Here at AgentSync, we love talking about growth. Personal growth, professional growth, company growth; we even have an internal slack channel called green-thumb-agents where we talk about growing goodies in our gardens. The growth we’re looking at today, however, isn’t that of zucchinis or snap peas. Rather, we’re looking at the meteoric growth of the managing general agent (MGA) market the insurance industry is currently experiencing.
The MGA marketplace is reportedly growing at an average rate of 6.7 percent annually and provides an annual estimated 50 billion of specialty insurance to the U.S. marketplace. And as the MGA marketplace grows, we see MGAs themselves experiencing growth even as economic forces move toward a hardened insurance market.
So, with a growth rate akin to that of a magic bean, we’re sitting up and taking notice of how the rise of MGAs is changing the insurance industry, and you should, too.
What is the MGA market?
The MGA market is a subset of the insurance industry that comprises managing general agents (MGAs), managing general underwriters (MGUs), and other delegated underwriting authority enterprises (DUAEs) that provide more specific, nuanced contract options than most large carriers offer. Because these DUAEs aren’t subject to quite the same level of regulatory oversight as insurance carriers (although they are by no means without regulation), they often serve as Petri dishes of innovation – MGA systems are often very tech-heavy compared to their traditional insurer counterparts. This gives them opportunities to find avenues of growth even in difficult markets.
How big is the MGA market?
The U.S. MGA market is responsible for writing nearly $50 billion in insurance premium. One major driver of MGA market growth has been the business model’s position as niche distribution channels, meaning they frequently act as surplus and excess lines distributors.
The niche distribution model also helps account for why reinsurers such as Lloyds of London feature so heavily even in the U.S. MGA market.
How many MGAs are in the U.S.?
According to definitive studies by Conning and as reported by McKinsey, there are about 600 MGAs and delegated underwriting authority enterprises in the U.S.
This number can be difficult to pin down, as the definition of an MGA, MGU, or DUAE may cause confusion with other third-party administrative services. But, with tens of billions in premium, the definition of this model and factors driving MGA market growth certainly warrant consideration.
3 reasons MGAs are so popular
The MGA model is one that’s generated quite a bit of buzz as a preferred method of operation for new insurtechs diving into the world of insurance, and a popular distribution channel for carriers. Here’s why:
MGAs can handle a variety of duties, such as binding coverage, underwriting and pricing, appointing regional agents, and settling claims; insurers have the freedom to decide which of those tasks to pass on to their MGA partners. This gives insurers the flexibility to engage in MGA partnerships based on their unique needs and add or subtract to the duties they pass on to MGAs if or when those needs change.
2. Sector specialization
MGAs generally have niche expertise on certain insurance products – transportation, shipping, mining, construction, agriculture, etc. When insurers look to diversify their distribution channels by entering a new sector and offering a new product, they may struggle without the necessary experience. Instead of trying to gear up an internal team, insurers may partner with MGAs that can spearhead the underwriting and pricing of those specialized products. It’s a strategy that’s both time- and cost-effective.
That isn’t to say all MGAs specialize in niche insurance products. There are some larger-scale general MGAs that, instead, provide insurers with access to regional agents in an area the insurer would like to target. These MGAs – and the regional agents they work with – still help the insurer diversify its distribution channels by accessing a new, untapped area of consumers.
Since MGAs are generally much smaller than insurers, they’re better able to adapt to changing business landscapes. For instance, the insurance industry as a whole is behind on adopting digital technologies. But that isn’t necessarily so with MGAs. Since MGAs tend to have a tighter leadership structure, they are better able to move quickly to invest in digital products to support business processes and the customer experience. This adaptability is sure to drive MGA growth in a predicted coming period of economic uncertainty.
MGA growth and compliance management
While growth is a good thing, growth in lieu of all else is not.
With that in mind, the cap on MGA growth exists at the line walked between growth and compliance management. If growth makes compliance unmanageable, then the MGA needs to scale that growth back.
Compliance exists to protect consumers from irresponsible business practices and is, therefore, always mission-critical. But on top of that, poor compliance management can lead to regulatory actions that can cost an MGA all that good, good growth. So, from an ethical and legal standpoint, the real limits to MGA market growth lie at the intersection of growth and compliance maintenance. If an MGA has tight controls in place to prevent undue consumer risk and enforce compliance with each unit of growth, then the sky’s the limit. Or, rather, the total available market is.
If only there were a way MGAs, MGUs, and other delegated underwriting authority enterprises (DUAEs) could ensure compliance and growth didn’t compete. Like maybe a solution that made compliance automatic.
Key compliance regulations for MGAs
Some of the key compliance regulations that growing MGAs should be aware of are:
- MGAs must have a written contract with the insurers with whom they conduct business. The contract includes very specific guidelines for the MGA, such as maximum annual premium volume, the types of risk that can be underwritten, maximum limits of liability, and territorial limitations. MGAs need to be careful to follow these guidelines closely and not exceed any of the limitations specified in the contract.
- MGAs must have a surety bond to protect the insurer of at least $100,000 or 10 percent of the past year’s total annual written premium but not exceeding $500,000.
- Some insurers may require MGAs to maintain an errors and omissions insurance policy to protect the insurer.
It’s important to remember, however, every state has different regulatory requirements for MGAs. While these are some of the standard requirements you may find across many states, it’s always a good idea to check state-specific regulations directly. Risking it with your compliance isn’t recommended.
Grow, grow, grow, and grow some more
Again, we think growth is a good thing – when done responsibly.
While compliance management may seem like an obstacle to MGA growth, it doesn’t need to be. We have the tools available to make compliance support MGA growth, not hinder it.
Click here for more information on how AgentSync is the solution to help MGAs grow while also managing compliance requirements.