What Is an MGA in Insurance? Managing General Agents vs Brokers, Wholesalers and Carriers

An MGA, or managing general agent, is an insurance intermediary that a carrier has authorized to underwrite and bind policies on its behalf. The MGA decides which risks to accept and at what price, within guidelines the carrier writes into a contract. The carrier issues the policy, holds the risk and pays the claims. California law defines the role and calls it the Managing General Agents Act. Under it, an MGA manages all or part of an insurer's business, underwrites a significant share of its premium, and also adjusts claims or negotiates reinsurance for it.^[1] MGA stands for managing general agent. In practice it means one thing for you as a buyer: the company whose name is on the quote is often not the company that pays your claim.

Many of the programs that write hard-to-place California homes are MGAs. If a wildfire nonrenewal has you shopping, request a homeowners quote and we will check the MGA programs that fit your address alongside the admitted and surplus lines markets. This guide explains what an MGA does, how it compares with a broker, a wholesaler and a carrier, and what to ask about the policy it sells you.

What is an MGA in insurance?

An MGA is a specialist agent that has been handed part of the insurer's own job. IRMI describes an MGA as an agent or broker that, unlike a conventional one, is "vested with underwriting authority from an insurer." Depending on its agreement, it may be able to bind the insurer, issue policies, appoint producers and arrange reinsurance. IRMI adds that MGAs usually work in specialty lines such as professional liability and surplus lines.^[3]

The legal definition is narrower and depends on size and function. The NAIC's model Managing General Agents Act defines an MGA as a person who manages all or part of an insurer's business and acts as its agent. It must also produce and underwrite gross direct written premium equal to at least 5 percent of the insurer's policyholder surplus in any quarter or year. On top of that, it must adjust or pay claims above $10,000 per claim or negotiate reinsurance for the insurer.^[2] California's version uses the same 5 percent test. Instead of a fixed dollar figure, it sets the claims threshold at an amount the Insurance Commissioner determines. It also excludes the insurer's own employees and a few other roles.^[1]

The NAIC model's drafting note makes a point worth knowing: a company that calls itself an MGA is not necessarily one under the law, and a company that does the work is one whatever it calls itself.^[2] Some firms use the terms managing general underwriter (MGU) or program administrator for a similar role. IRMI uses MGU mainly for life and health.^[3]

MGA vs broker vs wholesaler vs carrier: what is the difference?

These roles sit at different points between you and the money that pays a claim. The shortest way to keep them apart is to ask whom each one works for.

MGA vs broker. California defines an insurance broker as a person who, for compensation and on behalf of another person, transacts insurance with, but not on behalf of, an admitted insurer.^[4] An MGA is the opposite: it acts for the insurer.^[1] A broker shops several markets for you. An MGA sells the programs it runs, and it may reach you only through brokers. Our guide to insurance agents vs brokers covers the agent side of the same split.

MGA vs wholesaler. A wholesale broker is a middle layer between your retail broker and markets the retail broker cannot reach directly, often in the surplus lines market. California recognizes it as a "wholesale intermediary broker" that owes its disclosures to the retail broker.^[4] Some wholesalers also run MGA programs, so one firm can play both roles on different policies.

MGA vs carrier. California's Act says it plainly: "The acts of the MGA are considered to be the acts of the insurer on whose behalf it is acting."^[1] The MGA's name may be on the website, the quote and even the claim letters. The carrier's name is on the policy, and the carrier is the one legally bound to pay.

What is binding authority, and what is program business?

Binding authority is the power to commit an insurer to coverage without first asking it to accept the risk. California's broker statute describes it precisely: a written agreement that authorizes the licensee "to obligate the insurer without first obtaining notification from the insurer that the insurer has accepted" the submitted risk.^[4] A licensee with that power is acting for the insurer, not as a pure broker, for that transaction.^[4] An MGA holds this kind of authority on a larger scale, and it usually also underwrites and manages the book.

Program business is what that authority produces. A program is a defined class of risk, written on one carrier's paper under one set of guidelines. Examples are wildfire-area homes in California, small builders risk projects or one-day events. California requires the MGA contract to spell out those guidelines: maximum annual premium, the basis of the rates, the types of risks, maximum limits, exclusions, territory, cancellation provisions and maximum policy period.^[1] When a program quote says "outside appetite," it usually means one of those contract limits, not a judgment about you.

What does California require of an MGA?

California's Managing General Agents Act puts most of its rules into the contract and into the carrier's oversight duties. The main requirements are these:^[1]

• License. An MGA acting for an admitted insurer on California risks must hold a property and casualty broker-agent license (or a life agent license for life business). The Commissioner may also require a fidelity bond and an errors and omissions policy.
• Written contract. No MGA may place business without a written contract that divides responsibilities and contains minimum terms. For example, the insurer may terminate for cause, and the MGA may not assign the contract or appoint a sub-MGA.
• Premium held in trust. Funds collected for the insurer are held in a fiduciary capacity in an insured bank account, and the MGA must account and remit at least monthly.
• Claims controls. If the MGA settles claims, it must report them to the insurer promptly and send files on disputed, large or long-open claims. It cannot commit the insurer to a claim above 1 percent of the insurer's policyholder surplus without prior approval.
• Insurer oversight. The insurer must keep an independent financial examination of each MGA on file and review its underwriting and claims operations on site at least twice a year. It must also notify the Commissioner within 30 days of appointing or terminating an MGA.
• Penalties. The Commissioner can fine up to $25,000 per violation and suspend or revoke the producer's license.

