Marketing Systems and Producer Authority
Marketing systems
Producers may function as agents, representing the insurance company, or as brokers, representing the potential insured.
Agency system
A Managing General Agent (MGA) is an individual or business entity appointed by an underwriting insurer to solicit applications from agents for insurance contracts or to negotiate insurance contracts on behalf of an insurer and, if authorized to do so by an insurer, to effectuate and countersign insurance contracts.
In general, life and health insurance agents represent the insurer when selling life and health insurance products. Agents are appointed by the insurer through a written agreement (contract) that outlines the agent’s authority to represent the insurer.
Because the agent represents the insurer, the agent’s actions are treated as the company’s actions:
- An application taken by the agent is considered an application taken by the company.
- Payments made to the agent are considered payments made to the company.
- Knowledge of the agent is considered knowledge of the company.
Brokers
In contrast to the agency system (where the agent represents the insurer), a broker represents the applicant. A broker may do business with several different insurers.
Brokers are independent sales representatives who select the most appropriate insurance coverage from various companies for their clients. Brokers must be licensed, and their routine activities and functions are generally similar to those of agents.
Solicitors
A solicitor is a person who works for an agent or a broker. The solicitor’s primary functions are to:
- solicit insurance
- collect initial premiums
- deliver policies
Solicitors cannot bind coverage.
Direct writing companies
Call centers and internet-based insurers may pay salaries to employees who sell the company’s insurance products. These salaried employees are producers and must be licensed to sell insurance.
Direct response
Direct response marketing is conducted through the mail, by advertisements on television and radio, and in newspapers and magazines. Policies sold using this method typically have limited benefits and low premiums.
Non-insurance sponsors
Non-insurance sponsors are being used more and more. Examples include banks offering credit insurance, credit card companies offering unemployment insurance, and vending machines in airport terminals offering travel accident insurance.
Types of authority
A producer’s actions and knowledge are binding on the insurance company he/she represent. A producer’s actions can involve three types of authority:
- Express
- Implied
- Apparent
Express authority is a written agreement. It’s the authority the insurer gives the producer in writing, typically in a contract of employment.
Implied authority is given by an insurance company to an agent but is not expressed in writing or otherwise communicated. This authority allows the agent to perform the usual and necessary tasks to sell and service an insurance policy and to carry out the agent’s expressed authority.
Apparent authority exists when the agent’s conduct causes a client or prospective insured to reasonably believe the agent has the authority to sell an insurance policy or conduct business on behalf of the insurance company. For example, if a terminated agent continues to use an insurance company’s application forms, rate manuals, stationery, and business cards, the client has every reason to believe that the agent does, in fact, represent the insurance company.
Lesson summary
There are different marketing systems for insurance products:
- Agency system wherein agents represent the insurer and are appointed through a written agreement, with their actions binding the company’s actions.
- Brokers represent the applicant and select insurance coverage from various companies.
- Solicitors work for agents or brokers, soliciting insurance and delivering policies but cannot bind coverage.
- Direct writing companies have employed sales personnel who sell insurance products through call centers or the internet.
- Direct response companies use marketing through mail, advertisements, and media outlets, offering policies with limited benefits and low premiums.
Additionally, there are non-insurance sponsors who provide insurance products, like banks offering credit insurance or credit card companies offering unemployment insurance.
Producer authority in insurance can be of three types:
- Express authority is demonstrated by a written agreement given by the insurer to the producer.
- Implied authority is not explicitly communicated but allows agents to perform necessary tasks to sell insurance policies.
- Apparent authority arises when the agent’s actions lead clients to believe they have authority to conduct business on behalf of the insurance company.