How do insurance companies sell their products?

What are the insurance distribution systems?

Insurance is sold through a variety of different methods by numerous other insurers. When most people purchase insurance, they go through an insurance company representative.

A life insurance agent represents a particular company, or a life insurance broker represents multiple different companies.

1. Continued Agency System.

Branch offices of stock and mutual insurance companies are similar to captive agencies representing one particular insurer in a specific geographical area. Insurance producers recruited into captive agencies are trained and supervised by a company or a General Agent.

Up to this point, general agents have functioned strictly as an agent combined with an insurance agent.

A captive agent is a representative for one insurance company and sells the products of that company only. The insurance company represents the captive producer, not the insured. First-year commissions (FYC) for producers new to the insurance business are usually 50% of the annual life, plus an allowance for new producers first two or three years. They are also entitled to yearly renewal commissions of 10% of the original account.

2. Independent review process

The independent insurance intermediary system is the legacy of the property and casualty insurer. Independent producers are unaffiliated with a particular insurance company; therefore, independent producers serve various insurance companies.

Independent agents generally operate independently, or with an agent, or a managing agent (MGA). The independent producer represents the insured more than insurance companies. The agent can mean several different entities and is paid commissions on the business they handle. The business owner owns the policy coverage expiring at renewal time if it is in their best interest.

3. Managing general agent (MGA)

An insurance company contracts with an insurance producer, recruits, hires, trains, and supervises other producers through a contractual agreement with insurers. However, independent producers hired by an MGA are not considered the insurance company's employees but relatively independent contractors.

MGA's management responsibility is two-fold:

To offer insurance.
To oversee and recruit producers that the MGA receives direct commissions from. MGA's tend to be responsible for the overhead of their offices.

Generally, producers hired by an MGA will sell products under contractual agreements, but there are various contracts allowed under the MGA system.

4. Brokers.

Brokers are independent insurance producers who sell policies through a variety of companies. A broker acts as the insured's agent in choosing the appropriate policy from the different companies he/she represents. Brokers don't have all the power.

5. Direct response.

Much of insurance marketing takes place through mass marketing campaigns in the mass media. Direct-Response Marketing is known as a form of online marketing. This method uses mass media advertising of the policies to promote them directly to consumers. The policies typically offered are inexpensive and provide low benefits.

The main types of direct response systems do not utilize insurance agents to sell insurance. Instead, a form of marketing is used by which consumers respond by calling an advertised service. For instance, a phone number would link the customer to a specific insurer's online insurance application.

6. Direct Writing Companies.

Direct writing companies pay their salespeople a salary in addition to paying commissions on the premiums people buy. The representatives do not choose to move a policy to another company when the policy renews (or to reinstate it after it has expired). Therefore, the insurance company owns the business, all of it.

Writers have usually contracted employees of direct writing firms.

7. Internet Property Insurance sales

This is a new type of financial arrangement where different types of insurance coverage are offered. To purchase insurance, people can go directly to the insurance company or the agent's office.

A variety of property and casualty and life & health insurers have websites available.

8. Franchising market systems.

Franchise marketing provides workers with insurance coverage in the event of large groups of employees. Company contracts are signed with premiums payable by payroll deduction, and policies vary in the level of coverage, premiums, and other added costs. Individual underwriting is required because only a specific number of candidates are accepted.

9. Non-mercantile marketing system.

This company markets insurance through credit cards issued by financial institutions. The insurance product's purchase can be deducted from the credit cards or banking accounts held by the financial institutions marketing the insurance product.