How Managing General Agencies Generate Revenue and Profit

Managing general agencies (MGAs) play a vital role in the insurance industry, acting as intermediaries between insurance carriers and retail brokers. They provide a wide range of services, including underwriting, policy issuance, and claims administration. As businesses, MGAs must generate revenue and profit to sustain their operations and grow. In this article, we will explore the various ways in which MGAs are compensated and how they make a profit.

Commission Income

One of the primary sources of revenue for MGAs is commission income. MGAs receive a commission for each insurance policy they underwrite and issue on behalf of an insurance carrier. The commission rates vary depending on the type of insurance product, the level of underwriting authority, and the relationship between the MGA and the carrier. By underwriting a high volume of policies, MGAs can generate substantial commission income, contributing to their overall profitability.

Profit-Sharing Arrangements

Some MGAs enter into profit-sharing arrangements with insurance carriers. In these agreements, the MGA and the carrier share in the underwriting profits generated from the insurance policies the MGA underwrites. This type of arrangement incentivizes the MGA to carefully manage risks and maintain underwriting discipline, as higher underwriting profits lead to a larger share of the profit for the MGA.

Policy Fees

In addition to commissions, MGAs may also earn revenue by charging policy fees for the administration and issuance of insurance policies. These fees are typically a fixed amount per policy and are charged to the insured or the retail broker. Policy fees provide an additional source of income for MGAs and can help cover the costs associated with policy administration and other operational expenses.

Claims Handling Fees

Some MGAs provide claims handling services on behalf of insurance carriers. In such cases, the MGA may charge a fee for each claim they manage, process, and settle. Claims handling fees can be a significant source of revenue for MGAs that specialize in this area and have the necessary expertise and infrastructure to handle claims efficiently.

Consulting and Risk Management Services

MGAs with specialized expertise in certain lines of business or industries may offer consulting and risk management services to insurance carriers, retail brokers, or insureds. These services can include risk assessment, loss control, and premium audit services. MGAs can charge fees for these services, generating additional revenue and enhancing their value proposition within the industry.

Investment Income

MGAs often hold premium funds in trust accounts before they are transferred to insurance carriers. The MGA may invest these funds in short-term, low-risk investments and generate interest income. This investment income can contribute to the overall profitability of the MGA, although it may be subject to regulatory restrictions and limitations.

Consulting and Risk Management Services

Investment Income