Eye on the Local Managing General Agency

The American Association of Managing General Agents Opens the Door for Smaller Members

Sometimes bigger is not always better. Large wholesale organizations have a place in the market, but smaller and often family-owned managing general agencies (MGA) also have a place, says Wayne Forest, the incoming president of the American Association of Managing General Agents (AAMGA).

Forest says there are many small MGAs out there serving single states, including his own firm, Metairie, La.-based Forest Insurance Facilities. “Everybody has always said the small guy is never going to be around but we’re still here,” Forest says.

After working for a national carrier and then working in a large account focused MGA for several years, Forest decided to open his own facility in 1983 and began focusing on small account business only in Louisiana. After 28 years in business, Forest continues to target small accounts – where the average premium is just $3,000 to $4,000.

Forest Insurance Facilities chooses to work with only a limited number of retail agent partners in the state as well. By doing so, Forest says he knows his business partners, and knows them well.

“We know who we do business with. We trust them,” he says.

Forest Insurance Facilities writes about $13 million, down a bit from pre-Hurricane Katrina days when the firm wrote about $16 million.

While being small and selective holds advantages, Forest says a smaller book might have been considered a disadvantage to a MGA seeking membership in the AAMGA just a short time ago.

But today, the AAMGA is opening its doors to smaller agencies under revamped membership criteria that will admit members with just $1 million in premium. Forest hopes to add many new, smaller-sized members to the association during his tenure as president, which begins at the association’s annual meeting in May.

Your MGA is very selective about the retail agents that you do business with; others are not so selective. What’s the benefit of being selective?
Wayne Forest: I consider myself to be a small, family-owned, one state only wholesaler. The benefit of that (being selective) is I can go home at night and sleep. I can leave my office at 4:30 in the afternoon and know that I don’t have a pile of files sitting all over my office. If something comes into us it’s quoted. If it comes in the morning, we either quote it or decline it by lunchtime. And if it comes in the afternoon we either quote it or bind it before we go home. That means the next day when we come to work we walk into a clean office. We don’t have files sitting all over the place. …

And then another thing about being selective is we are able to give great service to the agent. There is nothing that separates me from my competitors in Louisiana. We all have the same type of contracts. We all can get to certain types of brokerage markets. We all have a Lloyd’s facility. There’s nothing that’s setting me apart other than the fact that I can give that agent a very quick quote.

What happens is the CSR who is shopping that quote around will come to me first so that I can quote or decline it.

And since 1977, when I got in the surplus lines business we have never had an E&O (errors and omissions) claim – ever. And that’s because we know who we do business with. We trust them. We trust their applications. They trust us.

Another thing, in 30 years, we’ve only had to write off $7,500 in un-collectables from our retailers. So, number one, I get paid on time. Number two, I don’t have to worry about agents sending me bad applications. The people I do business with I’ve been doing business with for a long time.

Is there still a place in the industry for the very local MGA?
Forest: Absolutely. The biggest key for us is service. I’m not going to name any names, but when you have XYZ corporation buys up a local wholesale agency in Louisiana, I love it. Because now all of a sudden I’m competing with my speed. I’m competing against somebody who has rules and regulations and forms and everything else, which slows them down. …

We also did a review of our AAMGA membership and we found out that there are an awful lot of small, family-owned, one state MGA operations going on throughout the United States. We have found through some of our research that there are a lot of these people who would now be qualified for membership in AAMGA and these smaller wholesalers are the ones that really need our help. …

The big guys don’t need our help. But the little guys, the family operations, they need AAMGA’s help to get contracts, to maintain things, to maintain education and everything else. There’s a whole bunch of them out there that are not our members; mainly because they didn’t qualify for our membership.

(To qualify in the past) you had to have three contracts for a certain period of time; you had to have a certain amount of volume. It actually precluded them from joining AAMGA. It took me almost 10 years before I qualified to become a member of AAMGA when I first started my company.

It’s a tough challenge to get in and we’ve been looking at this, particularly with the situation with NRRA (Non-admitted and Reinsurance Reform Act) going on. We were looking at our members to see how many people are really affected by multi-state policies.

There are a lot of members that aren’t affected at all by NRRA because they just do single state, small accounts.

Me, for example. The NRRA means nothing to me other than I have to look at it because of my membership with AAMGA. But as far as Forest Insurance Facilities is concerned we have nothing to do with it.

What is AAMGA doing to open the door for smaller MGA members?
Forest: Last year we changed our bylaws. We’re still going to be restrictive. You just can’t join. You have to meet certain criteria. But what we’ve done is we’ve lowered the amount of business you have to have. It used to be $5 million in business. … now we’re saying if you can do $1 million in business you qualify. … You can join if you have $1 million in volume, and if you have two contracts for a period of two years. That will open up the doors for a lot of these small members to come in.

I will take over as president in May at the convention. And my goal is to bring in at least a minimum of 20 new MGA members into AAMGA. We have our membership committee as well as our marketing committee working on redoing the applications right now. And shortly after May we will be out basically contacting non-members, small family operations in each state to see if we can interest them in joining AAMGA, by showing them what we can offer.

Lastly, can you describe a good working relationship with a retailer? What kind of agent do MGAs want to do business with?
Forest: When we look for a retailer we look for a professional operation, people we can trust. Remember, even way back we did business with a handshake and on a cocktail napkin. We still want to be able to have that same relationship with the people we do business with. So it’s extremely important to the wholesaler to know that retailer as an individual, not just somebody who sends you some business that you may have or may not have met.

Conversely, on the retailer side, I think they’re looking for the same thing from a wholesaler. They want to do business with somebody who is computer savvy. The retailer wants to do business with somebody who can give them a quick answer. With all the computerization that’s going on today there’s no reason in the world why they should have to wait two weeks for a quote and a month for a policy. They’re just looking for the same thing. They want a professional wholesale operation.

Topics Agencies Talent Excess Surplus Louisiana Insurance Wholesale