One of the great advantages of the MGA business model is that MGAs do not have to maintain insurance reserves because reserves are maintained at the MGA’s carrier partner or capacity provider. However, like any business, MGAs do need capital to get started. 

Although its always hard to predict, try to list out all of your foreseeable expenses to get an idea of your initial capital requirements. Consider: 

Once you have a general idea of your capital requirements, consider funding options. Startup MGAs are typically funded in one of four ways: (1) by the founder; (2) by angel investors or friends and family; (3) by your carrier partner; or (4) by an MGA incubator or roll-up platform. 

MGA incubators and roll-up platforms can be a great resource. They typically provide startup capital, strategic advice and backoffice support. Backoffice support can include critical areas like assistance with finance and accounting, HR, legal, regulatory and licensing, and IT. The incubator programs may not completely take over those functions of your MGA, but they will help you get started so you can focus on your customers. In return for providing this infrastructure to your startup, incubators may require a significant ownership percentage in the MGA. For founders that can source other solutions to these business functions, it may be worth it to go it alone or with one-on-one advisors. 

Choosing a core software system is a critical piece of your strategy because your whole business will run on it. Here is a resource with top things to think about when choosing a software platform. Many large software providers may have products that are too complex or costly for most MGA startups either because they are configured for large organizations or they are built on top of several legacy products that are connected together. In addition, some software providers may not prioritize startups or may have large upfront integration costs. Consider streamlined platforms like the Draftrs Platform that are designed for startup MGAs and do not entail large upfront integration costs. 

Distribution strategy is key for new MGAs. Startups that have carrier capacity have likely already presented high-level distribution strategies to their carriers. Will you distribute direct or through agents? If you have lined up distribution partners such as associations or industry vendors, consider what technology you will use to connect to your partners and your marketing strategy for that partnership. Similarly, if you are distributing through agents, identify the agent channel you are targeting (independent, retail or wholesale) and how you will access and market to them. The core software system you choose for underwriting and policy administration will, ideally, also have distribution capabilities to support your channel access. 

Many MGAs will need to hold agency and agent licenses in states where the MGA is selling policies. This may be required by your carrier or capacity partner regardless of whether you are selling directly to the consumer or through agents. The first step in the process is typically for a director or officer of the MGA to obtain an agent’s license in their home state. Requirements for this will vary by state but usually entail mandatory hours of education and passing state exams. Once that individual has their home state license, they can then apply for reciprocal non-resident licenses in additional states. Once licensed, this person can be your agency’s Designated Responsible Licensed Producer (DRLP), which is typically needed to apply for your MGA agency licenses. If your MGA only handles admitted policies, these licenses may be sufficient. However, if you are writing surplus lines polities (E&S), you may also need to apply for surplus lines agents and agency licenses in all states of operation. Of course, nothing in this MGA Resource Series is legal or regulatory advice. You should consult your own legal and regulatory advisors for the specific requirements applicable to your business. 

One-on-one board advisors can be important contributors and sources of knowledge to new MGAs. Talk to your contacts who are industry veterans – particularly those who have started a successful MGA in the past – and set up periodic meetings with them so they are up-to-date on the business.