Most embedded programs reach the market through an MGA or a similar delegated authority arrangement. The agreement between carrier and MGA is where program risk is either controlled or merely described.
The NAIC's Managing General Agents Act (Model #225) is the clearest public statement of what regulators expect that agreement to contain. It is a model act, so each state decides whether and how to adopt it, and the NAIC publishes a state page for tracking citations. Even where your states differ, the model is a sound baseline for any program, and a carrier that cannot point to equivalents of its terms should ask why.
Who counts as an MGA
Under the model, an MGA manages all or part of an insurer's business and acts as the insurer's agent, and also produces and underwrites premium at or above 5% of the insurer's policyholder surplus in any quarter or year, along with either adjusting or paying claims above $10,000 per claim or negotiating reinsurance on the insurer's behalf. Calling yourself an MGA does not make you one, and the model's drafting note says as much. Embedded platforms that underwrite and bind through an API often cross these lines without anyone deciding that they have.
Terms the model requires in the written contract
- Termination and suspension. The insurer can terminate for cause on written notice and can suspend underwriting authority while a dispute is pending.
- Accounting and remittance. The MGA renders accounts detailing all transactions and remits funds due on a defined schedule.
- Fiduciary funds. Funds collected for the insurer are held in a fiduciary capacity in an FDIC-insured institution, and the MGA may retain no more than three months of estimated claims payments and allocated loss adjustment expenses.
- Records access. Separate records for the business written. The insurer can access and copy them in usable form, and the commissioner has access to the MGA's books, bank accounts and records.
- No assignment of the contract by the MGA.
- Written underwriting guidelines covering maximum annual premium volume, the basis of rates, types of risks, maximum limits, exclusions, territory, cancellation provisions and maximum policy period.
- Surety bond. The insurer is to require a bond of at least $100,000 or 10% of the MGA's prior-year written premium for the insurer, capped at $500,000. An errors and omissions policy may be required.
- Claims. Where the MGA settles claims, timely reporting, escalation of files that are large, in coverage dispute, outside authority, open more than six months, or closed above set amounts, and joint ownership of claim files that become the insurer's on liquidation.
- Electronic claims data must be transmitted in a timely way.
- Advertising only as approved in writing by the insurer in advance.
- Interim profit sharing is held back for one year for property business and five years for casualty, and until verified, when the MGA influences reserves or claim payments.
- The model also bars an MGA from binding reinsurance (subject to facultative exceptions), committing the insurer to syndicates, and appointing a sub-MGA, and it limits unapproved claim payments to 1% of policyholder surplus.
What the model asks of the carrier
Section 5 puts duties on the insurer, not just the MGA. The insurer is to hold the MGA's audited financial statements for the two most recent fiscal years showing positive net worth, with a path for newer MGAs. It is to obtain an annual actuarial opinion on reserves if the MGA sets loss reserves. It should conduct an on-site review of underwriting and claims operations at least semi-annually. Binding authority for reinsurance rests with an unaffiliated officer of the insurer. And the insurer notifies the commissioner within 30 days of entering into or ending an MGA contract.
Read that list as an operating calendar, not as a legal formality. A carrier signing an embedded program should be able to say who performs the semi-annual review, with what access to platform data, and what happens when the program has been live for six months and the answer is no one.
Where embedded programs strain the model
These are our observations on how the model meets embedded delivery, not findings from the NAIC.
- Platform vendors sit between the parties. The records the model gives the insurer access to may live in a vendor's system. Name the vendor in the agreement and give the carrier direct access rights.
- Authority is configured, not written. In a rules engine, "maximum limits" and "types of risks" are settings. Make the contract schedule the source of truth and require change control for the settings.
- Advertising is the partner's checkout. Pre-approval of advertising material covers more than brochures. Put partner copy, disclosures and screen flows in scope.
- Volume outruns the review calendar. A semi-annual review was designed for slower books. Add automated reporting between visits.
The test we apply
If the carrier's chief risk officer asked tomorrow to see who can change a price, a limit or an exclusion in the live program, how long would it take to show an authorized, logged answer? If it takes more than a day, the agreement has not been implemented.
Clark Embedded Advisors helps carriers and MGAs design delegated authority frameworks for embedded launches. Book a call to review yours: embedinsurance.net/contact.
General information, not legal advice. The model act is a template; state laws differ. Confirm requirements with counsel in each state.