Definition of Terms used throughout the Guide
Please note: Even though state licensing for persons engaged in the business of soliciting, selling, negotiating and effectuating contracts of insurance has moved to the term “insurance producer” – insurance law still applies and is guided by the insurance terms of insurance agent/agency and/or insurance broker/brokerage firm. And these insurance law differences apply to the nature in which insurance producers conduct their insurance operations/placements. Therefore, it is important that insurance producers understand their agent vs. broker roles and standings, even more importantly, when conducting wholesale-retail activities and relationships.
AA - Aggregator Agency/Agent
An agency appointed by an insurer and authorized and expected by that insurer to produce business for the insurer through developing a large subproducer base and is expected to develop successful and cost-effective business processing procedures and systems that reduce carrier expenses in acquiring, processing and oversight of multi-agencies. Generally, carriers make clear that they reserve the right and it is their business objective to exercise direct appointments of those subproducing agencies that the carrier believes have met both production and accuracy measures set by the carrier. Carrier may leave the business going through AG or may allow that subproducer to place business directly with the insurer.
E&S Broker - Excess & Surplus Lines Broker
Contracted by a specialty carrier, not admitted to the direct insurance marketplace, to be that carrier’s broker representative to develop and facilitate insurance placements of interest, acceptance and bound by that insurer.
E&S Broker is only contracted by specialty carriers, and as their broker, they do not have authority to make decisions for the insurer relative to the business that is finally accepted and priced directly by the insurer itself. They follow the instructions of their carriers.
GA – General Agent
Specifically appointed and contracted by the insurer to perform carrier operations assigned to them, as standing for the insurer, and still is subject to and under the oversight and coordination of that insurer relative to that insurer’s overall operation and decisions of and for their insurance carrier, as a whole.
GA can be used in any lines of insurance by an insurer in the direct, admitted marketplace, and may operate very similarly to that of the insurer’s regional/local branch office operations. GAs may be given authority to appoint on behalf and for the insurer per the retailers with which they do business for/as the carrier.
MGA – Managing General Agent
The actual operative body of the an insurance carrier charter that acts as the carrier in all carrier operative activities, decisions and business development, i.e. executing the authority of the carrier charter pen as appointed and contracted by the authorized owners of that carrier charter/pen of authority. .
An MGA can be used in any line of insurance for any form of insurer: admitted or not; direct or otherwise; broker or agent system; contract/appoint or open-broker subproduction; or any or all combination of these.
MUA – Managing Underwriting Agent
An “agent” appointed by the insurer to be the business development, producer management, business processing, insurance premiums management and underwriting oversight manager for the carrier for a specific program. MUAs can be used in any line of insurance by any form of insurer. Carrier retains all the oversight of the MUA and the subproducers, and handles all claims, form, rate and model filings, and final accounting, auditing and rate activities.
A broker/agent who acts as an intermediary between a retail agent and an insurer, while having no contact with the insured. There are two types of wholesale brokers: managing general agents and surplus lines brokers. The latter work with the retail agent and the insurer to obtain coverage for the insured; but unlike a managing general agent, a surplus lines broker does not have binding authority from the insurer.
Glossary of Risk Management & Insurance Terms
Insurance & Risk Management Terms
An Explanation of Underwriting Cycles
Most industries are cyclical to some extent. The property/casualty (P/C) insurance industry cycle is characterized by periods of soft market conditions, in which premium rates are stable or falling and insurance is readily available, and by periods of hard market conditions, where rates rise, coverage may be more difficult to find and insurers’ profits increase.
A dominant factor in the P/C insurance cycle is intense competition within the industry. Premium rates drop as insurance companies compete vigorously to increase market share. As the market softens to the point that profits diminish or vanish completely, the capital needed to underwrite new business is depleted. In the up phase of the cycle, competition is less intense, underwriting standards become more stringent, the supply of insurance is limited due to the depletion of capital and, as a result, premiums rise. The prospect of higher profits draws more capital into the marketplace leading to more competition and the inevitable down phase of the cycle.
Primary Difference Between the Retail and Wholesale Markets
The fact that Wholesalers offer specialized marketing capabilities underscores the need for Retailers to be aware of the particular markets available through the Wholesaler. In addition to standard markets, the Wholesaler has direct access to excess and surplus, nonstandard and specialty insurers. There may be times when the coverage requested by a Retailer can be provided only through the use of manuscript or narrative forms. The use of these forms requires an explanation and definition of the insurance protection provided by the Wholesaler.
States have differing licensing, filing, reporting and premium tax requirements for non-admitted and alien carriers that require additional knowledge by the Wholesaler. These are discussed in greater detail in Chapter V, Licensing Rules and Regulations. With the exception of the state of New Jersey, there is at this time no protection under state guaranty funds for insureds of non-admitted companies.
In most states the Wholesale Market is relatively free from regulation. This permits carriers to use their own forms and rates. The result can be a great variance in policy forms, coverage’s, modes of premium payments, cancellation rights and policy warranties. Retailers rarely have direct contact with Wholesale insurers and relatively little knowledge of the Wholesale markets. Therefore, Retailers must rely to a great extent on the professionalism of the Wholesaler. Conversely, because the Wholesaler has no direct access to the insured, the Wholesaler must depend upon the Retailer for complete and accurate information on the risk to be insured. This absence of direct communication is peculiar to the Wholesale Market.