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.
A producer’s actions and knowledge are binding on the insurance company he/she represents. The actions of a producer can take on 3 types of authority:
Express authority is a written agreement. It is the authority 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.
There are different marketing systems for insurance products:
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:
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