Growing MGAs must focus on back-office operations

The explosion in the number of managing general agencies (MGAs) has been a boon for existing and potential policyholders needing coverage for emerging risks or niche situations not typically handled by traditional insurance companies. Many of these startup MGAs apply specialized expertise to excel in underwriting and risk management for risks that are unpopular and probably unprofitable for legacy insurers.

However, as with any startup across industries, growth-focused startup MGAs find demands on operational frameworks, particularly those controlling back-office functions, increase exponentially as business trends upward. To sustain growth and remain competitive, a strategic approach to financial operations (FinOps) must be implemented to ensure the back-office supports, rather than hinders, the MGA’s core business objectives.

The rising complexity of MGA operations

MGAs operate in a dynamic environment where agility and specialization are critical. Unlike traditional insurers, MGAs typically do not bear risk and are, therefore, better able to focus on tailoring coverage and managing underwriting processes. However, this freedom comes at a price. As MGAs grow, the volume of transactions that must be handled — from invoicing to premium collection and claims payments — grows as well. This increase in operational complexity strains legacy-riddled, manually driven, back-office processes.

Manual processes slow down operations and introduce multiple opportunities for error. Billing mistakes, delayed premium payments, and reconciliation mismatches can erode trust with partners and customers. And, in an industry where accuracy and timeliness are paramount, even small missteps can stifle growth and damage relationships with insurer and broker partners.

The role of FinOps in streamlining back-office functions

Introducing automation into FinOps can revolutionize the way MGAs handle financial operations. Automated systems minimize human error by standardizing processes and eliminating the need for repetitive manual tasks. This transformation is particularly impactful in critical areas, such as invoicing, premium payment processing, and reconciliation, where accuracy is critical, and where errors can lead to costly delays or penalties.

Automated invoicing systems, for example, ensure every bill sent out is accurate and on time. This particular automation not only improves cash flow, but also strengthens relationships with customers by providing a seamless billing experience. Similarly, automated premium payment and collection systems reduce the time and resources required to process payments, ensuring that funds are collected efficiently and accurately.

Reconciliation, a process often fraught with discrepancies and delays when handled manually, also benefits from automation. By integrating financial data from multiple sources into a single, unified platform, MGAs can quickly identify and resolve mismatches, improving overall financial transparency and control.

Cost reduction and efficiency gains

One of the most immediate benefits of automating FinOps is the reduction in operational costs. By streamlining financial processes, MGAs can significantly reduce labor costs associated with manual data entry and error correction. Moreover, automation reduces the need for extensive paper trails and physical documentation, leading to savings in administrative expenses.

Plus, efficiency gains extend beyond cost savings. Automated FinOps systems provide real-time insights into financial performance, enabling MGAs to make informed decisions quickly. This level of visibility is crucial for identifying trends, forecasting cash flow, and managing risk more effectively. With these tools, MGAs can allocate resources more strategically, focusing on growth initiatives rather than being bogged down by back-office inefficiencies.

Enhancing scalability and compliance

Scalability is another major concern for growing MGAs. Quite naturally, as the business expands, so does the volume and complexity of financial transactions. Automated FinOps systems scale alongside the business, accommodating increased transaction volumes without compromising accuracy or speed. This scalability ensures back-office processes can keep pace with growth and allow MGAs to maintain a competitive edge at the same time.

The insurance industry is heavily regulated, and MGAs are required to adhere to strict financial reporting and auditing standards. Automated systems help ensure regulatory compliance by maintaining accurate, up-to-date financial records, generating detailed audit trails, and providing comprehensive reporting capabilities. Automation fosters speed, accuracy, and transparency, which simplifies compliance efforts and reduces the risk of regulatory penalties.

Competing successfully in a crowded market

As the number of new MGAs entering the market increases, so does the competition. To stand out, MGAs must find the appropriate niche to offer quality, bespoke insurance products and services while also demonstrating operational excellence. A streamlined, efficient back-office powered by automated FinOps can be a key differentiator, enabling MGAs to deliver faster, more reliable service to customers and partners.

Moreover, the adoption of advanced financial technologies signals to insurers and brokers a MGA is committed to innovation and efficiency. This can enhance an MGA’s reputation, attract new business opportunities, and strengthen existing partnerships.

For MGAs, the back-office can no longer afford to take a back seat with demands on financial operations only continuing to increase. By embracing automation in FinOps, MGAs can reduce errors, lower costs, unlock new efficiencies, and be positioned for sustained growth and success. In an industry where precision and agility are not the norm, an optimized back-office is more than a support function — it is a strategic asset.