Acting as an Agent for an Insurance Company
Delegated authorities can vary in the amount of responsibility transferred to a managing general agency (MGA). This can range from a comparatively straightforward agreement solely to issue policies at pre-agreed premiums, to full underwriting and rating freedom along with responsibility for handling claims.
Establishing a delegated authority (more commonly referred to as a binding authority) requires planning and an in-depth knowledge of insurance. As the MGA is acting as an agent for the insurer, the relationship with the MGA’s clients changes, since the MGA is now the insurer and responsible for protecting its insurance partner’s interests.
Ultimately delegated arrangements succeed or fail as a result of a combination of underwriting results, lack of volume of sales, customer satisfaction as well as the continued appetite and support of the insurance partner.
In general, the transfer of an existing book of business into this type of arrangement is the simplest. But whether the business is a start-up or a rollover of an existing book, companies establishing a delegated authority need to demonstrate either a niche or particular opportunity that they are uniquely positioned to capitalize on. Alternatively, they should be able to demonstrate that they have the routes to market and that the demand exists to develop a risk portfolio.
For existing portfolios of intermediated business, consideration needs to be given to the fact that the MGA may now be offering only one insurance proposition to its customers, who may previously have relied upon the MGA to source competitive pricing from the insurance market as a whole.
When policyholder requirements fall outside of its policy acceptance criteria, the MGA normally retains the right to offer other insurers’ policies to its customers but such circumstances should be agreed with the insurance partner in advance.
As an agent of the insurer, the MGA, therefore, has a primary responsibility to the insurer and should do its best avoid any potential anti-selection. Transparency, reporting, and frequent communication are important components in the management of a successfully delegated arrangement. Any adverse underwriting results in the absence of explanation and remedy will impact negatively on the venture.