Independent agents continue to drive premium growth for carriers, with 60% of life insurance sales and increasing annuity sales (46% through IA/IMO/Independent BD) coming from third-party distribution (TPD), according to LIMRA.
The implication is clear: The future of insurance will be driven by independent distribution. So far, the focus has been on how carriers can control expenses related to third-party sales and get better selecting strategic partnerships. While that is important, there is a secondary implication that may be more important than the carrier focus:
How can distributors develop better partnerships with carriers?
The solution? Distributors should seek to acquire carriers and develop fit-for-purpose products and capabilities. We have seen this already occur in the P&C/specialty space, where MGAs/MGUs have acquired carrier shells. For example, At-Bay, a cyber insurance MGA, acquired an excess & surplus insurer to issue its own cyber and tech E&O insurance. Controlling the full value chain allowed the distributor the ability to accelerate product development and strengthen its commitment to its distribution channels. Life and annuity carriers could follow a similar model.
Why hasn't this worked before?
In the past, distributor-driven acquisitions of carriers have not been a match, for several reasons:
- Capital and regulatory intensity – Independent distributors like IMOs are known for being light on capital and are built explicitly for sales and overrides. Carriers are built completely differently – RBC requirements and capital reserves are not only necessary, but encouraged to develop stronger ratings from credit agencies.
- Scale threshold – Because of the capital and investment required, small to mid-size distributors have no chance to successfully acquire a carrier and leverage it for a fit-for-purpose distribution model. High fixed costs mean that in a highly fragmented distribution landscape, only the largest platforms could attempt this strategy.
- Execution risk & operational complexity – Even if an independent distributor has the capital and scale, carriers bring capabilities that are non-native to independent distributors – claims, actuarial, and investment capabilities all require net new talent and systems to support.
- Optionality and flexibility – Independent distributors pride themselves on having access to a wide-range of products in their toolkit. This "best-in-breed" approach is part of why independent channels have taken market share from captive channels. Owning an insurer potentially jeopardizes that optionality.
- Risk mismatch – Distribution is a very different business than being an insurance carrier. Distributors are built for sales volume – overrides, commissions, and fees are all geared toward "more is better". Carriers are built on loss ratios, investments, and product profitability.
Why this is the time to act
All of these reasons have historically provided plausible rationale for why distributors have focused more on consolidation than achieving a "full stack" solution. But significant shifts in the market make this a time for the right distributor to break the mold.
- AI leveraged for neo-insurers – AI has made certain processes more scalable than ever before. The next frontier of AI development through agentic AI will be developing AI-native op models that move capabilities from human-centric to AI-centric. For distributors seeking to become full-stack, this means that the typical FTE-heavy carrier model no longer applies. Indeed, distributors can drive the AI-native carrier onslaught by leveraging AI to provide carrier capabilities within a distributor-centric operating model. Underwriting, claims, servicing, wholesaling functions and many others can now be designed around the distributor's goals and tech platform.
- Customer preference for holistic financial solutions – The share of US investors seeking holistic financial solutions (insurance & investment products) has grown from 29% in 2018 to 52% in 2023 (McKinsey). An Orion 2025 Investor Survey highlights that 78% of investors whose advisor does not currently offer holistic financial planning say they want it. Only 23% of advisors even offer insurance, suggesting a significant awareness gap and opportunity for distributors
- Heavy PE investment in the insurance market – Capital and investment requirements are significantly less of a concern for private equity investors, who have significant dry powder. This has caused several to go after distributors and/or carriers. These same investors can address a significant hurdle for distributors while diversifying their returns from both distribution and the carrier.
- Moat development – In an increasingly competitive market, where large distributors are consistently seeking to grow through inorganic acquisition/consolidation, there are fewer ways to differentiate. One way that some firms have sought to do this is through carrier/distributor partnerships to create products for specific distributors. Distribution-owned carriers take this to its logical conclusion – owning products becomes a key differentiator versus other large distributors.
- Innovation and speed-to-market – One of the complaints from distributors is how slowly carriers bring products and capabilities to market. Carriers owned by distributors avoid this – instead of long-feedback loops, distributors can leverage their insights to quickly meet the market where it is. Riders that might take 12-18 months from idea to rollout can be done much more quickly.
The way forward for distributors
Distributors that want to move forward have concrete steps to take on their journey to acquiring a carrier.
- First, distributors have to make sure that they can successfully acquire and run a carrier. That includes:
- Having sufficient scale as a distributor
- Having capital or access to capital necessary to support a carrier
- The ability to execute and successfully integrate a carrier into the distributor's platform
None of this can be overstated – the difference in creating an oddly formed captive model and a forward thinking distribution-led carrier will come down to execution and integration capabilities. This limits the possible audience to large distributors or those backed by significant capital.
If a distributor has both the means and the willingness to accept the risk, there are three concrete next steps.
1. Understand how the distributor wants to do business
The key emphasis for product fit-for-distribution is that distribution drives capabilities and decision-making. That means starting with how the distributor wants to leverage the carrier to better enable their sales and growth. For example, does the distributor want to accurately price the risk (e.g., leverage APS and medical exams) or do they favor speed of decisioning (e.g., leveraging simplified or accelerated underwriting) to lower cycle time?
There will be trade-offs for sure, but making these types of strategic decisions will directly influence how the carrier delivers key capabilities in support of the distributor (i.e., the operating model).
One additional consideration: what will the product development strategy be? Distributors could choose anything from niche products missing in the market to a full product suite and make them distributor-exclusive or allow others to sell them. Distributors should initially focus on addressing gaps in the market with exclusive products, but keep an eye on when they may have a product that makes sense to sell to others,
2. Develop an operating model that is fit for purpose
Once distributors have made key strategic decisions, it is time to convert that strategy from a what to a how. There are three key levers distributors should consider: AI, outsourcing, internal personnel.
Any distributor developing a carrier should do so in an AI 3.0 mindset – assume that the processes and capabilities should be built with AI at the forefront and human interaction only inserted where AI is incapable of performing the task today. This provides a lean organization that positions itself well in the future: as AI continues to develop this will position the carrier (and the distributor) the next stage of AI-driven operating models.
With AI and automation at the forefront of how the carrier operates, distributors can continue to develop capabilities by outsourcing and internal hiring. There are several considerations, but distributors should consider what talent should be in-house. For example, claims may not be a critical experience to the distributor and could be outsourced to a TPA, while product development may be a capability to retain.
3. Integrate and iterate to continue to improve
In a distribution-centric model, there should be a focus on establishing a proprietary data loop to drive sales.
Full ownership provides clean, first-party data on distribution behavior and claims, which can feed back into product/actuarial/pricing decisions faster than any carrier partnership allow.
To enable that, distributors need to integrate all carrier technology with the distributors existing platform – this will ensure that insights are seen end-to-end that improve the distributors ability to sell.
What comes next?
As distributors develop strategy over the next 5-10 years, they should expect to see independent distribution as a primary value driver, increased competition for advisor talent within independent channels, and an increased focus on customer centricity. The combination of those things suggest that distributor who innovate and can best serve the customer will be winners in the market.
The way to do that is simple, but not easy – leverage carrier capabilities to provide a true, distribution-led product development process. Large distributors and their investors must take immediate steps to leverage their scale to be a first in the market. Fast action will provide them with a first-mover advantage, and position them well as the market transitions. The first scaled distributor or PE-backed platform to execute this strategy will own the next decade of independent distribution.
