The MGA offers retail agents access to a wide variety of markets, admitted and non-admitted, providing many more coverage and form options as well as pricing alternatives. An experienced wholesaler also is able to assist retail agents in evaluating the security and financial integrity of surplus lines carriers, and work with them both to design coverage that is acceptable to the insurer and palatable for the insured.

Business-class expertise is also an added value that an MGA provides to an insurer and their insureds. MGAs are generally specialty-focused regional businesses with a thorough knowledge of their area of expertise as well as local conditions. That knowledge can often make the difference as to whether underwriting a given risk yields a profit.

When hard market conditions persist, insurers who use a managing general agency as a local outpost–performing production, underwriting and binding, premium collection, policy issuance and maintenance–benefit from a cost-efficient and focused means by which to enter a new area without the expense normally associated with a startup.

Of course, none of these advantages will be realized if you dont work with the right wholesale agency. As in other segments of the insurance industry–or any other industry for that matter–there is no denying that there are those that should be avoided.

A handful of fly-by-night, fast-buck MGAs have received a lot of attention from politicians and the media. As a result, they have cast a negative light on a whole segment of the industry–a bad image that is largely undeserved, given the long history of MGAs as stable and reliable independent businesses playing a vital role in our industry. Also, deleterious actions and inactions by some managing general underwriters have recently been confused with MGAs.

The MGAs I look to work with make their living by establishing and maintaining long-term business relationships based on trust, reliability and mutual benefit. They only succeed when the retail agents and insurers they work with succeed, and their most valuable business asset is one that cant be quantified: their good reputation.

Thats an asset that cant be purchased at any price; it can only be earned through years of honest, reliable, ethical business practices. That hard-won reputation is put on the line with every transaction. An MGA who writes a large volume of bad business can make a short-term profit on commission volume, but should pay dearly in the long run when insurers, reinsurers and independent agents refuse to do business with them.

For that reason, those who fully understand the wholesale distribution network take issue with those who suggest that MGAs operate in a “risk-free” environment.

To maintain that trust, the reputable MGAs dont go looking for a blank check, or a blind eye, from their business partners. They willingly work with the insurers they represent and the retail agents they serve to adopt strict, carefully monitored contractual agreements with extraordinary checks and balances designed to ensure, as much as possible, the integrity of all transactions.

How do you know whether an MGA is a fast-buck artist or a reputable professional dedicated to stable, long-term business relationships? A good place to start is with the company he or she keeps.

For 20 years, I have been proud to maintain an associate membership in the American Association of Managing General Agents. Membership in AAMGA provides many benefits for its members, in areas such as continuing education, networking and technology. But the key benefit, as I see it, is the opportunity to adhere with pride to a strict code of ethics.

The AAMGA Code of Ethics is the assurance that thousands of insurers and retail agents have counted on for nearly eight decades of successful and profitable business partnerships with our members. That code lists membership obligations in six categories:

Financial: We must meet all financial obligations (such as debts owed, premiums and returns due, etc.) on a timely basis.

Intra-organizational: We must compete fairly and honorably in the marketplace, making no false statements or misrepresentations about other AAMGA members or companies.

Sub-producers: We must serve our sub-producers to the utmost of our ability. In doing so, we will research and remain current on the financial stability of companies with which we place business, encourage continuing education and training for our staffs and ourselves, and make no misrepresentation of what coverage is being provided.

Companies: We will faithfully execute the underwriting guidelines of the companies we represent. We must act in the utmost good faith and gather all data necessary to make a proper underwriting decision before putting an insurance company at risk. We are obligated to remain current on the laws affecting insurance companies in those states in which we have authority, advising companies to the best of our ability on the statutes and practices that affect them.

Legal: We are required to observe all insurance and other applicable state and federal laws.

Community obligations: We will take an active part in the recognized civic, charitable and philanthropic movements that contribute to the public good of our communities.

AAMGA just celebrated its 75th anniversary. Fly-by-night, fast-buck artists dont have milestones to celebrate, but the reputable professionals who make up this organization are approaching a century of successful partnerships. That tells you that all MGAs are not the same–and where the reputable professionals can be found.

For more information about the Overland Park, Kan.-based AAMGA, I urge you to visit www.aamga.org, or call me at 312-609-9294.

Thomas Leonhardt is senior vice president for Towers Perrin Reinsurance in Chicago, and a member of the Communications Committee of the Overland Park, Kan.-based American Association of Managing General Agents.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 29, 2001. Copyright 2001 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.

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