There is a difference between a retail agent and excess surplus lines. I would like to know what is a managing agency?
Posted: Wed Jul 07, 2010 11:54 pm Post Subject:
A managing general agent is a person contracted with an insurance company to handle its affairs in a particular geographical region. In CA, there are additional state-specific requirements, such as writing a minimum percentage of all new business in the state for that company based on total premium, and other requirements. Managing general agents generally have authority to hire and appoint new agents on behalf of the company, and may exercise supervisory authority over them as well. If they have the authority to hire and appoint, they also have the authority to terminate those agents as well.
Being an MGA is more involved than that, but it's probably enough information for you at this time.
There is a big difference between an "insurance agent" and a surplus line broker. In most states, an insurance agent is authorized to transact all lines of insurance except life insurance. But in almost all states, even a licensed insurance agent is not permitted to directly transact insurance with a non-admitted insurer. That's the purview of the surplus line broker.
So when an agent receives an inquiry from a prospect or client for a type of insurance that most/no companies in the state write (such as builder's risk for an owner-builder who is not a licensed contractor, or liability insurance for a nuclear power plant), the agent has to use the services of a surplus line broker to find the best coverage for the client.
Posted: Fri Jul 09, 2010 12:47 pm Post Subject:
I do understand that the MGAs have the authority to hire and fire subordinate agents. But, do they have the authority to decide their commissions as well? How do they go about it?
Posted: Fri Jul 09, 2010 01:57 pm Post Subject:
do they have the authority to decide their commissions as well?
No and yes. Depends on the MGA's and agent's relationship with the insurer. Commission schedules are only established by the insurer, and when paid directly to agents based on their contractual agreement, the MGA is not part of that equation. Instead, the MGA would receive a commission override or some other form of compensation based on their contract with the insurer.
But if commissions are paid to the MGA's agency and then split between the MGA and the writing agent, which is common, then the MGA and the agent must establish an agreed-upon split -- 50/50, 60/40, 75/25, 90/10, whatever. But it's still based on the commission paid by the insurer, which is not arbitrary. Homeowner's and auto typically pay 20%-25% of annual premium, so a $1000 premium = $200-$250, which is only $100-$150 to the writing agent in a 50/50 split. Renewal commissions might be 5%-10%.
An experienced agent who has a big book of business could easily press for a 90/10 split and get it. The newly licensed agent who needs to be trained and requires a certain amount of hand-holding by his/her MGA might only get a 50/50 or 60/40 split.
At a 50/50 split, the new agent is going to have to work diligently and aggressively to earn $50,000 in their first year. But as one's book of business and renewal commissions build, reaching the $100,000 per year level would still be possible after a few years in the business. They should also be at a 75/25 split by their third or fourth year.
Posted: Fri Jul 09, 2010 06:07 pm Post Subject:
MGA's are often used for excess and surplus lines coverage. However more and more are also offering standard markets. Some of these companies only use MGA's to market their programs and some also have direct appointments with agents that are able to meet production volume commitments for the carrier.
Sometimes these companies do not want to deal with smaller agencies with smaller new business volume, so they have an arrangement to allow the MGA to contract directly with the smaller agencies. The MGA will then handle quoting, servicing and policy issuance and will be the "go between" for the small agency. This will often give the smaller agency access to markets that they otherwise would not have, due to volume commitments. In return for a reduce commission.
The MGA is compensated in either a split or spread on the commision. For example, a direct appointed agency might get a 15% commission and an agency going through a MGA might only get 10% for the same risk.
MGA's also are often compensated in commission overrides for high production volume and profit sharing for low loss ratio's. This all relates to an MGA from a P & C agency standpoint.
Posted: Wed Jul 07, 2010 10:43 am Post Subject:
Well, your question is not quite clear with me. Are you inquiring about the duties of an independent insurance agent?
Posted: Wed Jul 07, 2010 09:36 pm Post Subject: Managing Agency
There is a difference between a retail agent and excess surplus lines. I would like to know what is a managing agency?
Posted: Wed Jul 07, 2010 11:54 pm Post Subject:
A managing general agent is a person contracted with an insurance company to handle its affairs in a particular geographical region. In CA, there are additional state-specific requirements, such as writing a minimum percentage of all new business in the state for that company based on total premium, and other requirements. Managing general agents generally have authority to hire and appoint new agents on behalf of the company, and may exercise supervisory authority over them as well. If they have the authority to hire and appoint, they also have the authority to terminate those agents as well.
Being an MGA is more involved than that, but it's probably enough information for you at this time.
There is a big difference between an "insurance agent" and a surplus line broker. In most states, an insurance agent is authorized to transact all lines of insurance except life insurance. But in almost all states, even a licensed insurance agent is not permitted to directly transact insurance with a non-admitted insurer. That's the purview of the surplus line broker.
So when an agent receives an inquiry from a prospect or client for a type of insurance that most/no companies in the state write (such as builder's risk for an owner-builder who is not a licensed contractor, or liability insurance for a nuclear power plant), the agent has to use the services of a surplus line broker to find the best coverage for the client.
Posted: Fri Jul 09, 2010 12:47 pm Post Subject:
I do understand that the MGAs have the authority to hire and fire subordinate agents. But, do they have the authority to decide their commissions as well? How do they go about it?
Posted: Fri Jul 09, 2010 01:57 pm Post Subject:
do they have the authority to decide their commissions as well?
No and yes. Depends on the MGA's and agent's relationship with the insurer. Commission schedules are only established by the insurer, and when paid directly to agents based on their contractual agreement, the MGA is not part of that equation. Instead, the MGA would receive a commission override or some other form of compensation based on their contract with the insurer.
But if commissions are paid to the MGA's agency and then split between the MGA and the writing agent, which is common, then the MGA and the agent must establish an agreed-upon split -- 50/50, 60/40, 75/25, 90/10, whatever. But it's still based on the commission paid by the insurer, which is not arbitrary. Homeowner's and auto typically pay 20%-25% of annual premium, so a $1000 premium = $200-$250, which is only $100-$150 to the writing agent in a 50/50 split. Renewal commissions might be 5%-10%.
An experienced agent who has a big book of business could easily press for a 90/10 split and get it. The newly licensed agent who needs to be trained and requires a certain amount of hand-holding by his/her MGA might only get a 50/50 or 60/40 split.
At a 50/50 split, the new agent is going to have to work diligently and aggressively to earn $50,000 in their first year. But as one's book of business and renewal commissions build, reaching the $100,000 per year level would still be possible after a few years in the business. They should also be at a 75/25 split by their third or fourth year.
Posted: Fri Jul 09, 2010 06:07 pm Post Subject:
MGA's are often used for excess and surplus lines coverage. However more and more are also offering standard markets. Some of these companies only use MGA's to market their programs and some also have direct appointments with agents that are able to meet production volume commitments for the carrier.
Sometimes these companies do not want to deal with smaller agencies with smaller new business volume, so they have an arrangement to allow the MGA to contract directly with the smaller agencies. The MGA will then handle quoting, servicing and policy issuance and will be the "go between" for the small agency. This will often give the smaller agency access to markets that they otherwise would not have, due to volume commitments. In return for a reduce commission.
The MGA is compensated in either a split or spread on the commision. For example, a direct appointed agency might get a 15% commission and an agency going through a MGA might only get 10% for the same risk.
MGA's also are often compensated in commission overrides for high production volume and profit sharing for low loss ratio's. This all relates to an MGA from a P & C agency standpoint.
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