Is Your MGA Behind the Curve? Strengthening Oversight in a Dynamic Insurance Landscape

The Managing General Agent (MGA) market has experienced significant growth in recent years, fueled by insurers seeking agility, specialized expertise, and access to niche markets. Conning and Aon estimate that the total US MGA market (including Lloyd’s syndicates, continues to experience robust growth, expected to surpass $100B in DPW in 2024^1,2. In a highly competitive and rapidly evolving insurance landscape, MGAs have become integral to the ecosystem of traditional carriers looking to expand their distribution while offering underwriting proficiency, operational efficiency, and market responsiveness.

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Industry Trends: Why MGAs Matter More Than Ever

The role of MGAs has expanded beyond their traditional functions of underwriting and claims management. They are now pivotal in helping insurers and reinsurers navigate emerging challenges, including:

• Targeting Niche Markets: MGAs are adept at underwriting in specialized areas like cyber insurance, climate-related risks, and high-net-worth property. This specialization enables insurers to access profitable, underserved segments.
• Accelerating Market Entry: For insurers looking to expand into new geographic regions or product lines, partnering with MGAs provides a quick and cost-effective pathway.
• Leveraging Technology: Leading MGAs are integrating advanced technologies like AI, data analytics, and telematics to refine underwriting models, streamline claims processes, and enhance customer experiences.
• Driving Innovation: MGAs are at the forefront of creating innovative products, from usage-based insurance (UBI) to climate-resilient policies, catering to evolving consumer demands.

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Growth Areas for MGAs

Recent data highlights several high-growth areas for MGAs, including:

• Cyber Liability: The escalating frequency and sophistication of cyber threats have heightened demand for cyber liability insurance. MGAs specializing in this sector can provide innovative and tailored coverage solutions.
• Parametric Insurance: Parametric insurance, which disburses payouts based on predefined triggers such as specific natural events, is gaining traction, particularly in regions susceptible to climate change. MGAs are at the forefront of developing these innovative products.
• Specialty Lines: MGAs are capitalizing on niche markets, including high-net-worth insurance, construction liability, and cannabis-related risks. Their specialized knowledge enables them to underwrite complex risks effectively and provide a cost-effective entrance to specialized markets.
• Digital Distribution: The adoption of digital platforms is changing insurance distribution, and MGAs embracing direct-to-consumer models are redefining product marketing and sales. Insurtech and AI partners will continue to drive digital transformation and enhance digital distribution capabilities.

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While these growth areas present significant opportunities for insurers, they also underscore unique risks introduced by the autonomy and complexity of MGA operations. Without rigorous oversight, carriers may find themselves exposed to underwriting inconsistencies, financial inaccuracies, or operational inefficiencies, making independent audits a critical safeguard.

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Are You Confident in Your MGA's Performance?

Given their increasing importance for distribution, value proposition in market access, technology and innovation and attractive financial profile³, the spotlight remains on MGAs to deliver sustained performance.

How can then carriers be sure their MGAs are meeting expectations?

One way is for carriers to independently audit their MGA partners, providing a clear lens into their operations, performance, and alignment with carrier goals. Some key questions to consider include:

• Is the MGA effectively managing its book of business, or are there profitability concerns?
• Does the MGA comply with underwriting and claims guidelines, or are there deviations?
• Are financial and operational controls sufficient to ensure data integrity, compliance, and risk management?
• Are you leveraging independent audits to evaluate and enhance MGA performance?

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The Keys to a High-Performing MGA: Best Practices and Standards

In our experience the most successful MGAs are defined by their ability to combine precision, agility, and strategic foresight across their operations. The best of breed MGAs exhibit common characteristics, such as:‍

• ‍Precise Underwriting: High-performing MGAs excel in underwriting by aligning pricing strategies with the actual risks assumed. Their disciplined approach ensures profitable results while maintaining balance sheets that inspire carrier and reinsurer confidence.‍‍
• ‍Operational Agility: Leading MGAs demonstrate the ability to pivot in response to emerging risks, regulatory shifts, and market disruptions, ensuring resilience and continuity.‍
• Integrating Advanced Technology: Technology is at the core of MGA efficiency. Carriers should assess whether their MGAs are leveraging cutting-edge analytics, artificial intelligence, and digital platforms to streamline workflows and enhance operational efficiency.‍
• Fostering Robust Governance and Compliance: A strong foundation of governance and adherence to regulatory standards distinguishes the best MGAs. By aligning closely with carrier expectations and maintaining strict compliance with industry guidelines, they mitigate risk and build trust.

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The Alan Gray Approach to MGA Auditing: Protecting Carrier Interests and Why Independent Audits Matter

Alan Gray partners with carriers to provide robust, independent audits of MGA operations. With decades of expertise, we help ensure that MGAs are delivering on their promises while safeguarding carrier interests. Our audits focus on:

• Underwriting Integrity: Verifying compliance with carrier guidelines and assessing pricing accuracy.
• Claims Management: Evaluating claims handling for efficiency, fairness, and adherence to best practices.
• Financial Oversight: Analyzing premium reporting, reserve adequacy, and overall financial performance.
• Compliance and Governance: Ensuring adherence to regulatory and contractual requirements.

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Independent audits are an essential tool for carriers to ensure their MGA partners operate efficiently, profitably, and in compliance with regulatory and contractual obligations. By providing actionable insights, these audits enable carriers to:

• Mitigate Risks: Identify vulnerabilities in underwriting practices, claims handling, and financial reporting that could lead to losses or reputational harm.
• Enhance Transparency: Gain a clear understanding of MGA operations, ensuring alignment with carrier objectives and regulatory standards.
• Strengthen Oversight: Equip carriers with the data and recommendations needed to recalibrate oversight procedures and improve MGA performance.
• Demonstrate Due Diligence: Build trust with reinsurers, investors, and regulators by showcasing a proactive approach to managing MGA relationships.

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Case Study 1

Strengthening Internal Controls‍

In one engagement, Alan Gray’s audit uncovered critical internal control weaknesses within a leading MGA, enabling the carrier to reduce financial discrepancies by 25% and enhance premium reconciliation processes. These results not only protected the carrier’s profitability but also strengthened its position with reinsurers.

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Case study 2

Verifying Segregation of Duties and Enhancing Premium Remittance‍

In another engagement, Alan Gray was retained by a top E&S carrier to conduct a comprehensive audit of an MGA to verify adherence to the Program Administrator Agreement, including segregation of duties and internal controls, trust account reconciliation, completeness testing of bound and reported risks and timely remittance of premium. As a result, the carrier reduced reporting discrepancies by 25% and improved premium remittance timelines, leading to stronger financial controls and enhanced trust with reinsurers.

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Ensuring Accountability in MGA Relationships

With decades of experience and a proven track record of delivering actionable insights, Alan Gray is uniquely positioned to help carriers safeguard their MGA partnerships. Our customized audits ensure compliance, transparency, and optimal performance—giving you the confidence to navigate a competitive insurance landscape.

Visit our website at www.alangray.com and contact Alan Gray today to schedule your customized audit. Together, we’ll ensure your MGA partnerships are not just compliant but are driving exceptional results and protecting your competitive edge.

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Notes:

¹ Conning, 2024: Managing General Agents – Ahead of the pack

² Aon, 2024 MGA Market and Carrier Analysis

³ McKinsey, 2022, Insurance MGAs: Opportunities and considerations for investors