Managing General Agent vs Carrier: Choosing the Right Operating Model for Building an Insurance Business

Founders and investors building an insurance business face a fundamental structural decision: operate as a fully licensed insurance carrier or launch as a Managing General Agent (MGA). While both models can support successful companies, they differ materially in economics, capital intensity, risk exposure and long-term value creation. Choosing between them is not a question of ambition or regulatory preference, but of where durable competitive advantage truly sits.

A Managing General Agent (MGA) is an insurance intermediary operating under a delegated authority model, with the ability to design products, price risk,  bind policies and (partially) regulate claims on behalf of a licensed carrier, while the carrier retains balance sheet risk and regulatory responsibility. An insurance carrier, by contrast, is a regulated risk-bearing institution accountable for underwriting outcomes, solvency, capital management and claims performance across the full insurance value chain.

These structural differences shape everything that follows, from governance and time to market, to valuation multiples and exit dynamics. This article provides a pragmatic, first-principles comparison of the MGA model and the carrier model, helping executives, investors and boards assess which operating structure best fits their risk appetite, capital constraints and strategic ambition.

The Insurance Value Chain: Where Responsibility Really Sits at Managing General Agent and Carriers 

Insurance is distinguished from many other financial services by the length and complexity of its value chain. Product design, underwriting, pricing, distribution, policy administration, claims handling, reserving, reinsurance, investment management, solvency capital oversight and regulatory reporting are not discrete functions, but deeply interconnected activities that unfold over time.

An insurance carrier is accountable for the entire value chain. While operational tasks can be outsourced, economic and regulatory responsibility cannot. If underwriting is delegated, the carrier remains responsible for underwriting outcomes. If claims handling is outsourced, the carrier still bears claims risk. If asset management is delegated, the carrier remains exposed to market and liquidity risk. This distinction between operational delegation and retained accountability is a foundational principle of insurance regulation.

An MGA operates within the same value chain but assumes responsibility only for selected segments. Under the MGA model, underwriting authority, pricing, product design distribution and claims management are typically delegated, while the carrier retains balance sheet risk, reinsurance arrangements and capital management. This allocation is deliberate. It reflects a division of responsibilities between parties best positioned to manage them efficiently.

Understanding where responsibility truly sits, rather than where tasks are performed, is essential. Many strategic missteps occur when founders underestimate how much residual accountability remains with the carrier, or overestimate how much control an MGA can exert without balance sheet exposure.

The Carrier Model Explained

An insurance carrier is a regulated, risk-bearing institution. It must demonstrate to regulators that it can design products responsibly, price risk adequately, manage claims fairly, hold sufficient capital and operate robust governance structures over time.

While carriers can outsource nearly every operational function, they must still establish and oversee governance frameworks that include independent risk management, compliance and internal audit. These oversight structures are not administrative formalities. They are structural features designed to introduce friction, ensuring that risk-taking activities are understood, monitored and independently reviewed.

This friction has economic consequences. Governance requirements consume management attention, slow decision-making and add fixed costs that scale imperfectly with premium volume, particularly in early stages. For small or monoline carriers, these costs can weigh disproportionately on profitability and strategic flexibility.

In return, carriers benefit from full economic participation in underwriting and investment outcomes. When underwriting performance is consistently strong and investment strategy is aligned with liability profiles, carriers can generate durable returns over long time horizons. The carrier model therefore rewards scale, disciplined underwriting and sustained capital commitment, while exposing weaknesses in pricing, volatility management and organisational design.

The Managing General Agent Model Explained

A Managing General Agent is best defined by economic function rather than regulatory form. In many European markets, an MGA operates under intermediary permissions while exercising delegated authority that extends well beyond distribution. Under the delegated authority model, the MGA typically designs proprietary products, prices risk, binds policies and manages distribution on behalf of one or more carrier partners.

Equally important is what an MGA is not. Pure sales organisations, brokers without underwriting authority or standalone administrators do not qualify as MGAs, even if they perform valuable roles within the insurance ecosystem. The defining characteristic of the MGA model is meaningful decision-making authority over risk selection, product structure, distribution and potentially claims regulation.

Delegated authority exists because it can align incentives between carriers and specialist operators. Carriers gain access to niche underwriting expertise, differentiated distribution or operational efficiency without building these capabilities internally. MGAs gain scale, balance sheet backing and regulatory cover without committing capital to reserves or investment portfolios.

