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 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.
Generally, property and casualty insurance agents represent the insurer in the sale of property and casualty insurance products. Agents are appointed by the insurer through a written agreement (contract) that outlines the agent’s authority to represent the insurer.
An agent’s acts are considered the company’s acts:
- 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. A 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
A non-insurance sponsor is a business that is not an insurer but offers an insurer’s coverage to its own customers along with its main product, such as a loan or a trip. Examples include:
- banks offering credit insurance
- credit card companies offering unemployment insurance
- travel agencies offering travel insurance when a trip is booked
Types of authority
A producer’s actions and knowledge, within the producer’s authority, are binding on the insurance company the producer represents. A producer’s actions can involve three types of authority:
- Express
- Implied
- Apparent
Express authority is the authority that the insurer explicitly gives the producer in writing, in the agency contract.
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 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 insurer’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 an insurer terminates an agent but does not take back its application forms, rate manuals, stationery, and business cards, and the agent continues to use them, 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 the usual and necessary tasks required to sell and service insurance policies and carry out their express authority.
- Apparent Authority arises when the insurer’s conduct leads clients to reasonably believe the agent has authority to conduct business on behalf of the insurance company.