Although 2015 was a strong year, insurers continue to face a number of costs and strategic pressures. These include persistently low interest rates, continued costs associated with implementing Solvency II, rising competition, and the challenges from an increasingly digitalised marketplace. As a result, many companies are looking at the possibilities offered by the Managing General Agent (MGA) distribution channel. A MGA is generally understood by the market to be an authorised underwriting business, acting under its own name, but on behalf of, and paid by, one or more insurers. In this model, all operational functions and tasks are (or can be) delegated to the MGA, but the insurer bears the risk.
Following the principle of ‘Never give your pen away’, in other words – never give up the key part of your business, many reject the MGA-Business-Model as a workable business opportunity. But: Working together with MGAs could definately have positive effects for insurance companies. Using the MGA-Model gives insurers an excellent opportunity to enter new geographical markets and/or with new insurance products – without having to develop a business plan of their own and providing the required operational and organizational structure including the operation of the necessary distribution channel.
Relatively low fixed costs
Therefore, cost-intensive and time-consuming cycles for product development are avoided and the insurer is able to react quickly to market trends. Limitations arise at most from the required regulatory licenses which the insurer has to fulfil for the signed contracts, products and transactions. If the MGA is given full authority, including the complete administration of the portfolio (including Collection and Claims Management), then the underwriting and administration of the corresponding portfolio produce relatively low fixed costs for the insurer. Specifically, the fixed costs for the insurer are limited to the proportionate costs for Controlling, Risk-Management and Reinsurance. The remuneration paid to the MGA for the administration is variable, depending on the size of the signed portfolio. As a rule, the ongoing, contract-related commission for property business is between 20–30 percent. In addition, an annual profit commission based on profit is often agreed between the insurer and the MGA. Due to the diverse range of tasks of the MGAs, they act more as an insurer and less as a sales or distribution channel. So underwriting decisions are…