What is an MGA? What do they do?
A managing general agent, or “MGA”, is an insurance business that has delegated authority on behalf of insurers to write business on their behalf.
Put simply, MGAs are given access to a pool of money (“capacity”) by insurers and they use that as security for the insurance policies, which they design and sell.
MGA founders are typically experienced, entrepreneurial underwriters who choose to move away from large, corporate insurers. Reasons for this vary, but sometimes its politics, sometimes its inefficiencies and sometimes its simply to run something of their own.
Who do they work with?
But that doesn’t mean they’re working alone. MGA founding teams often work with:
MGA incubators, such as NuVenture, provide the founders with everything they need to launch and manage a scalable insurance business (actuarial services, finance, legal, regulatory, HR, technology, data, marketing, administration, etc).
Capacity providers/Insurers are also key partners for MGAs. These businesses have given the MGA their backing, and their support is crucial to the success of the MGA.
Most MGAs go to market via brokers, so these are key relationships for MGA founders to nurture. As founders tend to open business in markets they already know, so they have existing relationships with relevant brokers – but these become critical whilst running an MGA.
Depending on the structure of the MGA, there are also plenty of other important working relationships – from outsourced regulatory and compliance teams, to lawyers, to PR teams. So, although founders are setting up their own business, they are surrounded by ready-made teams who are here to help.
Where do they fit in the insurance value chain?
End client > broker > MGA > insurer
The end client (“the insured”) needs an insurance policy. They speak to a broker to help them source the best cover for their situation. The broker, in turn, talks to MGAs and/or insurers to find appropriate quotes. They then present these to the client, who chooses the right quote for them.
Why does the market use MGAs?
MGAs are – typically – specialists in a niche market. Many larger insurers don’t have the expertise, resource or willingness in-house to accurately write that business (assess the risk and provide a quote based on data and experience). However, when insurers see potential in a niche market they essentially outsource that opportunity via providing capacity to a specialist MGA.
Brokers work with MGAs as:
- they may be specialist in a particular area where there are not policies available from a larger insurer;
- MGAs can often turn quotes around much quicker than corporate bodies as they are able to implement efficient technology without the legacy system issues that plague large insurers, and;
- the MGA founders are trusted in the market and have existing relationships with brokers, who know they will do the best they can for them.
MGAs offer specialist policies on behalf of larger, corporate insurance companies who lack the appropriate resources in-house. They often partner with businesses like NuVenture to launch and to run their back office services, freeing the founding underwriters to do what they do best: assess risk, foster broker relationships and build a strong book of business.