Communicating Effectively with Your Wholesaler

The managing general agent (MGA) has long been a part of the insurance sales process—but still remains a mystery to many insurance professionals. A working knowledge of MGAs will lead to a beneficial and profitable partnership. Many insurance carriers choose to use MGAs as a primary distribution source, and some use a combination of both MGA and retail agent. Due to the uniqueness of the MGA, a good understanding of how they operate is important for a successful relationship.

MGAs, often referred to as general agents, wholesalers or surplus lines brokers, can be one or all of these. Today, most MGAs are wholesalers and/or surplus lines brokers. Their authority is derived directly from the carrier they represent, on whose behalf MGAs are contracted to perform certain functions. This authority consists of, but is not limited to, quoting and binding; policy issuance (new, renewal, endorsements, cancellations, etc.); claims handling; retail agents appointments; advertising; marketing; and accounting.

MGAs can offer a variety of products, or specialize in one or more unique classes or business. Often, the MGA offers both admitted and non-admitted personal and commercial lines products as well as difficult to place, or excess and surplus lines, business. Retail agents should set some guidelines in choosing the best MGA to fit individual needs. As most independent agents are members of a state or national trade association, MGAs should also participate in an organized trade association. In 1926, the American Association of Managing General Agents (AAMGA) was established to bring together the nation’s best and brightest MGAs.

The following is a guide to understanding the relationship and requirements of doing business with an MGA: Does the MGA require a written contract?; How long have they been in business, and who are the key contact people in the MGA?; What states do they have authority to write in?; What carriers does the MGA represent, and what are their Best ratings?; Are there volume or E&O requirements?; What are the accounting terms?; Are ACORD apps. acceptable, or are company-specific apps. provided?; Are special programs available?; What commissions are paid?; What authority do they give?; Are telephone quotes offered?; What other retail agents in the area do business with them?

Prior to 9/11, pricing began to show signs of firming, and many carriers began to closely review their books of business and have had to make very difficult decisions regarding coverages and pricing. Post-9/11, this process has moved forward at a rapid pace. Carriers have increased pricing at a rate that will begin to show signs of profitability.

Certain classes of business are showing signs of the effect of the hard market. Some carriers may be exiting from one or more of these classes of business or reducing their volume of written premium.

We have seen some instances where carriers are reducing limit availability, and this can pose a major problem for your customer at renewal. MGAs have dealt with this before and have the expertise to solve these and other problems. Some MGAs are able to write large limit coverages on property exposures by splitting the limit between two or more carriers. The one thing to be aware of is the deductible. Make certain the deductible is the same on all policies written this way.

During a hard market, it becomes imperative that we all become creative and innovative in our attempts to place business. There are many producers who have not experienced this type of marketplace and will find it difficult to deal with carriers unless they are willing to look at this as an opportunity to better serve the customer and the carrier. As we move further into this cycle, many of the practices used by MGAs during the last hard market will be revisited. A well-established MGA has more than likely been through the difficulties of finding carriers, coverages and price during this time.

Due to increased reinsurance costs, many carriers will be forced to pass this increase down. There is a growing concern about classes of business that have a long tail. It has always been important that the MGA represent strong and financially sound insurance companies, and, in times like these, this can be a great selling tool.

If the MGA you choose to work with writes both admitted and non-admitted business, you can have the best of all opportunities. The non-admitted market gives the MGA the ability to write difficult classes at appropriate pricing. The freedom of form makes the excess and surplus lines arena a variable buffet of products not found in the admitted market. Many MGAs representing both admitted and non-admitted markets will first search out the admitted marketplace before placing business with the non-admitted carrier.

The MGA distribution system has never been more important to the success of the retail agency. And if the past has any bearing on the future, the MGA will continue to be an important distribution source for the entire insurance industry.

Baron Garcia, CIC, is president and CEO of Oklahoma General Agency Inc. and New Mexico General Agency LLC. He is also 2001—2002 President of AAMGA (www.aamga.org), the oldest and largest trade association of MGAs in the U.S. He may be contacted at BARON@OKGENERAL.COM.

Topics Carriers Agencies Excess Surplus Insurance Wholesale Market