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What is an MGA, and how do they work?

A slightly different definition… 

MGAs are often considered the middle-weight boxers of the insurance industry.

Like an insurance broker or agent (who works on behalf of the policyholder) an MGA can act as a broker selling direct to policy holders… however MGAs have a secret power, the power to UNDERWRITE. This means, they are able to underwrite the policies they sell on behalf of the insurer. 

Here’s a more palatable explanation in a very small nutshell…

Steve wants to buy some liquorice with his pocket money. 

He could ask his friend Lucy to go directly to ‘Mega Sweets’, the sweet shop in town, and get as many types of liquorice as she can for £1. 

Or he could take his £1 to the pop-up sweet shop next door ‘Mini Mega Sweets’. It’s answers to its larger sibling, but specialises in liquorice from around the World (and this makes Steve happy).

An MGA still works on behalf of its insurer, but more often than not they have a specialised knowledge and a specific skill set. Having specialised knowledge in an area (such as car insurance, or buildings insurance) means an MGA becomes extremely useful to an insurer if they have not yet had time (or resource) to pursue it. This means an insurer can branch out into new regions, or experiment with new products, without themselves taking on the investment.

Pursuing these opportunities from scratch would be bit like wanting to start a restaurant and spending all your savings on a cookery course, instead of asking your friend who’s a chef to go into business with you. 

Bit bonkers, no?

Want to understand more about MGA insurance business? Read more on our Solutions page.

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