The Strategic Role of Managing General Agents in Insurance Distribution

Managing General Agents play a crucial role in the insurance distribution value chain, providing a unique value proposition for all stakeholders involved.

FREMONT, CA: Managing General Agents (MGA) play a pivotal role in the insurance distribution value chain, acting as intermediaries between retail or wholesale brokers and insurance companies. With their unique value proposition, MGAs offer specialized expertise, improved efficiency, and enhanced underwriting capabilities. This article explores the multifaceted role of MGAs, their impact on the insurance industry, and the benefits they provide to all stakeholders involved.

MGAs are known for their relationships with insurance carriers that specialize in niche markets and unique risks. This allows retail brokers to broaden the range of insurance carriers available to their clients. By collaborating with MGAs, brokers can access a wider selection of carriers, ensuring that the final client obtains comprehensive coverage. Moreover, MGAs' expertise in specific niches enables brokers to structure risk appropriately for insureds, tailoring insurance solutions to meet their specific needs.

One of the key advantages of MGAs is their operational efficiency and technological advancements. Unlike traditional placement platforms, MGAs operate with leaner operations, unburdened by the complexities often found within insurance carriers. Additionally, many MGAs offer advanced technology for policy management, quotation, and claims processing, streamlining the binding and policy management processes. These technological enhancements contribute to a more seamless and efficient experience for all parties involved.

Insurance carriers benefit from partnering with MGAs due to their specialized underwriting skills and market expertise. MGAs provide carriers with access to specific lines of business, such as cyberrisk, where their in-depth knowledge and underwriting sophistication are invaluable. Furthermore, MGAs facilitate market entry for insurance carriers by allowing them to leverage existing infrastructure rather than building their own. This saves carriers from the costs and complexities associated with establishing underwriting teams, developing pricing models, and sourcing external data. Some MGAs also handle loss-mitigation strategies and claims processing on behalf of insureds, further adding value for carriers.

Among the top 100 US property and casualty insurers, a significant portion (43 percent) maintain at least one MGA relationship for sourcing new premiums. However, the extent to which carriers rely on MGAs varies widely. Only a small percentage of carriers use MGAs on a periphery basis. Others adopt a hybrid model, combining in-house underwriters with MGA programs, typically accounting for 25 to 75 percent of their premiums. Additionally, certain carriers rely heavily on MGAs for distribution and underwriting, acting solely as capacity providers or intermediaries between reinsurers and MGAs.

A core value proposition of MGAs lies in their ability to bring specialized underwriting skills and market expertise to emerging risks. MGAs excel in addressing new and unique risks, such as those related to Native American casinos, cannabis, transactional liability insurance for smaller deals, and cyberrisk. The escalating frequency and severity of cyberattacks have fueled the rapid growth of the cyber-insurance market. To cater to this demand, cyber-focused MGAs have emerged, offering superior risk identification and prevention. Furthermore, MGAs have become increasingly active in specialty coverage for personal lines, driving better underwriting quality, improved customer experience, and access to specialized risks.