What makes an MGA tick?

Speaking to PB were Chris Hanks, head of commercial at Allianz, Clive Nathan, chief executive at Towergate Underwriting, and David Taylor - managing director of Sidcup-based Flint Insurance Brokers.

Why would an insurer choose to support a managing general agent?

Hanks: We wouldn't normally support one but in specific circumstances they can help me reach the parts I can't, such as specialist areas.

Nathan: The underwriting performance should meet the profit needs of the insurer and it adds distribution. We have four ingredients that make our model stand out from the crowd: expertise, systems, innovation and sales.

Do you find any benefits from an MGA relationship over a traditional insurer relationship?

Taylor: MGAs come in all shapes and sizes, some offer a real specialism in an area where the people running the MGA are bringing value to the chain and clients benefit from that expertise, having a greater knowledge of a trade or industry and providing enhanced policy benefits, while others seem to be competing in crowded markets with cheaper rates. In the first scenario, we can support them by offering best advice to customers and treating them fairly especially as there is usually an additional layer of commission/fees in the price. In the second scenario, we would use this kind of MGA as a last resort having exhausted all of the 'direct' alternatives.

Nathan: We provide access to experts and a better service experience. Our model gives us more control over the service brokers receive. This means that we are often the first port of call for brokers when they are looking for specialist markets.

What criteria would insurers expect the MGA to have in place before agreeing?

Hanks: Data, system, controls and training.

Nathan: There is a host of criteria: historical and projected underwriting performance, underwriting business plan, professional team, finances to support the operation, robust reporting and MI criteria, a proven specialism and E&O insurance.

How do you communicate the MGA to a customer especially if there is more than one insurer on the panel?

Taylor: We will tailor the insurer part of our proposal to clients, depending on the way that the policy we are selling is being underwritten. Our preference is to talk about the 'final' insurer and paper the policy is written on rather than the MGA as a whole. Where there is a genuine 'panel' we will sell the product on the expertise of the MGA.

How many years does an insurer typically sign up to support a MGA?

Nathan: Our standard arrangements vary from a minimum of one year to longer-term arrangements. Three-year deals give continuity to all parties, including customers.

Who handles the claims and deals with disputes?

Hanks: We like to handle the claims, although we can give them to the MGA in certain areas. I wouldn't give liability claims away.

Nathan: This will be agreed at the outset of the contract and it varies. The carrier will usually delegate a level of claims authority to the MGA or fully "outsource" the claims function to the MGA or third-party administrator. Some of our underwriting businesses use Guidewire, a state of the art claims management system which few primary carriers currently possess. Some MGAs will operate with no claims authority so all claims negotiations and disputes will be handled by the carrier themselves.

Is there a reputational issue here - who takes the flak if something goes wrong?

Nathan: The "brand" and market reputation of both the MGA and insurer can be in question. Both parties have a vested interest to act professionally to provide protection from reputation failure. Of course, we are most comfortable with the aspects we can control, but we work with companies we trust to do their bit - and we keep each other on our toes.

What does the customer see on their policy document?

Nathan: The customer will find details of both the carriers and the MGA.

Who decides the rating structure and what happens in a hardening market? Why do MGAs sometimes price differently from another arm of the same company?

Nathan: We agree rating structures with the insurers at the outset of the contract. In a hardening market, access to specialists rather than generalists is a major competitive advantage. An expert MGA will have a more segmented approach to rating of risk and this may result in a different price to that of the insurer. Acquisition and handling costs may differ, meaning the gross price to the customer may vary.

Hanks: We will agree the structure and target market, because at the end of the day somebody else is using my capacity. Some MGAs use the distribution costs to subsidise prices.

Taylor: In a hard market, those MGAs that offer a genuine specialism will survive, those that trade purely on the back of the lowest price will find underwriters questioning their distribution model and what value the MGA is bringing.