Managing General Agent (MGA)

What is a Managing General Agent (MGA)?

A Managing General Agent (MGA) is a specialized intermediary in the insurance distribution chain that has been granted authority by insurance carriers to underwrite and bind insurance policies on the carrier's behalf. Unlike traditional insurance agents or brokers who can only solicit business and must refer to the carrier for underwriting decisions, MGAs can quote, underwrite, and bind coverage immediately under delegated authority agreements with their carrier partners.

MGAs bridge the gap between insurance carriers (who bear the financial risk and provide capital) and retail insurance agents or brokers (who have customer relationships and sell policies). The MGA provides underwriting expertise, specialized market knowledge, distribution networks, and operational infrastructure that carriers need to access markets they couldn't reach efficiently on their own.

The MGA business model creates value for all parties. Carriers gain market access and premium production without building internal underwriting teams or distribution infrastructure. Retail agents gain access to markets and products through the MGA's carrier relationships. Customers benefit from specialized coverage and expertise. The MGA earns both retail commission and MGA override commission (typically 10-20% of premium total) for providing these services.

How MGAs Differ from Brokers

The fundamental distinction between MGAs and brokers is binding authority:

Brokers: Insurance brokers represent customers (not carriers) and shop their clients' insurance needs across multiple carriers. Brokers solicit applications, collect information, present submissions to carriers, and facilitate the sales process. But brokers cannot bind coverage - they must submit to carriers who make the underwriting decision and issue the policy. The broker's role is intermediation and advice, not underwriting.

MGAs: MGAs have binding authority granted by carriers. When an MGA receives a submission that fits within their binding authority guidelines, they can underwrite and bind the policy immediately without referring to the carrier. The policy is legally the carrier's contract (the carrier bears the risk), but the MGA makes the underwriting decision. This binding authority enables MGAs to respond quickly, control the business relationship, and earn higher compensation than brokers.

Some entities operate as both wholesale brokers (placing business with carriers where they don't have binding authority) and MGAs (binding business for carriers where they do have authority). The distinction depends on whether they're binding or brokering each specific piece of business.

How MGAs Differ from Insurance Carriers

MGAs and carriers play complementary but distinct roles:

Carriers: Insurance carriers (insurance companies) are regulated entities that bear insurance risk. They hold insurance licenses in each state where they operate, maintain minimum capital and surplus requirements set by regulators, are subject to comprehensive financial and market conduct regulation, and ultimately pay claims from their own capital and reserves. Carriers make strategic decisions about which markets to serve, what products to offer, and what risk appetite to maintain.

MGAs: MGAs don't bear risk - they manage it on behalf of carriers. MGAs are intermediaries, not insurance companies. They don't need the massive capital requirements carriers need. They don't file financial statements with insurance departments or participate in state guaranty funds. But they do need binding authority agreements with carriers, operational expertise in underwriting and claims, technology to manage policy and claims administration, and demonstrable ability to operate within carrier guidelines.

The carrier provides the insurance license, capital, and risk bearing. The MGA provides the market access, underwriting execution, and distribution infrastructure.

Delegated Authority Model and Commission Structure

The economic arrangement between carriers and MGAs creates the financial incentive for MGA operations:

Binding Authority from Carrier: The carrier grants the MGA authority to underwrite and bind policies within specified limits and guidelines. This authority is formalized in a binding authority agreement (also called a binder agreement or facility agreement) that specifies: lines of business covered, territories, policy limits and terms, commission structure, reporting requirements (bordereaux), audit rights, and termination provisions.

Commission Structure: MGAs typically earn two layers of commission. First, retail commission (typically 10-15% of premium) as compensation for distribution and customer service, the same commission a retail agent would earn. Second, MGA override commission (typically 5-15% of premium) as compensation for underwriting services, operational infrastructure, and risk management. Total MGA compensation often ranges from 15-25% of premium, significantly higher than broker compensation.

For example, on a $10,000 premium policy, the MGA might earn $1,000 retail commission plus $1,000 override, totaling $2,000. The carrier receives $8,000 net premium to cover expected losses, loss adjustment expenses, and carrier overhead, with the remainder as underwriting profit.

