Basic Insurance Principals Flashcards
Understand: The Role of Insurance, Types of Insurance Companies, Departments within an Insurance Company, Key People within an Insurance Company, How Insurance is sold, Evolution of Industry Oversight
How Is Insurance Sold?
Most consumers purchase insurance through licensed producers who present insurers’ products and services to the public via active sales and marketing methods. Insurance producers may be agents, who represent a particular company, or brokers, who are not tied to any particular company and can represent many insurers’ products. In most states, brokers and agents must be contracted and appointed with an insurer prior to taking an application for the insurer. An agent has an agent’s contract; a broker has a broker’s contract. This contract and appointment with the insurance company are what grant the agent (or broker) authority to bind an insurer to an insurance contract. In a sales transaction, agents represent the insurer, and brokers represent the buyer. In any dispute between the insured or beneficiary and the insurer, the agent who solicits an insurance application represents the insurer and not the insured or beneficiary.
Agents are also classified as captive or career agents and independent agents. A captive or career agent works for one insurance company and sells only that company’s insurance policies. An independent agent works for himself and sells the insurance products of many companies. In most states, the agent may represent as many insurers as will appoint him. There are three systems that support the sale of insurance through agents and brokers. These are the career agency system, personal producing general agency system, and independent agency system
Career Agency System
Career agencies are branches of major stock and mutual insurance companies that are contracted to represent an insurer in a specific area. In career agencies, insurance agents are recruited, trained, and supervised by either a manager-employee of the company or a general agent (GA) who has a vested right in any business written by the GA’s agents. GAs may operate strictly as managers, or they may devote a portion of their time to sales. The career agency system focuses on building sales staff.
Managerial System
With the managerial system, branch offices are established in several locations. Instead of a general agent running the agency, a salaried branch manager is employed by the insurer. The branch manager supervises agents working out of that branch office. The insurer pays the branch manager’s salary and pays him a bonus based on the amount and type of insurance sold and the number of new agents hired.
Personal Producing General Agency System
The personal producing general agency (PPGA) system is similar to the career agency system. However, PPGAs do not recruit, train, or supervise career agents. They primarily sell insurance, although they may build a small sales force to assist them. PPGAs are generally responsible for maintaining their own offices and administrative staff. Agents hired by a PPGA are considered employees of the PPGA, not the insurance company, and are supervised by regional directors.
