Spotlight on MGAs and TPAs: A Call for Proactive Compliance 

Louisiana has recently updated its regulations for managing general agents (MGAs) through House Bill 672, aligning many aspects with the National Association of Insurance Commissioners (NAIC) Model Act. While some changes are technical or conform to the NAIC Model, the new legislation introduces additional financial reporting requirements and other obligations for MGAs and their associated insurers, effective August 1, 2024. 

These changes are partly in response to a series of insolvencies among Louisiana insurers that use affiliated MGAs. The amendments extend existing laws and apply broadly to MGAs, managing general underwriters (MGUs), program administrators, insurers, and investors. Key provisions include quarterly financial reporting by MGAs, regulatory notifications for certain financial thresholds and events, mandatory independent audited financial reports, expanded examination rights for regulators, and a prohibition on persons involved in prior insurer insolvencies from acting as MGAs. 

House Bill 672 reflects a broader trend towards increased scrutiny and regulation of the growing MGA sector, driven by concerns over rapid insurance growth and the risk of insolvencies. This legislative response underscores the heightened regulatory environment MGAs now face, particularly around robust data documentation and underwriting guidelines. Ultimately, regulators view MGAs and TPAs as extensions of insurance carriers. This perspective necessitates that MGAs and TPAs uphold the same standards of compliance, transparency, and diligence as the carriers themselves.  

At Pro Global, our recent analysis of over 200 U.S. audits reveals critical insights into the current state of compliance within these entities. Our audits uncovered an average of five findings per engagement, with 55% classified as high-priority issues. Key areas requiring immediate attention include compliance policies and procedures, accurate and complete policy documentation, adherence to authorized binding limits, and appropriate/diligent sanctions checking. These deficiencies underscore the need for MGAs to bolster their internal controls and compliance frameworks. 

One of the most pressing TPA issues identified is poor claims handling, which not only affects customer satisfaction but also exposes companies to significant financial and reputational risks. Ineffective reserving practices and inadequate coverage analysis further exacerbate these challenges, potentially leading to regulatory penalties and financial losses. To address these issues, it is imperative that MGAs and TPAs enhance their claims management processes, ensuring timely and accurate claims processing and reserving. 

Moreover, proactive audits and claim peer reviews play a vital role in strengthening overall risk management and governance policies. Regular audits not only ensure compliance with regulatory standards but also help businesses become more resilient to unforeseen challenges. By rigorously examining internal controls and operational processes, audits mitigate financial, reputational and conduct risks and enhance the reliability and accuracy of business operations. 

Cybersecurity is another critical area that requires attention. With the increasing reliance on digital platforms and data, MGAs and TPAs are vulnerable to cyber threats. Implementing robust cybersecurity measures and conducting regular vulnerability assessments can help protect sensitive data and maintain the integrity of business operations. 

The key takeaway for carriers, MGAs, TPAs, and compliance teams is clear: the regulatory landscape is evolving, and the focus is sharpening on delegated authority structures in North America. Louisiana’s recent amendments through House Bill 672 epitomize the heightened regulatory scrutiny that MGAs and TPAs now face in their rapidly growing corner of the insurance market. These changes, driven by a need to address past insolvencies and ensure robust financial practices, reflect a broader trend towards increased oversight. As MGAs and TPAs are seen as extensions of insurance carriers, they must adhere to the same standards of compliance, transparency, and diligence.  

North America’s growing and dynamic population of MGAs and TPAs must rise to the occasion by strengthening their compliance frameworks, enhancing their operational processes, and prioritizing cybersecurity. Proactive audits and continuous improvement are the keys to navigating this evolving landscape successfully. By doing so, MGAs and TPAs can not only keep pace with regulatory expectations but also drive sustainable growth and build a solid and compliant foundation for the future. A proactive approach to continuous improvement  is key – audits are not just tick box exercises, nor are they limited to a “once and done” approach.  MGAs and TPAs take note!