Managing General Agent Partnerships: Governance and Oversight for Insurers working with MGA's

In When Should Insurers Work with Managing General Agents?, we examined the strategic conditions under which MGA partnerships make sense. Once an insurer has decided to work with MGAs, the more demanding question follows: how to structure governance, oversight, and execution so that value is preserved while risk remains controlled.

This is where many MGA partnerships succeed or fail. The problem is rarely delegated authority itself. Instead, it arises when insurers underestimate what it means, in practice, to delegate material parts of the insurance value chain while remaining fully accountable for the outcome.

From Strategy to Execution: Why Governance Determines Outcomes

Once the strategic decision to work with MGAs has been made, execution becomes the critical differentiator. Across markets, the patterns are consistent. Regulators and supervisors do not object to MGA arrangements as such. They intervene when insurers cannot explain, evidence or control the risks they have delegated.

In other words, governance failures, not the MGA model,  are what attract scrutiny.

For insurers, this means governance design is not a technical afterthought. It determines whether MGA partnerships become a scalable capability or a recurring source of delayed problems. Strong governance allows insurers to benefit from entrepreneurial underwriting and distribution access. Weak governance allows small issues to compound into material financial, operational or reputational risk.

Delegated Authority Does Not Remove Responsibility

From a legal, regulatory and economic perspective, MGA business remains the insurer’s business. Capital requirements, reserving, solvency, customer outcomes and reputational exposure sit with the carrier, regardless of how much operational responsibility has been delegated.

MGA partnerships are treated as outsourcing of critical functions. Insurers are therefore expected to ensure that MGAs perform delegated tasks as if they were regulated entities themselves. The existence of the MGA’s own systems, people, or brand does not change that responsibility.

At the same time, insurers often fall into one of two traps. Some under-engineer oversight, assuming that outsourcing execution also transfers risk. Others over-engineer controls, effectively replicating the MGA’s operation internally and eroding the economic rationale for delegation. Both approaches are flawed.

The challenge is balance. Insurers must retain sufficient understanding, access to data and intervention rights to remain in control of the risks they carry, while allowing the MGA enough autonomy to operate efficiently. This balance must be designed deliberately at the outset and maintained throughout the relationship.

Two Phases of Managing MGA Risk

Managing MGA risk takes place in two distinct phases: before entering the partnership and during the life of the partnership.

Before the partnership, insurers conduct due diligence. This phase determines not only whether the MGA is suitable, but how the relationship should be governed if it proceeds. Treating due diligence as a box-ticking exercise rather than as a design input is a common and costly mistake.

During the partnership, insurers must monitor performance, detect emerging risks and intervene when necessary. The effectiveness of ongoing oversight depends heavily on the quality and focus of the initial due diligence. Weak assessment at the outset almost inevitably leads to either excessive controls later or insufficient visibility when it matters most.

Due diligence, therefore, does not merely support the approval decision. It defines the governance framework that follows.

Due Diligence That Actually Matters

Effective MGA due diligence is not exhaustive. It is focused and risk-driven.

Attempting to analyse every conceivable risk often results in superficial coverage and delayed decision-making. Experience shows that most material risks can be understood by concentrating on a few critical questions.

Insurers must first assess whether the MGA’s offering complements or competes with their existing portfolio and whether the business case is coherent and realistic. Beyond that, three areas consistently determine outcomes.

The first is the credibility and experience of the team. MGA performance depends heavily on the judgement of a relatively small number of individuals. Founders and senior underwriters must demonstrate genuine familiarity with the risks they are underwriting, not just access to an attractive distribution channel.

The second is the robustness of the revenue and pricing logic. Insurers need to understand which assumptions drive profitability and how the portfolio is expected to evolve as it grows and matures. Many problematic MGA portfolios appear healthy during strong growth phases but deteriorate once growth slows and hidden risk factors assert themselves.

The third is the ability to monitor and adjust profitability over time. This requires access to timely, granular data and clear mechanisms for responding to adverse trends. Without this, insurers may discover problems only once they have become balance-sheet issues.

