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The insurance landscape is a complex matrix of roles and responsibilities. As consumers and industry professionals seek clarity, understanding the distinctions between various entities is crucial. Prominent among these are Managing General Agents (MGAs) and brokers, who play distinct yet sometimes overlapping roles in the provision of insurance services. This article peels back the layers to explain these differences, shedding light on their unique functions within the industry.
An insurance broker acts as an intermediary between clients looking to purchase insurance and insurance companies that offer the products. The broker’s primary role is to assist customers in identifying their insurance needs, offering expert advice, and finding the most suitable insurance policy that matches the client’s requirements. They advocate for the clients, not the insurers, and are bound to act in the clients’ best interests.
Brokers earn revenue mainly through commissions paid by the insurance companies for the policies they sell, as outlined in our glossary of insurance terms on insurance commission. They have the flexibility to compare products from the entire market, which enables them to provide multiple options for their clients.
On the other side of the coin, Managing General Agents are specialised insurance agents that have been granted underwriting authority by insurers, as noted in our MGA insurance glossary entry. They act on behalf of the insurers and are permitted to perform several functions typically carried out by insurance company underwriters (see our detailed underwriting glossary entry). This includes setting rates, writing policies, and adjusting claims.
An MGA can be thought of as a hybrid between an agent and an insurer. They have the authority to make underwriting decisions and are also responsible for creating and managing a book of business. MGAs earn money through commissions, as well as underwriting profits, which are essentially the remaining funds from premiums after claims and operating expenses are paid out.
The primary difference between an MGA and a broker lies in their relationship with the insurance carriers and customers. A broker does not have the authority to underwrite policies, whereas an MGA does. Brokers focus on guiding clients through the selection of a policy, while MGAs take more of an insurer’s role, handling the nuts and bolts of policy management and underwriting.
Furthermore, while brokers represent the interests of insurance buyers, MGAs represent the interests of the insurance carriers, albeit with a customer-centric lens due to their position in policy issuance.
Whether you’re an insurance buyer weighing your options or a professional navigating the industry, understanding who does what in the insurance space is key. An insurance broker may be your guide to finding the best policy out there, while an MGA could offer you specialised solutions backed by underwriting authority.
By recognising the interplay of these roles, customers and professionals can better navigate their relationships and responsibilities within the industry. Gain further insight into specific terms such as bordereau, coverholder, and more by exploring the extensive resources on our website.