Insurance 101: Understanding MGA Licensing Requirements and the Application Process

Managing general agents (MGAs), and managing general underwriters (MGUs) play an important role in the insurance distribution ecosystem, but determining whether an organization qualifies as an MGA—and understanding the licensing requirements that follow—can be challenging, as there is significant grey area surrounding their definition in the insurance industry. Additionally, MGA licensing requirements vary significantly by state, making it important for MGAs and the insurers they work with to understand applicable licensing, registration, and compliance obligations before conducting business.

To help clarify the relationship between insurers and MGAs or MGUs (which we will use interchangeably), the National Association of Insurance Commissioners (NAIC) created the MGA Act. The act, which states can implement or amend as they see fit, functions as a guideline for MGA regulation. Details of the MGA Act include contract provisions, duty descriptions, and, our main focus in this article, licensure requirements. 

Like individual insurance producers, most states require their MGAs to hold a license. This license is separate from an insurance producer license and MGAs will have to complete a different application process to obtain it. 

Are you an MGA?

Step one in obtaining an MGA license is to determine whether or not you actually are an MGA. It sounds silly, but the industry-wide confusion surrounding MGAs means a lot of insurance agencies that consider themselves to be MGAs are, in fact, not. Meanwhile, others that perform all the duties of an MGA without even realizing it would be shocked to be labeled as one.

We’ve previously covered how to know if you are an MGA in greater detail. As a quick refresher on the topic, generally, if your insurance organization manages all (or part) of the insurance business of an insurer in a way that makes you responsible for underwriting and paying out insurance contracts, there’s a possibility that you are an MGA.

The licensing application process

Once you’ve determined that you are an MGA, it’s important you become properly licensed before beginning operations. Failing to obtain the correct licenses before conducting business can result in costly regulatory actions. However, the licensing process for MGAs can be confusing, mainly because requirements vary based on your domicile state, the insurer’s domicile state, and the state(s) in which you are conducting business.

For example, some states don’t issue MGA licenses. In these states, anyone operating as an MGA needs only to secure the appropriate licenses for the functions they perform. This could include a property and casualty, surplus, and/or adjuster license. In other states, MGAs don’t need licenses per se, but they do still need to go through a registration or designation process. (Which, if you really think about it, kind of just sounds like another way to say “licensing process.”)

For states that require MGAs to obtain licensure, the process is complex – even more so than applying for a producer license. A lot of the complexity stems from the wide variance in requirements between states. For example, many states require their MGAs to obtain the appropriate licensure for the insurance products they wish to sell before even applying for an MGA license. Some states require MGA licensing for individuals and business entities, while others only require one or the other. 

Because of state differences, a number of states still process MGA license applications by hand using state-specific paper forms. 

For MGAs operating across multiple states, managing these requirements can quickly become a significant compliance and operational challenge. Teams may need to track different application requirements, entity and individual licensing rules, supporting documentation, renewals, and state-specific registration obligations.

A centralized approach to licensing and compliance can help MGAs maintain visibility into their requirements and reduce the risk of missing a regulatory obligation as their business expands into new states.

Additional documentation

In addition to the license application, certain states also require MGAs to provide additional documentation. This could include proof of financial stability in the form of bonds, errors and omissions insurance, or a financial audit done by an independent third party. The bond type and amount varies by state, but typically reflects the amount of money an MGA handles. While the amount can vary, states do cap the bond amount at a maximum of $500,000. 

Certain states may also ask MGAs to provide a copy of any contract between themselves and an insurer. State regulators do this so they can review the language of the contract and ensure it meets state-specific regulatory requirements. Even if your state doesn’t need to review and approve MGA contracts before licensure, it might be a good idea to have them on hand in case you are asked to provide them.

Depending on the state, MGAs may need to submit other requirements such as fingerprinting and state-specific forms or documentation. Insurers working with MGAs may also need to file appointments with state regulators.

Improper licensing can result in costly regulatory actions

While the MGA licensing application process may prove confusing, time consuming, and complex, it’s important to navigate it correctly. Improper licensing opens you up to expensive regulatory actions including fees, license revocation or suspension, and other financial penalties for losses incurred by the insurer. Regulatory actions like these harm an MGAs growth potential and, in worst-case scenarios, can even shut down operations completely. In other words, it pays to manage regulatory compliance at your MGA from the get-go.

Learn how insurance compliance technology can help MGAs, carriers, and agencies streamline licensing and distribution management. Schedule your demo with AgentSync today. 

FAQ