The outcome of this focused due diligence should shape the intensity of governance. Strong teams with transparent economics may justify lighter-touch oversight. Where uncertainty is higher, controls must be correspondingly tighter. What matters is proportionality grounded in understanding.

The Two Core Risk Pillars in MGA Partnerships

Delegated Authority and Governance Discipline

Strong delegated authority frameworks form the structural backbone of any MGA partnership. Clear underwriting guidelines, referral thresholds, defined profit-share mechanics, bordereaux standards, regular management information, audit rights and step-in clauses are not optional extras. They are the mechanisms through which insurers retain control.

When these elements are well defined and consistently applied, operational risks such as claims mishandling, accounting errors or compliance gaps become manageable. Without them, problems tend to surface late and at scale.

Line-of-Business Expertise

Governance discipline is necessary but not sufficient. Insurers must also be confident that the MGA genuinely understands the underlying line of business.

This includes knowledge of risk drivers, rating factors and how portfolio dynamics change as business scales. Weak technical understanding frequently produces portfolios that look acceptable early on but deteriorate as growth stabilises. In those cases, the insurer carries the downside.

Defining the Operating Model: Who Does What

Before launching an MGA partnership, responsibilities across the insurance value chain must be clearly defined.

Typically, MGAs operate their own distribution networks, develop proprietary tariffs and wordings (subject to insurer approval), and administer policies and customer service through their own systems. In some cases, they may also handle claims or elements of technical accounting and reserving.

MGAs do not provide capital, purchase reinsurance, report directly to regulators or perform second- and third-line control functions. Clear definitions of responsibility, escalation paths and named contacts on both sides are essential. Ambiguity at the outset often becomes friction later.

Oversight During the Partnership

Once an MGA partnership is live, oversight becomes the insurer’s primary mechanism for protecting underwriting discipline, regulatory compliance and customer outcomes over time.

Effective oversight does not mean eliminating all operational risk or replicating internal control frameworks inside the MGA. Such an approach undermines the purpose of delegated authority. The objective is not perfection, but early detection and timely intervention. MGA partnerships tend to fail when feedback loops are too long, not when minor issues occur.

Oversight must therefore be continuous, risk-focused and proportionate to the exposure carried by the insurer.

Underwriting and pricing discipline sit at the centre of ongoing oversight, particularly in long-tail or structurally complex lines. Insurers must remain confident that underwriting remains within the agreed mandate, that pricing assumptions remain valid as the portfolio evolves, and that rapid growth does not mask deteriorating risk quality. Portfolios can appear healthy during expansion phases, especially when the risk mix is temporarily favourable. Problems often emerge only once growth slows and the portfolio composition stabilises. Without consistent monitoring of underwriting metrics and loss drivers, issues may only become visible after they have become material.

Product design and market alignment represent another critical area. Even where MGAs develop and market products independently, insurers remain responsible for ensuring that policy wordings, exclusions and product features align with market standards and regulatory expectations. Product weaknesses rarely cause immediate financial strain. They tend to surface through complaints, disputes or supervisory attention. Oversight must therefore include visibility into product changes and customer feedback.

Customer communication and distribution conduct also require structured attention. MGAs typically control customer-facing interactions and manage distribution partners. Any deficiencies in advice, disclosure or conduct ultimately sit with the insurer. Oversight in this area does not require micromanagement but does require clear standards, access to complaints data and the ability to intervene where patterns of poor conduct emerge.

Service quality and complaint handling can quickly become reputational risks. While the MGA’s brand may be the first to suffer, customers and regulators ultimately associate outcomes with the insurer providing the capacity. Persistent service failures or complaint backlogs can escalate rapidly. Insurers should therefore define minimum service expectations, monitor performance regularly and ensure escalation mechanisms are clear. Contingency plans, such as stepping in directly or transferring operations to a third party,  should be considered in advance rather than improvised under pressure.

