MGA Group Disputes PWC Findings

After 9/11, carriers began to pull back the authority they had granted MGAs, becoming much more selective, he said.

The question is, he said, is the pull back permanent or is this just a phase in the cycle that will change when the market softens again and companies seek market share?

"There is no reason to deny that MGAs have a place in the market," Mr. Coleman said, adding that companies do not have hard and fast processes in place in the appointment of MGAs to avoid the problems experienced in the past.

"Companies are not paying attention until problems arise," he observed, and would avoid underwriting control problems if they closely monitored the relationship.

"I come into the process at two levels in my practice–one is disputes and two is due diligence on MGAs or program managers," Mr. Coleman explained. "When something goes wrong, looking at it two years later you go in and say, It was so clear what was going wrong. But maybe it was a soft market or maybe they thought everyone else was doing it."

"Yes, waiting too long adds to the problem," he said.

In his report, Mr. Coleman speaks to some of the problems and lays out the groundwork insurance companies need to follow when developing their MGA relationships.

Ronnie C. Moore, president, and Bernie Heinze, executive director, of the King of Prussia, Pa.-based American Association of Managing General Agents, disputed some of Mr. Colemans findings.

"His use of the term managing general agency doesnt fit any of the AAMGA criteria that we use," said Mr. Moore. "We have a code of ethics" that is very comprehensive.

The cases Mr. Coleman cited in the report of poor and unethical management by MGAs did not reflect AAMGA members or brokers, he said.

Mr. Moore noted that while the figure used to illustrate the amount of business MGAs handle, reported at close to $11 billion, only reflects the AAMGAs membership, the overall amount written through is substantially larger, but no figures are available.

Companies, while not seeking new appointments, he said, are not looking to withdraw from doing business with MGAs. They are seeking profitable underwriting business from their existing relationships.

Overall, Mr. Heinze said, Mr. Colemans report is positive toward the MGA system. He added that the relationship AAMGA members have with their carrier partners is a good one.

"Those companies that do substantial business with MGAs have extremely good combined ratios based upon the advantages of entrusting the pen," said Mr. Heinze.

"We prefer to use the term entrusting the pen more than giving the pen away that Mr. Coleman uses, because its almost like saying you abandoned the pen and whatever happens, happens," Mr. Heinze observed. "Thats not how it really works. Its entrusting the pen to someone [the carrier has] developed a relationship with over time and understanding that those people [the agents] are going to be watching the pen as if it were their own, which is what MGAs are doing."

Copies of the PWC report are available by contacting Wendy Amstutz at wendy.amstutz@us.pwc.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 2, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.