Essential Components for Setting Up a Managing General Agency

A managing general agency (MGA) is a specialized type of insurance agency that has the authority to underwrite policies and manage risks on behalf of insurers. MGA's typically function as intermediaries between insurance carriers and retail brokers, providing a wide range of services, including underwriting, claims administration, and policy issuance. Setting up a managing general agency requires a combination of professional expertise, technology, and operational infrastructure. In this article, we will discuss the key components necessary for establishing a successful MGA.

Actuaries (for Rates and Froms)

Actuaries are vital for MGAs, as they are responsible for analyzing and managing risks, pricing policies, and ensuring the long-term financial stability of the business. By employing skilled actuaries, an MGA can make informed decisions on underwriting and pricing, mitigating risks, and ensuring the profitability of the business.

Software and Operating Systems

Modern MGAs rely on advanced software and operating systems to manage their day-to-day operations, from policy issuance and underwriting to claims processing and customer service. Selecting the right software solutions and platforms can significantly improve an MGA's efficiency and enable it to deliver better services to its clients.

Licenses

To operate as an MGA, it is crucial to obtain the necessary insurance licenses and permits from regulatory authorities. This may include general insurance licenses, as well as any specific licenses required for the lines of business the MGA intends to underwrite.

Errors and Omissions Insurance

Errors and Omissions (E&O) insurance is essential for protecting an MGA from financial losses resulting from negligence, errors, or omissions in the performance of professional services. This coverage safeguards the MGA and its employees from potential lawsuits and claims, ensuring that the business can continue to operate smoothly.

Underwriting Authority

Obtaining underwriting authority is a key component of establishing an MGA. This authority enables the MGA to underwrite insurance policies on behalf of insurers, allowing it to assess risks, set policy terms, and determine premium pricing. Underwriting authority is typically granted by the insurer, and it is essential for the MGA to maintain a strong relationship with its carrier partners.

London Brokers or Reinsurance Brokers

Collaboration with London brokers or reinsurance brokers can provide MGAs with access to specialized expertise, additional capacity, and a broader range of insurance products. These relationships can help an MGA expand its reach and improve its competitive position in the marketplace.

Investment and Capital

Setting up an MGA requires a significant investment of capital, both to establish the necessary infrastructure and to support ongoing operations. MGAs must have a clear understanding of their capital requirements and develop strategies for securing the needed funds, whether through investors, loans, or other financing options.

Third-Party Administrators (TPAs)

In some cases, MGAs may choose to outsource certain operational functions, such as claims handling or policy administration, to third-party administrators. By partnering with experienced TPAs, MGAs can streamline their operations, reduce overhead costs, and focus on core business functions.

Legal Counsel

Legal counsel is crucial for navigating the complex regulatory landscape and ensuring compliance with all applicable laws and regulations. Retaining experienced lawyers can help an MGA avoid potential legal issues and maintain a strong reputation in the industry.

Conclusion:

Establishing a successful managing general agency requires a combination of professional expertise, technology, and operational infrastructure. By ensuring that all of these critical components are in place, MGAs can effectively manage risks, provide superior services to their clients, and secure a strong position in the competitive insurance market.