Factors MGAs should consider for the Ideal Risk Capacity Partnership

Taking a product from conception to viable program model is no small feat. But for many aspiring MGAs, the next step— securing risk capacity, can feel like unfamiliar territory, especially without clear knowledge on how the process works. 

That’s where MGA 101 comes in— a series designed to break down key concepts surrounding risk capacity for anyone looking to launch an MGA . In this second edition, two seasoned experts in insurance innovation and program design, Chris Lowell (Managing Director, InnSure) and Somil Jain (Principal & Senior Consulting Actuary, Lewis & Ellis), offer practical insights into the what, where, and how of approaching capacity providers. 

Key Considerations for MGAs before seeking Risk Capacity

Before an MGA starts thinking about risk capacity, it’s important to have conducted thorough user discovery research by speaking with underwriters, actuaries, potential customers, and distribution partners. 

Prospective MGA founders should chat with producers to share what they’re building, get their take on current market dynamics, and explore whether they might be open to distributing the MGA’s products down the line. 

As producers are constantly in conversation with carriers and reinsurers, answers to questions such as “What markets would this product fit best in?” and “Who might be interested in backing this particular risk?” can be used to inform the MGA’s approach to finding capacity providers. 

Some other questions could be: 

“Where do MGAs get their capacity for this type of product?” or 

“Who’s interested in expanding their limits from 1 to 5 million for this kind of product?” 

Connecting with people who can provide these insights is a crucial first step to finding the optimal capacity provider. Most people are happy to share, so attending designated events such as the WSIA is a great way to start these conversations. 

Where do MGAs get capacity?

MGAs can attend in-person events such as WSIA or use digital platforms and directories to find insurers and reinsurers actively looking to support new programs. Find detailed information on Chris & Somil’s top picks for MGA risk capacity resources here. 

How to choose a risk capacity provider for your MGA:

With a list of potential capacity providers in hand, the next step is to evaluate which partner fits best — but based on what factors? 

Chris & Somil like to use the analogy of a relationship here: Look for a carrier or reinsurer that is open to new conversations and is willing to grow with you. 

It takes significant time and effort for an MGA to clearly communicate its business model, growth plans, and expectations from a capacity provider. Having to do this repeatedly with multiple partners can be exhausting, which is why a sound understanding of a capacity provider’s long-term goals and interests is key — it can help assess the MGA’s long-term fit with them. 

While most capacity agreements are structured as one-year commitments with a reinsurer or carrier, there are now providers pushing three-to-five-year commitments specifically. This provides MGAs with greater stability and reduces the need to send customers frequent, potentially confusing letters regarding policy changes- something that could leave them frustrated and hurt the MGA’s branding.  

Ultimately, it’s in the MGA’s best interest to partner with a risk provider that shares its philosophy, values, and plans for product and business growth. 

Hands on vs. Hands off Approach: What works for your MGA?

Each capacity provider takes a different approach to overseeing how an MGA manages their funds and operations. Some could be extremely hands-on, which could look like: 

• Monitoring every policy language change. 
• Reviewing and providing feedback on pricing changes,  
• Inspecting every state expansion, and 
• Determining new loss ratios every time the MGA expands to a different region. 

On the other end of the spectrum, some risk providers take a hands-off approach, remaining largely uninvolved as long as the MGA stays within the target loss ratio. 

MGAs who lack strong in-house insurance or actuarial underwriting expertise often benefit more from a hands-on partner. The oversight and experience that this approach comes with can help prevent missteps, such as using policy language that could create issues with regulators, legal, and compliance teams. 

Therefore, MGAs should carefully consider their strong and weaker suits and look for a capacity provider who can extend the right level of guidance and support wherever it’s required. 

Conclusion

Finding risk capacity in a hard market is no easy task, but MGAs shouldn’t settle for the first available option. Choosing a capacity partner who aligns with their goals and offers the right level of support can reduce operational friction, strengthen compliance, and protect the MGA’s brand long-term. 

In the next edition of MGA 101, Chris and Somil will break down the key questions MGAs should be asking capacity providers before entering into any agreement to assess long-term fit, expectations, and alignment.