During the 1970s and 1980s, managing general agents, or MGAs, experienced growth as insurance companies were looking to expand operations without actually building new facilities in other locations. In 2011, MGAs are still present in the insurance industry, but are not as prevalent. An MGA acts as an intermediary between insurance companies and clients.
In any agency relationship, the agent signs a contract agreeing to act on behalf of, or in place of, the principal. The principal grants the agent with the authority to perform some duty on its behalf. The principal grants express authority, which is written or verbal instructions that inform the agent of what it is supposed to do for the principal. The principal also may be bound by an agent's apparent authority, which is authority the agent appears to have, given a set of circumstances. For example, if a restaurant owner hires a replacement for the week to run his restaurant, the employees would reasonably assume the substitute boss was allowed to fire a waitress. If the substitute was not permitted to fire a waitress, the owner should have specified this condition.
Managing General Agents
The definition of an MGA varies by state. The Kentucky Statutes define an MGA as an individual or business entity appointed by an insurer to negotiate contracts on behalf of the insurer. In many cases, the insurer grants the MGA the authority to create and cosign insurance documents. MGAs are most commonly seen selling unusual forms of coverage, such as professional liability, where expertise and specialised knowledge is necessary to sell these policies.
Duties and Authority
MGAs provide underwriting and administrative services to the insurance companies they represent. Underwriting insurance is a process where the agent evaluates a customer's situation and determines eligibility for insurance services and how much these insurance services should cost. MGAs may also issue polices to customers and collect funds. The other duties and authority of an MGA depend on the contract between the MGA and the insurance company.
Limitations on Duties and Authority
The MGA cannot take liberties or operate outside of the terms of the contract between her and the insurance company. The MGA's contract is detailed, setting forth the company's underwriting guidelines and mandatory provisions. Although the MGA has some decision-making authority, she must operate inside of certain guidelines. Examples of guidelines include a maximum annual premium volume, types of risks the MGA may write, liability limits, maximum policy periods and territorial limitations. For instance, if the insurance company does not allow one-year policy periods, the MGA cannot sign customers up for one-year policies.