maintain a surety bond at a certain level based on the volume of work being done. An errors & omissions (E&O) policy may also be required of the MGA by the insurer.
The MGA may or may not be given authority by the carrier to handle and settle claims on its behalf.
Many MGAs are active in the “excess & surplus” (E&S) market when insurance companies provide them with underwriting authority to write admitted as well as excess and surplus insurance lines.
Material for this article was taken from a collection of industry sources relating to the subject.
In all of the general statements here, see the state law of the controlling jurisdiction. Every case is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.
This blog is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.