The Act defines "insurer" as a company licensed under a certificate of authority in California, so these rules are written around admitted carriers.^[1] Many MGA programs in the hard-to-place market are written on surplus lines paper instead. That is one more reason to find out which kind of paper your policy is on.

Why do MGAs matter in California's hard homeowners market?

When admitted carriers stop writing new homes in wildfire areas, MGAs are often where new capacity comes from. An MGA can build a narrow program, such as one wildfire model or one class of home, and find a carrier or a Lloyd's syndicate to back it. It does not have to become an insurer itself. Several of the names California owners now hear from their brokers work this way:

• Delos says of itself: "As a Managing General Agent (MGA), Delos offers policies on behalf of our partners," naming Homesite Insurance Company and Lloyd's of London.^[7] See our Delos Insurance guide.
• Annex Risk says it "works with leading insurance carriers" and lets appointed brokers quote and bind high-risk homeowners and flood insurance using its own "algorithmic underwriting and capacity."^[8] See our Annex Risk guide.
• Blitz calls itself "a full-stack MGU" and says its policies are written on "A- (Excellent) XV rated insurance paper."^[9] See our Blitz Insurance guide.

For a homeowner, the practical sequence is in our guide to high-risk homeowners insurance in California: shop admitted carriers again, then surplus lines and MGA programs, then the FAIR Plan with a DIC policy. MGA programs sit in the middle of that list because they can offer a full homeowners form where the FAIR Plan offers only fire coverage.

What should you check before you buy an MGA policy?

An MGA policy is not worse than a direct carrier policy. It has one more link in the chain, and you should know every link. Ask your broker these questions and get the answers in writing:

1. Which carrier issues the policy?

   Get the legal name of the insurer on the declarations page, not only the MGA's brand. Some MGAs place different programs on different carriers.

2. Is that carrier admitted in California, or surplus lines?

   California requires every surplus lines policy to carry a notice. It says the insurer is not subject to the solvency regulation that applies to California licensed insurers and "does not participate in any of the insurance guarantee funds created by California law."^[5] An admitted carrier is inside that system. Our guide to admitted vs non-admitted carriers explains the trade-off.

3. How is the carrier rated?

   Look up the issuing carrier's financial strength rating, not the MGA's marketing. Our guide to AM Best ratings explains the scale.

4. Who handles claims?

   Some MGA contracts let the MGA adjust claims, others send claims to the carrier or a third-party administrator. California requires disputed and large claims to reach the insurer either way.^[1] Know whom to call before you need to.

5. What happens if the program closes?

   A carrier can terminate an MGA contract for cause.^[1] Programs also end when a carrier pulls its capacity. Ask how long the program has written in California and what happened to policyholders the last time a program changed carriers.

How does an MGA placement actually work for a California buyer?

Here is a typical path for a wildfire-area home. The example is illustrative, not a specific quote.

1. Your admitted carrier nonrenews the home after a wildfire risk review.
2. Your broker submits the address to several markets: admitted carriers still writing new business, surplus lines carriers, and MGA programs that the broker is appointed with, directly or through a wholesaler.
3. The MGA runs its own underwriting. That might be a wildfire model, an inspection or a questionnaire. It then quotes within its contract with the carrier.
4. If you accept, the MGA binds coverage on the carrier's paper. The carrier issues the policy, or the MGA issues it on the carrier's behalf.
5. At claim time, the carrier or its designated adjuster handles the loss. The MGA's authority, the carrier's money and your broker's advocacy all meet in that file.

Menlo Insurance Services is an independent California broker. We represent the buyer, and we reach MGA programs through our market appointments and wholesalers, so the same submission can be tested against several programs at once.

This guide is for educational purposes and summarizes the California Insurance Code, the NAIC model act and published definitions. It is not legal advice. Your policy's specific terms, conditions and endorsements control. Menlo Insurance Services (CA license 6020106) is a licensed California broker, may earn a commission on policies it places, and does not guarantee that any coverage or price will be available; talk to a licensed broker about your actual exposures.

The Bottom Line

An MGA is the carrier's underwriter at arm's length. It decides, prices and binds under a written contract, and the carrier on the policy holds the risk. A broker works for you and can take your risk to many MGAs. In California's hard homeowners market, MGA programs are often the step between a nonrenewal and the FAIR Plan. Before you accept one, get three answers in writing: which carrier issues the policy, how it is rated, and whether it is admitted or surplus lines. Then request a homeowners quote so the programs that fit your home can be compared side by side.