One of the insurance industry's fastest-growing sectors is the managing general agent (MGA) business, which is expanding faster than the property and liability market even in the event of a pandemic in 2020, according to reports.
MGAs are growing, but you might be curious about what precisely an MGA is, what they do, and how they fit into the larger scheme of insurance distribution. To determine if being an MGA is the correct decision for you, we go in-depth on these and other questions below.
MGA: What is it?
There are a number key methods by which insurance is made available to the general public, whether it be to small business owners, major businesses, or individual customers. Agencies, brokers, MGAs, and carriers are a few examples.
In order to help customers obtain specialized types of coverage, wholesale brokers frequently act as intermediaries between retail brokers and insurance firms. MGAs are a particular kind of wholesale broker because they represent the insurer, making them special. Additionally, unlike conventional brokers and agents, they can manage underwriting policies and other tasks typically performed by insurers, such as:
- Binding coverage
- Performing insurance underwriting
- Pricing insurance policies
- Appointing agents in an area
- Settling claims
MGAs typically market specialized insurances, like surplus line or professional liability insurance, that are difficult to underwrite. They may offer personal insurance in remote locations without an insurer branch, despite the fact that they primarily deal with commercial lines of insurance.
A portion of the commission that would ordinarily go to the insurance agent is paid to MGAs. MGAs might take part in the underwriting profit or loss if they share some of the risk with the insurer. This means that MGAs might receive a portion of the underwriting profit when an insurer's earned premiums are higher than its expenses and claims. But they will share in the underwriting loss if earned premiums are lower.
How do MGAs factor into reinsurance?
When insurers buy insurance for themselves, or reinsurance, they can reduce their losses from significant occurrences like natural catastrophes. It serves as a form of insurance for insurance firms and a means of risk distribution for the insurers.
Sometimes MGAs collaborate directly with reinsurers. For instance, they might develop reinsurance programs for particular business lines in specialized areas where no other carriers are present. The MGA may choose to approach insurance against a specific or specified bundle of risks if they are unable to build a program where an underwriting profit is attainable. MGAs in reinsurance can assist insurance firms in finding another underwriting company when they are cutting back on their product lines.
How Do MGAs Benefit Insurance Companies?
MGAs are becoming more and more well-liked since they offer insurers a number of significant advantages. One is their specialized experience, which is a great advantage for insurers trying to expand into new markets or product lines.
MGAs can facilitate the transfer without the carrier investing in personnel, education, tools, office space, and other things to establish a regional office, particularly in rural areas where regional offices have less financial benefit.
The MGA would also be better equipped to underwrite and price these policies than a carrier entering the market since they are more aware with the insurance industry risks connected to the specific coverage they offer.
MGAs have platforms to collect premiums and generate insurer reports in addition to the technologies needed to issue policies, which speeds up the administrative work of an insurer.
What Distinguishes a Broker from an MGA?
Brokers assist you in finding the greatest insurance coverage for your needs when you purchase insurance. They act as a go-between for you and the insurer. Additionally, they frequently serve a wider range of customers by offering a variety of insurance products. They don't have to be loyal to one or more insurers, so you can trust them to have your best interests in mind. In fact, some jurisdictions have laws requiring brokers to operate in your best interests.
Retail, wholesale, and surplus lines brokers are the three different categories. MGAs are considered wholesale, but they differ in that they act as a middleman between retail brokers and insurers. MGAs typically act on behalf of and in the best interests of insurers and specialize in particular markets or products. They have a fiduciary obligation to the insurer, not the client. However, MGAs may still assist customers in locating cheap coverage that satisfy their preferences.
MGAs and brokers receive commissions from insurers for the policies they sell, but when MGAs are in control of underwriting, they also take a cut of the profit or loss.
MGAs perform a number of tasks for which the insurance carrier must have faith. Compared to brokers, MGAs may take longer to establish the commercial ties required to forge alliances with carriers. Working under an MGA might be beneficial for independent agents and brokers who are new to the business and seeking insurance appointments. It's a novel method to learn from someone with more experience than you have, build underwriting skills, and obtain experience in a specialized field. If you ultimately decide to go it alone, all of these can assist you in getting insurance appointments.
Which Is Better, MGA or MGU?
The title "managing general underwriter" (MGUs) is occasionally used in place of the term "MGA" in life and health insurance firms, according to the International Risk Management Institute (IRMI). The two names have no distinguishable distinctions when used interchangeably in those sectors. While this is true for other sectors as well, MGA is frequently the term of choice in property and casualty insurance. Policies can be written by MGAs and MGUs alike.
GAINSCO and MGA – Are They the Same?
GAINSCO and MGA are not the same thing, no. The former is a Texas-based P&C insurer under the name of GAINSCO Auto Insurance. They are owned by State Farm Automobile Insurance Company. GAINSCO specializes in minimum limits personal motor insurance and serves the non-standard personal auto insurance industry.
They operate through MGA Insurance Company, Inc., which causes confusion. This business does not represent the MGA insurance industry as a whole; rather, it is an independent insurance agency with independent agents.
The Verdict: MGAs Serve the Insurer
MGAs are effective insurance brokers who operate primarily for the insurance company. They are specialized agents who carry out many of the same tasks as insurers, enabling insurers to enter uncharted markets and geographic areas without making significant investments in internal personnel.