Scaling MGAs: Navigating Complexities and Operational Challenges

Executive Summary

Managing General Agents (MGAs) occupy a unique and increasingly critical position within the insurance ecosystem, balancing the dynamic needs of both carriers and brokers. While MGAs are often portrayed as streamlined intermediaries that originate premium and cede risk, the operational realities prove far more complex and demanding. As highlighted in the insightful analysis by Faroe, scaling an MGA requires simultaneously managing underwriting discipline, data integrity, and relationships without clear precedents or standardized playbooks.

This complexity intensifies as MGAs grow, revealing structural contradictions: pricing risk they do not carry, enforcing underwriting standards they do not fully control, and reporting data they do not always generate. These challenges are compounded by legacy technologies on both broker and carrier sides, misaligned incentives, and increasing operational and regulatory demands. For insurance professionals, understanding these nuances is essential to supporting MGAs, leveraging their capabilities effectively, and navigating the evolving market landscape.

Key Insights

• MGAs Operate at the Intersection of Conflicting Priorities
  MGAs must satisfy brokers seeking speed, flexibility, and exceptions while simultaneously meeting carrier demands for control, structure, and clean data. This dual accountability creates inherent tension, requiring MGAs to act as margin managers balancing competing interests rather than purely underwriting operations. Insurance professionals must recognize this delicate balancing act when collaborating with or supporting MGAs.
• Legacy Systems Impede Seamless Integration and Data Transparency
  Broker agency management systems and carrier platforms often run on outdated technology, resulting in disconnected workflows, manual reconciliations, and inconsistent data formats such as PDF submissions or decades-old bordereaux templates. These technological mismatches impose a “Data Tax” on MGAs, forcing them to absorb the burden of bridging incompatible data sources to maintain carrier trust and regulatory compliance.
• Scaling Exponentially Increases Operational Complexity and “Taxes”
  As MGAs grow across programs, states, and carrier partnerships, they encounter escalating cognitive loads (“Attention Tax”), data reconciliation challenges (“Data Tax”), heightened scrutiny (“Trust Tax”), and slower decision-making ("Decision Latency Tax"). These factors erode the efficiency advantages that scale typically brings, often turning growth into a source of operational drag rather than leverage.
• Economic Pressures Tighten Margins and Leverage
  Initial commission rates and terms negotiated at MGA program launch often come under pressure as the book grows, with carriers seeking renegotiation and brokers demanding competitive pricing and coverage flexibility. This margin squeeze requires MGAs and their partners to continuously optimize operations and strategic relationships to maintain profitability.
• MGAs Operate on “Rented Land” With Limited Leverage
  Carrier partners hold significant power, including the ability to terminate appointments with short notice, forcing MGAs to rebuild books and relationships. MGAs’ dependency on carrier goodwill underscores the importance of building strong, trust-based relationships and maintaining operational transparency to safeguard their market position.

Insurance Industry Applications

• Carrier Risk Managers and Underwriters:
  Understanding the operational challenges MGAs face can inform more collaborative approaches to partnership. By supporting MGAs with clearer data standards, investing in API-driven data exchanges, and aligning expectations on underwriting guidelines, carriers can reduce friction and improve portfolio performance.
• Brokerage Firms and Agents:
  Appreciating the constraints MGAs operate under helps brokers tailor submission processes and expectations. Streamlining submissions with standardized data formats and maintaining open communication with MGAs can expedite turnaround times and improve product offerings.
• MGA Leadership and Operations Teams:
  Leaders should prioritize investments in scalable infrastructure early, focusing on modular systems capable of handling diverse programs and data flows. Developing robust reconciliation processes and fostering transparent communication with both carriers and brokers will mitigate the “taxes” of scale and build sustainable growth.
• Technology Vendors Serving the MGA Market:
  There is a clear opportunity to innovate solutions that bridge legacy broker and carrier systems, automate bordereaux submissions, and enhance real-time data transparency. Vendors that understand the unique pain points of MGAs can create tailored platforms that reduce manual overhead and improve trust across the value chain.

Conclusion and Recommendations

Scaling an MGA is a multifaceted challenge that extends beyond simple growth metrics. It demands a holistic approach combining technology modernization, relationship management, and operational discipline. Insurance professionals should approach MGA partnerships with an appreciation for their structural complexities and support the development of integrated solutions that address the conflicting demands they face.

To successfully scale, MGAs must:

• Invest in interoperable technology that connects brokers and carriers efficiently.
• Build strong, trust-based relationships on both sides to navigate inevitable tensions.
• Develop internal processes that proactively manage data reconciliation and compliance burdens.
• Prepare for economic pressures by maintaining flexible, transparent negotiations around commissions and terms.

By internalizing these insights, insurance professionals can better support MGAs as vital intermediaries who drive innovation, underwriting expertise, and market access in today’s evolving insurance landscape.

For a deeper exploration of the complexities and operational realities MGAs face when scaling, refer to the original article by Faroe at Scaling an MGA Is Harder Than You Think...And Harder Than Anyone Warned You.

Original Source: https://faroeio.substack.com/p/scaling-an-mga-is-harder-than-you