Producers and Distribution
Insurance products reach consumers through various distribution channels. Understanding the different types of insurance professionals and how they operate is essential for anyone entering the industry.
Insurance Producer Defined
Producer is the broad term that encompasses anyone who sells, solicits, or negotiates insurance. The term was adopted by the National Association of Insurance Commissioners (NAIC) in 2005 to provide a uniform designation. A producer may be:
- An insurance agent
- An insurance broker
- A solicitor
- A consultant
Agents vs. Brokers
The two primary types of insurance producers are agents and brokers. Understanding their differences is critical for the exam.
| Characteristic | Agent | Broker |
|---|---|---|
| Represents | The insurance company | The insurance buyer (client) |
| Legal relationship | Agent of the insurer | Agent of the insured |
| Binding authority | Usually can bind coverage | Cannot bind coverage |
| Liability | Actions bind the insurer | Actions bind the insured |
| Fiduciary duty | To the insurer | To the client |
| Compensation | Commission from insurer | Commission or fee |
Insurance Agent
An insurance agent is authorized to represent an insurance company and act on its behalf. The agent's primary duty is to the insurer.
Key points about agents:
- Appointed by insurance companies to represent them
- Can typically bind coverage on behalf of the company
- Acts of the agent are considered acts of the insurer
- Errors by the agent may be the company's responsibility
Insurance Broker
An insurance broker represents the insurance buyer (the client), not the insurance company. The broker's primary duty is to find appropriate coverage for the client.
Key points about brokers:
- Works on behalf of the insurance buyer
- Shops among multiple insurers to find best coverage
- Cannot bind coverage—must submit applications to insurers
- Has a fiduciary duty to act in the client's best interest
- Acts of the broker bind the insured, not the insurer
Why the Distinction Matters
If an agent makes an error (such as misquoting coverage or failing to issue a policy), the insurance company may be held responsible. If a broker makes the same error, the broker—not the insurer—may be liable.
Captive vs. Independent Agents
Agents are further classified based on their relationship with insurance companies.
Captive (Exclusive) Agents
A captive agent (also called an exclusive agent) works for and represents only one insurance company.
| Aspect | Captive Agent |
|---|---|
| Companies represented | One company only |
| Products sold | Only that company's products |
| Support | Office, training, leads often provided |
| Ownership of renewals | Typically belong to the company |
| Examples | State Farm agents, Allstate agents |
Advantages:
- Strong company support and training
- Established brand recognition
- Leads may be provided
Disadvantages:
- Limited product offerings
- Must meet company sales quotas
- Less flexibility
Independent Agents
An independent agent contracts with multiple insurance companies and can offer products from any of them.
| Aspect | Independent Agent |
|---|---|
| Companies represented | Multiple companies |
| Products sold | Products from various insurers |
| Support | Must provide own office, expenses |
| Ownership of renewals | Typically belong to the agent |
| Examples | Most local insurance agencies |
Advantages:
- Can shop among companies for best fit
- More flexibility in product offerings
- Owns book of business (renewal rights)
Disadvantages:
- Must cover own expenses
- Less company support
- Must maintain multiple appointments
Other Distribution Channels
Direct Writers
Direct writers sell insurance directly to consumers without using agents. The insurance company employs its own sales force or uses direct marketing.
Examples:
- GEICO (primarily direct marketing)
- Many online insurance platforms
Managing General Agents (MGAs)
A managing general agent (MGA) is an intermediary between insurance companies and retail agents. MGAs have authority to:
- Appoint and supervise agents
- Underwrite and bind coverage
- Issue policies
- Collect premiums
- Handle claims in some cases
MGAs typically specialize in particular types of coverage or markets.
Surplus Lines Brokers
Surplus lines brokers (also called excess lines brokers) place coverage with non-admitted insurers when coverage is unavailable from admitted insurers. They handle unusual or high-risk coverage not available in the standard market.
Solicitors
A solicitor is a limited type of producer who:
- Works under the supervision of a licensed agent
- Can solicit applications and collect premiums
- Cannot bind coverage or negotiate terms
- Must be licensed in most states
Solicitors are sometimes used by agents to help with sales activities but have more limited authority than full agents.
Key Takeaways
- Producers is the umbrella term for those who sell, solicit, or negotiate insurance
- Agents represent the insurer; their actions bind the company
- Brokers represent the insured; their actions bind the client
- Captive agents work for one company; independent agents represent multiple companies
- Independent agents typically own their book of business (renewal rights)
- Direct writers sell directly to consumers without using agents
- MGAs serve as intermediaries with broad authority from insurers
An insurance broker legally represents:
A State Farm agent who sells only State Farm products is an example of a:
Which type of producer typically owns the renewal rights to their book of business?
3.2 Producer Responsibilities
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