1.5 Insurer Managment and Distribution
Management
- Executives: Responsible for overseeing the overall operations and strategic direction of the company.
- Actuarial Department: Collects and analyzes statistical data used in rate development. Actuaries evaluate the probability and frequency of loss and establish premium rates that ensure financial stability.
- Underwriting Department: Evaluates and selects risks (individuals or property) to insure. Underwriters assess risk exposure and determine appropriate classifications and premium charges.
- Marketing and Sales Department: Develops advertising strategies, promotes company products, and supports the distribution and sale of insurance policies.
- Claims Department: Assists policyholders, insureds, or beneficiaries in the event of a loss. This department investigates claims, determines coverage under the policy provisions, and ensures timely payment of valid claims according to contractual terms.
Distribution Models
Insurance products are delivered to consumers through several distribution systems:
Exclusive or Captive Agency System: In this model, an agent represents only one insurance company or a group of affiliated companies under common ownership. The insurer retains ownership of the business written by the agent. The agent may serve as either an employee or a commissioned independent contractor. The insurer may provide office space and administrative support, although this is not required.
Direct Writing System: Under the direct writing system, the producer or agent is an employee of the insurer. The insurer owns the accounts and compensates the agent through a salary, salary plus bonus, commission, or a combination thereof.
Independent Agency: An independent agent or agency contracts with multiple insurers and may represent an unlimited number of companies. The agency retains ownership of the business it produces. Independent agents operate as independent contractors, are compensated by commission, and are responsible for their own operating expenses.
Career Agency System: Agents are recruited, trained, and supervised by a managing employee or General Agent who is contracted with the insurance company. The system emphasizes structured training and career development within a specific insurer's distribution network.
Personal Producing General Agent: A Personal Producing General Agent does not recruit or manage career agents. Instead, the PPGA sells insurance for the carriers with which it is contracted and maintains its own office and staff.
Direct Mail or Direct Response System: In this model, insurers sell policies directly to consumers through licensed employees or contractors. Marketing efforts rely on mass media channels such as direct mail, newspapers, magazines, radio, television, internet platforms, websites, call centers, and similar distribution methods.
Mass Marketing: Mass marketing targets a defined group of individuals with similar characteristics. For example, insurers may market products to members of the AARP. This approach can reduce marketing and underwriting costs due to the defined risk pool. Mass marketing typically utilizes direct response or direct mail methods, and associations may receive compensation or other financial benefits for granting insurers access to their membership.
Quiz
1. Which distribution system allows an agent to represent multiple insurance companies and retain ownership of the business produced?
A. Exclusive or Captive Agency System
B. Direct Writing System
C. Independent Agency
D. Career Agency System
Correct Answer: C
Rationale: Independent agents contract with multiple insurers and retain ownership of the policies they produce. They operate as independent contractors and are responsible for their own business expenses. Captive agents represent only one insurer, and in the direct writing system, the insurer owns the accounts.
2. In which distribution model is the agent typically an employee of the insurer and the insurer owns the accounts?
A. Direct Writing System
B. Personal Producing General Agent
C. Independent Agency
D. Mass Marketing
Correct Answer: A
Rationale: In the direct writing system, the agent is an employee of the insurance company. The insurer owns the accounts and may compensate the agent through salary, commission, bonus, or a combination. Independent agents, by contrast, own their book of business.
3. An agent who represents only one insurer and whose company retains ownership of the business written is operating under which system?
A. Career Agency System
B. Exclusive or Captive Agency System
C. Direct Response System
D. Independent Agency
Correct Answer: B
Rationale: A captive agent represents a single insurer (or affiliated group) and does not own the business produced. Ownership of the policies remains with the insurer.
4. Which distribution model emphasizes structured recruitment, training, and supervision by a managing employee or General Agent?
A. Career Agency System
B. Personal Producing General Agent
C. Independent Agency
D. Direct Mail System
Correct Answer: A
Rationale: The career agency system focuses on long-term development, with agents recruited, trained, and supervised by a managing employee or General Agent under contract with the insurer.
5. Mass marketing is best described as:
A. Selling insurance exclusively through captive agents
B. Marketing policies to a broad public audience without targeting
C. Targeting a defined group, such as members of AARP, using direct response methods
D. Allowing agents to represent unlimited insurers
Correct Answer: C
Rationale: Mass marketing focuses on a specific, identifiable group with similar characteristics. It commonly uses direct response or direct mail techniques and may reduce underwriting and marketing costs due to the defined risk pool.