Best's Review


Managing General Agents
The Essential Characteristics of a Great Managing General Agent

Carriers must ensure that their MGA partners are well managed, reliable and financially strong. Perhaps most importantly, carriers must have confidence in the honesty and integrity of an MGA’s owners and managers.
  • Mario Vitale
  • February 2022

UPDATE: See AM Best’s new methodology, “Best’s Performance Assessment for Delegated Underwriting Authority Enterprises,” which introduces the Best’s Performance Assessment (Best’s PA) that provides a framework for differentiating among DUAEs in the insurance industry, Feb. 1, 2022,

A video briefing about the new methodology is also available at

Hundreds of new managing general agents have been launched in recent years, offering carriers an array of options to reach new market segments, enter into new lines of business, or benefit from innovative underwriting and distribution technologies. MGAs have been around for more than a century, but in recent years, the MGA business model has soared in popularity: In a March 2021 Best's Market Segment Report: Delegated Underwriting Authority Enterprises Prove Their Worth Across the Insurance Distribution Model, AM Best noted a 19% increase in the number of MGAs between 2017 and 2019, with MGAs accounting for $44 billion in written premiums.

MGAs often offer carriers niche underwriting expertise and access to hard-to-reach markets. Some do a better job of servicing clients in specialized market segments. Newer MGAs often are incubators for technology-driven products and business processes that accelerate the pace of innovation for established insurance carriers. But MGA-produced business can also negatively impact an insurer's results, sometimes with disastrous consequences. Several high-profile insurance insolvencies during the 1970s and 1980s involved, in part, an overreliance on dodgy MGAs. “The value of [an] MGA as a distribution partner could greatly impact the (re)insurer's financial strength and reputation,” notes AM Best in a March 2021 draft report on assessing MGA performance, Draft: Best's Performance Assessment for Delegated Underwriting Authority Enterprises.

To ensure viable, long-term MGA relationships, carriers must be thorough in their due diligence and clear as to performance goals and expectations throughout the life cycle of the relationship. Effective underwriting, pricing and reporting controls need to be implemented and maintained. A thorough, fair and well-drafted contract is essential.

Related: The View to 2022: Insurers Face New Year With Cautious Optimism

Carriers also must ensure that their MGA partners are well-managed, reliable and financially strong. Perhaps most importantly, carriers must have confidence in the honesty and integrity of an MGA's owners and managers.

Factors to Consider

How can a carrier ensure that it does business only with the most competent and trustworthy MGAs? Of course, a long track record of success is the most reliable guide, but many MGAs are comparatively new to the market. To assure that its partners are honest, reliable and capable, carriers should assess the following factors:

Insurance Expertise: Many of the recent crop of MGAs fall into the “insurtech” bucket. These companies often have strong technology skills and innovative business models, but they may be weak in insurance fundamentals. Carriers need to ensure that their partners understand the insurance marketplace, policy forms and coverages, underwriting standards, pricing methodologies, claims management practices, and insurance law and regulation fundamentals.

Financial Strength: Carriers should thoroughly assess the financial strength of their MGA partners. Insufficient working capital is a common cause of failure of young and rapidly growing companies, but mature MGAs also may have financial problems. Financially stressed MGAs may cut corners to save money or be tempted to lower underwriting standards to bolster top-line revenue.

Aligned Interests: MGA relationships are most successful when the carrier and the MGA both benefit from meeting production and underwriting goals and both feel the pain when goals are not met. Contingent commissions, sliding scale commissions and MGA-owned captives are among the ways to align the interests of the carrier and its MGA partners.

To ensure viable, long-term MGA relationships, carriers must be thorough in their due diligence and clear as to performance goals and expectations throughout the life cycle of the relationship.

Governance and Internal Controls: The long-term viability of carrier relationships often hinges on the quality of an MGA's management and its internal control environment. Effective underwriting controls are essential, and they should be transparent to the carrier. Carriers should also ensure that their MGA partners have robust financial reporting and regulatory compliance controls.

Technological Sophistication: Technology is the core of many new MGA value propositions, but technological sophistication is essential even for more traditional organizations. A strong, flexible technology foundation can help an MGA remain competitive in a rapidly changing market. Additionally, a solid digital backbone supporting the MGA/carrier relationship increases efficiency, reduces potential frictions and enhances transparency. Along with a robust technology infrastructure, an MGA must be able to demonstrate high-quality network security practices so it doesn't pose a security risk to its business partners.

“Secret Sauce:” Every MGA claims to produce revenue and profit that is difficult or expensive for a carrier to generate itself. For example, an MGA may profess in-depth knowledge of a particular market segment and its unique underwriting requirements or claim to leverage new underwriting technologies and data sources more effectively. Sometimes, however, the “secret sauce” isn't so special—the MGA may have overrepresented its capabilities, or evolving technology has blunted its competitive advantage. Without a clear competitive differentiator, an MGA relationship becomes an expensive way to produce business that a carrier's competitors write more efficiently and cost-effectively.

Trust: Trust is an elusive quality, but it is the glue that holds business relationships together. A good MGA relationship needs to adhere to Ronald Reagan's principle of “trust but verify,” but no level of verification can overcome mistrust, especially when an MGA can materially impact a carrier's financial performance and reputation.

Carriers must ensure that they are dealing with trustworthy people within their MGA partners. An MGA may be newly formed, but its key stakeholders almost certainly have discoverable histories (and if they don't, that should be a red flag). A carrier should research the reputations of founders and executives, of course, but also principal investors, board members, advisers, and others who may influence the company's conduct. Reputation includes the individual's history of ethical conduct (or lack thereof) and their track record of performance in their various business ventures.

Related: UK Regulator Warns Insurers to Closely Monitor Risk, Sets Deadline for Stress Testing

While a lack of longevity can make the MGA market an uncertain place, firms that deserve carriers' trust will be actively working to earn it. By keeping an eye out for MGAs that openly share their policies, processes and procedures and are staffed with cybersecurity veterans to serve their niche client's needs, carriers can feel more confident in the partnership. Trustworthiness can be a difficult quality to judge when faced with so many options and variables, but the right MGA will understand the level of assurance and transparency that carriers need and will be eager to offer it.

Best’s Review contributor Mario Vitale is president of Resilience. He can be reached at

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