Claims handling is often described as the “moment of truth” in insurance, and this is particularly true in delegated models. When claims authority is delegated, insurers must ensure that settlement decisions align with agreed procedures and strike an appropriate balance between cost control and customer fairness. Overly aggressive claims handling can damage customer relationships and attract regulatory attention, while overly lenient handling erodes technical results. Oversight mechanisms such as referral thresholds, performance reporting and periodic file reviews help maintain this balance without interfering in day-to-day decisions.

Technical accounting and reserving present risks that can remain hidden for extended periods. Where MGAs perform technical accounting or contribute to reserving, insurers must ensure consistency in premium recognition, claims booking and reserve methodologies. Regular reconciliation between bordereaux and cash movements, actuarial review and audit rights are essential. Errors in this area can lead to audit challenges, restatements or regulatory sanctions.

Effective oversight operates as a system rather than a checklist. It combines clarity on what is monitored and why, regular reporting and review, and the ability to act when thresholds are breached. Oversight that generates information without enabling intervention is ineffective. Conversely, overly intrusive controls undermine the operational advantage of working with MGAs.

The goal is to maintain visibility, shorten feedback loops and preserve the insurer’s ability to intervene before issues become balance-sheet or reputational problems.

Tiered Controls Based on Risk and Exposure

Not all MGA mandates require the same level of control. A small, low-tail portfolio should not be governed in the same way as a large or long-tail mandate.

A tiered approach, ranging from standard bordereaux reporting and quarterly reviews to referral rules, on-site audits and actuarial reserve checks, allows insurers to scale oversight in line with exposure and risk complexity. Proportionality preserves both discipline and the economic viability of MGA partnerships.

Data, Bordereaux and Accounting Discipline

One reason insurers work with MGAs is to avoid mirroring entire portfolios in their own systems. In many cases, periodic bordereaux are sufficient.

Well-structured CSV data, combined with clearly defined schemas, regular reconciliation to bank receipts and actuarial oversight, can be entirely adequate. The technology itself matters less than the discipline around data quality and reconciliation. Accounting inaccuracies can propagate silently before surfacing as audit issues or regulatory concerns. Structured oversight and clear escalation mechanisms are therefore essential.

Exit Risk and Operational Continuity

Exiting an MGA partnership is often more complex than contractual provisions suggest. If an MGA fails and no alternative capacity provider steps in, the insurer may be required to assume servicing and claims handling for a portfolio it deliberately chose not to operate internally.

The severity of this risk depends on portfolio size, complexity and tail exposure. Smaller, short-tail mandates may be manageable. Large or long-tail portfolios can create significant operational and reputational strain. Insurers should therefore understand in advance what operational capabilities would be required if the MGA ceased trading and ensure contingency plans are credible.

Competing for the Right MGAs

MGA partnerships are not one-sided. High-quality MGAs can choose their capacity providers.

MGAs typically value clear decision-making processes, a single point of contact, proportionate governance and access to technical expertise where required. If no conviction is required to attract an MGA, this may indicate that the insurer is not competing for the strongest partners.

Recognising when an MGA is not a strategic fit is part of disciplined portfolio management.

Practical Recommendations for Insurers

Experience suggests several guiding principles:

• Do not work with MGAs unless processes, governance and data capabilities are ready.

• Only partner with MGAs whose business model and risk drivers are fully understood.

• Conduct focused, rigorous due diligence and let it shape governance intensity.

• Define control frameworks clearly at the outset and maintain consistency over time.

• Treat MGA engagement as a repeatable capability rather than an exception.

  
  

Governance Is the Differentiator

MGAs are not inherently riskier than licensed carriers. Supervisory experience consistently shows that insurance failures stem from weak governance, poor reserving and inadequate controls and not from delegated authority itself.

The differentiator is whether governance, oversight and data discipline are fit for purpose. Handled well, MGA partnerships provide insurers with optionality, speed and access to specialised expertise. Handled poorly, they become a deferred liability.

The question is not whether insurers should delegate authority. It is whether they are prepared to govern it properly.