NEW YORK — Forming and funding digital managing general agents with the aid of insurtech companies can be challenging but the problems are not insurmountable, experts say.

Constructing a digital MGA may require regulatory approvals that technology companies don’t typically have to comply with, they said.

In addition, securing adequate reinsurance capacity is vital for a successful launch, they said Wednesday during a session at the New York Insurtech Conference.

“It’s not difficult to build an MGA,” because the resources are there, said Dogan Kaleli, CEO at New York based Stere LLC, a company that seeks to connect MGAs and insurtechs with insurers, reinsurers and others. 

Mr.  Kaleli said while insurers and other capacity sources typically look to MGAs for sector expertise to market and sell a program or products, that expertise need not pre-exist.

When assembling a digital MGA, participants such as technology providers must be clear about what services they are performing, said Zach Lerner, a New York-based partner at law firm Locke Lord LLP.

Insurtechs involved with MGAs may need to comply with insurance-related regulations. For example, an insurtech helping to facilitate claims payments may perform a function which requires an adjuster’s license.

Similarly, an insurtech involved in distribution could be considered a producer. “You may have an idea of what you are doing, but a regulator may have a different idea of what you are doing,” Mr. Lerner said.

Defining the roles of participants in MGA agreements is critical and should be clearly understood, he said. Regulators may also be taking a fresh look at their interpretation of laws and roles “to help meet what the market is demanding,” such as entities which could straddle more than one function.

Securing capacity is key for any MGA, including reinsurance capacity, said to Michael Scholl, Boston-based chief pricing actuary for Everspan Insurance Group, a specialty insurer and fronting company owned by Ambac Financial Group Inc.

“The first thing we talk to potential MGAs about is securing adequate reinsurance,” Mr. Scholl said. Everspan use a leveraged model where an average of 25% of a risk is retained, with the remainder going to the reinsurance market. The company has fielded 472 submissions for funding over the past 25 months.

The reinsurers have their own criteria when considering whether to support an MGA.

“What we’re looking for with a lot of MGAs is streamlined expenses,” said Randel Bennett, vice president for Strategic Partnerships for Swiss Re Ltd. He said this is especially important amid the current firm market conditions in commercial insurance.