Marketing Systems and Producer Authority | General Insurance Concepts

Marketing Systems

Producers may function as agents, representing the insurance company, or as brokers, representing the potential insured.

Agency System

Generally, life and health insurance agents represent the insurer with respect to the sale of life and health insurance products. Agents are appointed by the insurer through a written agreement (contract), which outlines the agent’s authority to represent the insurer.

The acts of an agent are considered to be the acts of the company. An application taken by the agent is considered an application taken by the company. Payments made to the agent are considered as being made to the company and knowledge of the agent is considered knowledge of the company.

Brokers

In contrast to the agency system in which 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 generally their routine activities and functions are similar to that 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, and deliver policies. Solicitors cannot bind coverage.

Direct Writing Companies

Call centers and internet-based insurers pay salaries to employees who sell the company’s insurance products. Technically, these salaried employees are not producers, but they must be licensed nonetheless.

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. The actions of a producer can take on 3 types of authority:

Express
Implied
Apparent

Express authority is a written agreement. It is the authority that the insurer gives the producer in writing. It is typically in a contract of employment.

Implied authority is given by an insurance company to an agent and is not actually expressed in writing or otherwise communicated. This authority allows the agent to perform all the usual and necessary tasks to sell and service an insurance policy and to exercise the agent’s expressed authority.

Apparent authority exists when the agent’s conduct causes a client or prospective insured to reasonably believe that 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.

Chapter Vocabulary

Definitions

Agent: Producers may function as agents, representing the insurance company. Agents are appointed by the insurer through a written agreement (contract) that outlines the agent’s authority to represent the insurer.
Apparent Authority: Authority of an agent that is created when the agent oversteps express or implied authority, and when inaction by the insurer does nothing to counter the public impression that such authority exists.
Broker: An insurance producer, licensed by the state, who represents various insureds, and who is permitted to place general insurance coverages with any insurance company authorized to transact business in the state in which he/she is licensed.
Captive Agent: An individual who sells or services insurance contracts for a specific insurer or fleet of insurers.
Express Authority: Authority of an agent that is specifically granted by the insurer in the agency contract or agreement.
Implied Authority: Authority of an agent that the public may reasonably believe the agent to have. If the authority to collect and remit premiums is not expressly granted in the agency contract, but the agent does so on a regular basis and the insurer accepts, the agent has implied authority to do so.
Independent Agent: A representative of multiple insurance companies who sells and services policies for records which they own and operate under the American Agency System.
Producer: An individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.