There are a few main ways insurance is distributed to the masses, be it to small business owners, large corporations, or personal consumers. Some ways include agencies, brokers, MGA, and carriers.
Wholesale brokers are liaisons between retail brokers and insurance companies, often helping clients get specialized types of coverage. While MGAs are type of wholesale broker, they’re unique in that they act as agents of the insurer. And unlike traditional brokers and agents, they can underwrite policies and handle other services customarily done by insurers, including:
- Binding coverage
- Performing insurance underwriting
- Pricing insurance policies
MGAs earn a percentage of the commission that would typically go to the insurance agent. If MGAs share some risk with the insurer, they can also participate in underwriting profit or loss. That means when an insurer’s earned premiums are greater than its expenses and claims, MGAs can earn part of the underwriting profit. But when earned premiums are less, they’ll share in the underwriting loss.
How Are MGAs Helpful for Insurers?
MGAs are growing in popularity because they provide several key benefits to insurers. One is their specialized experience, a valuable asset when insurers are looking to move into different product lines or markets.
MGAs can make the transition smoother without the carrier needing to invest in staff, training, equipment, office space, and more to create a regional office, especially in rural areas where regional offices make less financial sense. The MGA would also be more familiar with the insurance business risks associate with the specialize coverage they offer, and are better able to underwrite and price these policies than a carrier entering the market.
MGA in Reinsurance
Reinsurance is when insurers purchase insurance for themselves to cut their losses in large events like natural disasters. It’s essentially insurance for insurance companies, and is a way for the insurers to spread out their risk.
MGAs sometimes work directly with reinsurers. For example, they might create reinsurance programs for specific business lines in niche markets where no other interested carriers are available. If the MGA can’t design a program where an underwriting profit is possible, they may instead take the approach of insuring against a single or defined package of risks. In cases where insurance companies are cutting their product lines, MGAs in reinsurance can help them find another underwriting company.
MGA are valuable insurance brokers who work primarily on behalf of the insurer. They’re specialize agents who perform a variety of the same duties that insurers do. Helping insurers expand into unfamiliar markets and regions without having to heavily invest in in-house resource