MGA insurance is coverage you buy from a managing general agent. A traditional insurance agent is a retailer — they sell policies directly to customers. But they don't underwrite them or set prices. However, an MGA handles underwriting, pricing, settling claims and other functions on behalf of particular insurance companies.

What's an MGA?

MGAs are usually specialists. To make a profit, insurers have to know how much risk they're incurring when they write a policy. Companies can become experts on risk in a particular field — medical malpractice, cruise ship liability — but it's hard to have expertise in every possible line of insurance. An insurance company may want to branch out into a new field, such as assisted-living insurance, but that's a big gamble if it doesn't know the risks.What's an MGA?

Enter the managing general agent. MGAs offer insurers expertise in different specialized fields. Insurers give MGAs the authority to underwrite and issue specialty policies because MGAs know the risks. The insurer trusts an MGA to judge the risks tied to a particular policy and set premiums accordingly.

Some MGAs are specialists in particular regions. An insurance company may not think a small town or rural area offers enough income to justify opening a branch office. Working with an MGA who is based in the area gives the company access to customers without having to pay for staffing or office space.

Start an MGA Career

MGAs may be startups without the cash reserves to meet state regulatory requirements. The MGA will partner with an insurance carrier that can provide the reserves. When the MGA sells policies, the carrier takes a cut of the profits but assumes as little risk as possible. Instead, the MGA carries most of the risk.

Sell Insurance Wholesale

A managing general agent can sell insurance retail or as a wholesale brokerage firm. A retail brokerage company deals directly with customers who want to buy insurance. Wholesale brokers act as intermediaries for retail agents. The retail agent contacts the MGA about providing a client with insurance coverage, and the MGA handles the underwriting on behalf of the insurance company.

Like insurers, retail agents benefit from an MGA's specialized expertise. An MGA can do both wholesale and retail work. Depending on the MGA's expertise and interests, he can sell policies directly to customers and/or work with other agents.

Be Aware of Challenges

Becoming an MGA can be profitable, but it comes with a special set of challenges. Insurers who do business MGAs vest them with a lot of decision making power. If the MGA isn't up to the job, he can cost the insurance company money and miss out on doing future business with them. A rookie MGA has to prove he has good judgment and the knowledge to underwrite successfully. MGAs also face a higher level of risk than regular insurance agents.