The insurance marketplace is evolving rapidly, and specialized intermediaries are playing an increasingly central role. In 2024, the National Association of Insurance Commissioners (NAIC) reported that direct written premium by managing general agents (MGAs) grew by 14.5%, marking the fourth consecutive year of expansion (NAIC, 2024). This sustained growth reflects both structural and strategic advantages that MGAs provide to carriers. In surety, where underwriting requires expertise, rigorous risk assessment, and niche distribution, the MGA model aligns particularly well with the needs of insurers. This essay argues that carriers in the surety bond sector should increasingly deploy the MGA model, given MGAs’ specialized underwriting knowledge, efficiency in distribution, and alignment with the industry’s capital-light economics.
The Role of MGAs
Managing general agents are intermediaries empowered by carriers to underwrite, bind coverage, and often handle claims on their behalf. Unlike retail agents or brokers, MGAs operate under delegated underwriting authority and are frequently experts in specific lines of business (Doffou & Gustafson, 2021). Carriers turn to MGAs not merely to expand distribution but also to access technical expertise, niche market knowledge, and operational efficiencies that they may not otherwise possess internally. In highly specialized classes such as marine, aviation, or surety, MGAs have developed reputations as reliable partners for both insurers and insureds.
Growth of the MGA Market
The NAIC’s 2024 report underscores the growing reliance of insurers on MGAs as a distribution and underwriting channel. A 14.5% annual growth rate is significant in an industry where aggregate premium growth across all lines is often in the low single digits (NAIC, 2024). This surge reflects broader trends in insurance: the demand for specialization, the rise of insurtech platforms that empower nimble distribution models, and carriers’ desire to reduce fixed underwriting costs (Conning, 2023). In surety, where premium volumes are smaller relative to property-casualty insurance, and underwriting requires technical acumen, these dynamics are especially salient.
Surety as a “Specialist” Practice
Surety bonds are financial instruments that guarantee performance or payment obligations. Unlike traditional insurance, where losses are pooled, surety operates on the principle of indemnity, with underwriters evaluating the principal’s financial strength, character, and capacity to perform. This requires not only actuarial analysis but also in-depth knowledge of construction finance, accounting, and legal frameworks (Klein, 2019). MGAs specializing in surety are well-positioned to provide this expertise. By contrast, many carriers maintain generalist underwriting teams that lack the bandwidth or knowledge to evaluate complex surety risks effectively.
Advantages of the MGA Model for Surety Carriers
- Specialized Underwriting Expertise
MGAs employ professionals with deep experience in their chosen lines. In surety, these underwriters often have backgrounds in construction, finance, or law, enabling them to evaluate contract terms, balance sheets, and bond obligations with precision. Delegating underwriting authority to such specialists improves risk selection and reduces adverse outcomes (Carter, 2020). Carriers benefit from outsourcing technical underwriting without the need to build and maintain in-house teams for every niche.
- Operational Efficiency and Cost Control
Maintaining specialized underwriting teams is expensive for carriers, especially in lines with relatively modest premium volumes like surety. By delegating to MGAs, insurers convert fixed costs into variable costs, paying commissions tied to production rather than salaries and overhead (Conning, 2023). This efficiency is particularly attractive in cyclical markets, where surety demand fluctuates with the economy and public infrastructure spending.
- Distribution Access and Market Reach
MGAs often maintain long-standing relationships with contractors, producers, and niche brokers who rely on them for bonding solutions. Carriers partnering with MGAs gain access to these established distribution networks, enabling faster market penetration without duplicating infrastructure (Doffou & Gustafson, 2021). For surety carriers, especially those seeking geographic or sectoral expansion, MGAs provide a ready-made channel.
- Alignment with Surety’s Capital-Light Model
Surety bonds, while technically insurance, are fundamentally credit products. Loss ratios are generally low, but claim severity can be catastrophic when defaults occur. The MGA model aligns with this capital-light structure by focusing on underwriting expertise and distribution rather than balance sheet leverage. Carriers can deploy capital selectively while MGAs manage the technical and operational aspects of the business (Klein, 2019).
- Innovation and Agility
MGAs are often smaller and more agile than carriers, able to adapt quickly to regulatory changes, market demands, and technological innovations. In surety, where digital bond issuance platforms and real-time contractor prequalification tools are reshaping the industry, MGAs are at the forefront of innovation. Carriers leveraging MGA partnerships can adopt these tools without overhauling legacy systems (Conning, 2023).
Strategic Imperatives for Surety Carriers
Given these advantages, carriers in the surety market should view MGAs as strategic partners rather than peripheral intermediaries. To maximize the benefits, carriers should:
Select MGAs with proven expertise in finance and risk assessment.
Structure contracts with aligned incentives, including profit-sharing and loss participation.
Invest in oversight mechanisms, including regular audits and compliance reporting.
Leverage MGA innovation, particularly in digital bond issuance and principal (insured) prequalification.
By doing so, carriers can expand market share, improve underwriting performance, and enhance operational flexibility.
The steady growth of the MGA sector, as evidenced by the NAIC’s 2024 report, highlights the increasing reliance of insurers on specialized intermediaries. For surety carriers, the MGA model offers compelling advantages: expert underwriting, cost efficiency, distribution reach, alignment with the capital-light economics of bonding, and access to innovation. While risks exist, they are manageable through oversight and aligned incentives. In an industry where specialization and efficiency are paramount, the MGA model is not merely an option for surety carriers, It is a strategic imperative.
~ C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe
References
- Carter, R. L. Managing General Agents in Specialty Insurance Markets. London: Chartered Insurance Institute, 2020.
- Conning. Managing General Agents: Growth, Opportunities, and Risks. Hartford, CT: Conning Research, 2023.
- Doffou, N., & Gustafson, T. “The Economics of Delegated Underwriting: MGAs in the U.S. Insurance Market.” Journal of Insurance Regulation 40, no. 3 (2021): 45–67.
- Eling, M., & Lehmann, M. “The Impact of Delegated Authority on Underwriting Performance: Evidence from European MGAs.” Geneva Papers on Risk and Insurance 43, no. 4 (2018): 567–590.
- Klein, R. W. Surety Bonding and the U.S. Construction Market: Risk, Regulation, and Responsibility. Washington, DC: Brookings Institution Press, 2019.
- National Association of Insurance Commissioners (NAIC). Insurance Market Report: Managing General Agents. Kansas City, MO: NAIC, 2024.