Types of MGAs

MGAs operate in various configurations depending on their scope and business model:

Underwriting-Only MGAs: These MGAs focus purely on underwriting and policy issuance. They underwrite and bind policies under delegated authority but don't handle claims, which the carrier manages directly or through a third-party administrator (TPA). This model works when the carrier wants distribution and underwriting support but prefers to control claims.

Program Administrators: These MGAs manage complete insurance programs including product design, underwriting, policy administration, and often claims handling. They essentially operate a turnkey insurance program on behalf of carrier partners. Program administrators are common in specialty lines where the MGA has deep expertise in a niche market (construction, healthcare, cannabis, etc.) and manages all aspects of the program while the carrier provides the paper and capital.

Wholesale Brokers with Binding Authority: Many wholesale brokers have binding authority with certain carriers for specific lines, making them MGAs for that business. They may wholesale (broker) some business to carriers where they lack authority while binding other business as an MGA.

Technology Requirements for Modern MGAs

Successful MGA operations require sophisticated technology infrastructure:

Fast Quote-to-Bind: The MGA's competitive advantage is speed - instant quotes and immediate binding. This requires automated rating engines, underwriting workflows that guide efficient risk evaluation, integration with external data sources (MVR, CLUE, business credit, inspection reports), and policy issuance that generates documents and evidence of coverage in minutes not days.

ACORD Form Automation: MGAs receive hundreds or thousands of ACORD applications, loss notices, and certificates. Automated document processing that classifies ACORD forms, extracts data automatically, validates extracted data against policy systems, and routes for appropriate handling eliminates the manual data entry bottleneck that limits MGA scaling.

Bordereaux Reporting: Carriers require regular (monthly or quarterly) bordereaux reports listing all policies written and claims processed. Manual bordereaux preparation in Excel is time-consuming and error-prone. Automated bordereaux generation pulling data from policy and claims systems, applying carrier-specific formats and calculations, and generating submission-ready reports on schedule is essential for professional MGA operations.

Carrier Integration: MGAs often work with multiple carriers simultaneously. Integrated systems connect to carrier policy administration systems via API, submitting policy data in real-time or batch, receiving policy numbers and confirmation, and exchanging claims data and financial settlements. Integration reduces manual data entry and improves accuracy.

Compliance Tracking and Audit Trails: Carriers audit MGAs to verify adherence to binding authority guidelines and confirm bordereaux accuracy. Complete audit trails showing every underwriting decision, supporting documentation, guideline compliance checks, and decision rationale enable MGAs to pass carrier audits confidently. Immutable logs proving what was evaluated, what decisions were made, and why decisions were appropriate create audit readiness.

MGA Market Trends

The MGA market has evolved significantly in recent years:

Specialty Lines Growth: MGAs increasingly focus on specialty and niche markets where they can develop deep expertise and avoid commodity competition. Cyber liability, cannabis insurance, sharing economy coverage, professional liability for emerging professions, and non-standard property in catastrophe zones are examples of specialty markets where MGAs thrive.

Carrier Partnerships: Rather than carriers viewing MGAs as temporary distribution channels, strategic partnerships have developed where carriers build long-term relationships with MGA partners in specific markets. These partnerships involve shared technology investment, co-developed products, and aligned incentives for profitable growth.

Technology Investment: Leading MGAs recognize that technology is fundamental to competitive advantage. They invest in modern policy administration platforms, automated underwriting, digital customer experience, and data analytics to underwrite better and operate more efficiently than competitors. The MGAs with superior technology can scale faster, serve customers better, and demonstrate value to carrier partners.

Private Equity Investment: Private equity has increasingly invested in successful MGAs, providing capital for technology investment, talent acquisition, and market expansion. PE-backed MGAs often pursue acquisition strategies, consolidating smaller MGAs and achieving scale advantages.

The MGA model continues to be attractive for entrepreneurs with insurance expertise who can develop binding authority relationships with carriers and build efficient operations. The combination of underwriting authority, commission economics, and technology enablement creates opportunities for MGAs to build valuable, scalable businesses serving specialized insurance markets.