Managing general agents (MGAs) are intermediaries between insurance companies and agents and brokers. They have played an important role in the growth of the specialty insurance market, with their expertise in writing and pricing insurance policies for niche, unusual, or difficult-to-place risks that are frequently not covered by the traditional or standard market. And, unlike wholesalers and retail agents/brokers, MGAs often have binding authority with their carriers. This enables them to quote and bind policies within an insurer’s appetite.
An MGA’s primary capacity sources include the London market, traditional U.S. domestic insurers, fronting carriers, reinsurers, and alternative capital, including from private equity firms.
What Is the Size of the MGA Market?
According to a 2022 report by McKinsey & Company, the United States and United Kingdom are the two most developed MGA markets, with several MGAs operating in both countries. In the U.S., there are about 600 MGAs, which collectively place $47 billion in premiums – equivalent to roughly 7% of the overall commercial and personal insurance markets. This figure may be even higher, according to Aon, as insurers don’t have to report MGA direct written premium when it is less than 5% of their surplus.
In addition, according to Aon’s report “The MGA Marketplace and Model of Choice,” MGA premium is heavily concentrated in southern states, with Florida and Texas leading the way. Both states have natural catastrophe risks, with MGAs in this space less risk averse than traditional insurers. Furthermore, Texas has a sizable energy market insured with MGAs.
According to a recent AM Best market segment report, direct premium written through the Delegated Underwriting Authority Enterprises (DUAE) market in the U.S. increased by 13.8% to $67.6 billion in 2022. AM Best uses DUAE as a blanket term to capture MGAs, managing general underwriters, coverholders, program administrators, program underwriters, underwriting agencies, direct authorizations, and appointed representatives.
MGAs Provide a Unique Value Proposition in the Insurance Distribution Chain
Great for Retail Agents & Brokers
MGAs typically work on specialized businesses and risks, providing retail agents and brokers with access to specific niche markets, such as construction, emerging markets like cannabis, or specific lines of coverage, such as cyber or excess liability, to properly address the unique risks clients face. MGAs can also improve insurance placement efficiencies for retail agents and brokers. They tend to be technology savvy, having embraced the digital age ahead of the curve and invested in advanced platforms. Some MGAs have developed proprietary platforms for their agency partners to seamlessly quote, bind, and manage policies and provide clients with responsive service.
In addition, forward-thinking MGAs utilize artificial intelligence (AI) and machine learning for improved underwriting and appetite selection. They also employ data analytics for claims management.
Great for Insurance Carriers
Insurance carriers can leverage an MGA’s infrastructure, intellectual property in underwriting pricing, and access to underwriting talent. They can gain market share and immediate savings with an MGA. MGAs bring profitable business to carriers for a fraction of the overhead that’s associated with employing underwriters in regional or specialist offices.
MGAs can also innovate much more quickly than insurers, developing products such as parametric insurance and getting them to market much faster than carriers. In fact, the MGA model has become attractive for insurtechs, which have disrupted the industry over the last several years.
Private Equity and Managing General Agents
MGAs are an attractive investment for private equity firms. MGAs are profitable and generate steady and predictable cash flows. They also have the potential to grow rapidly through the acquisition of new business, particularly in niche or underserved markets. Private equity firms are attracted to this growth potential and can provide the necessary capital to fuel expansion.
MGAs also have the ability to scale quickly without incurring significant additional expenses, which is also attractive to private equity firms. Investing in MGAs provides a means for private equity firms to diversify their portfolios with entrée into one of the most stable and dynamic insurance industry segments.
Sources: McKinsey, Aon, Carrier Management, AM Best