In practice, the MGA landscape is highly heterogeneous. Some MGAs assume broad operational responsibility, including claims handling and customer administration. Others remain tightly focused on underwriting and distribution. The optimal configuration depends on line of business, carrier appetite and the MGA’s ability to demonstrate control, discipline and performance consistency.

Economics Compared: Revenue Scale Versus Risk Exposure

From a profit and loss perspective, insurance carriers and MGAs operate on fundamentally different economic principles.

A carrier earns premium income and investment returns but bears claims volatility, reinsurance costs, acquisition expenses and the full administrative burden of operating a regulated balance sheet. Revenue scale is substantial, but margins are sensitive to underwriting accuracy, market cycles and capital costs. Small deviations in loss ratios or reserving assumptions can materially affect profitability.

An MGA operating under an asset-light insurance model earns commissions and, in some cases, profit participation from carrier partners. Absolute revenues are smaller, but costs are more variable and risk exposure is narrower. Claims volatility, reserve development and investment performance sit outside the MGA’s balance sheet.

The trade-off is therefore less about margin versus scale, and more about how economic exposure and volatility are distributed. Carriers concentrate risk in exchange for greater upside. The MGA model trades some upside for reduced downside and operational focus. Neither structure is inherently superior; each rewards different capabilities and risk appetites.

Balance Sheet Implications and Risk Appetite

The most profound structural difference between the two models sits on the balance sheet.

Carriers operate with large technical reserves and corresponding investment assets. This creates exposure to inflation, reserving uncertainty and asset-liability mismatch. These risks are often non-linear: modest changes in assumptions or market conditions can have outsized effects on equity when balance sheets dwarf annual profits.

By contrast, an MGA operates with a comparatively light balance sheet. MGAs do not hold technical reserves and have limited exposure to financial market movements. Under the asset-light insurance model, adverse developments tend to manifest gradually through reduced commissions or contract renegotiations rather than sudden capital impairment.

This asymmetry helps explain why MGA structures are often perceived as more resilient in uncertain environments. It also explains why carriers require stronger governance, more conservative valuation frameworks and longer investment horizons.

Capital Intensity and Growth Constraints

Launching an insurance carrier requires significant upfront and ongoing capital. Solvency regimes mandate minimum capital regardless of scale, and additional capital must be injected as premium volumes grow. Growth, while desirable, can therefore become capital-consumptive, particularly in lines with higher volatility or longer claim development patterns.

The MGA model avoids these constraints. While MGAs invest in talent, technology and distribution, they do not fund solvency capital. Growth is constrained primarily by underwriting capacity and carrier partnerships rather than regulatory capital ratios. This allows MGAs to scale selectively and adjust more quickly to market conditions.

Time to Market and Strategic Optionality

Time to market is often cited as an advantage of the delegated authority model, but the reality is nuanced. While MGAs avoid licensing timelines, they depend on carrier alignment. For teams with established credibility, delegated authority can be secured quickly. For newcomers, identifying and onboarding a suitable carrier partner may take considerable time.

The more meaningful distinction lies in strategic optionality. An MGA can evolve into a carrier once underwriting performance, retention economics and cost advantages are proven. The reverse path is far more difficult and uncommon. For many founders, starting with an MGA model provides a way to learn, iterate and de-risk before committing to full balance sheet exposure.

Valuation and Exit Dynamics

Ownership economics further differentiate the two structures. Insurance carriers are typically valued close to book value, reflecting capital intensity and balance sheet risk. Even successful carriers often generate modest multiples relative to invested capital.

Successful MGAs, by contrast, are valued on earnings multiples more akin to other asset-light financial services businesses. Lower capital intensity combined with comparable headline valuations can translate into materially higher returns on invested capital under the MGA model.

When Each Model Wins in Practice

An MGA model tends to outperform when capital is scarce, underwriting outcomes are uncertain, products are short-tail and competitive advantage sits primarily in specialist underwriting expertise or differentiated distribution.

The carrier model becomes compelling when underwriting profitability is proven, capital is abundant, retention is high and reinsurance dependence is low. It is most effective when the founding team has genuine advantages across multiple parts of the insurance value chain, including capital management and risk governance.

Managing General Agent vs Carrier: A Pragmatic Conclusion for Insurance Leaders

For most founding teams today, starting under an MGA or delegated authority structure is not a compromise. It is a disciplined way to focus on the segments of the insurance value chain where differentiation is real, while postponing or avoiding balance sheet risks that do not create competitive advantage.

Building a carrier can still be the right destination. It is rarely the right starting point.