The MGA business model has changed and has become more stable since the 1990s and early 2000s, when the market entered a period of volatility due to MGAs' association with the failures of multiple insurers, says a new report.
In its recent study, "Managing General Agents: A Look at the MGA Specialists" Conning, an investment-management company for the global insurance industry, says the 1990s and early 2000s saw the failure of companies—such as Mutual Risk, Frontier and Reliance—that operated through MGAs. In the years since, Conning says an improvement in risk-management practices has helped create a more stable MGA business model today that limits the "extent an MGA relationship can adversely affect an insurer's underwriting results."
Essentially, according to Conning, the changes have required MGAs to have some "skin in the game," tying a portion of the MGA's income to the quality of premium underwritten. One strategy has been a sliding-scale commission, while another has been the assumption of a portion of the premium by a captive formed by the MGA.
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