Chapter 4
Internet
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Call Centers
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Describe three widely used methods used to transfer premiums to insurance companies in the agency bill process
1. Item Basis - the premium, less commission is forwarded to the insurance company when the producer collects it or when it becomes due 2. Statement Basis- the insurance company sends a statement to the producer showing the premiums that are due 3. Account Current Basis - the producer periodically prepares a statement showing the premiums due to the insurance company after deducting appropriate commissions and sends that amount to the insurance company
What are the legal responsibilities of the principal to the agent?
1. Pay the agent for services performed 2. indemnify the agent for any losses or damages suffered without the agent's fault but arising out of the agents actions on behalf of the principal.
Agency
A legal, consensual relationship that exists when one party, the agent, acts on behalf of another party, the principal
Exclusive Agency Marketing System
A marketing system under which agents contract independent contractors (AKA exclusive or captive agents) to sell insurance exclusively for one insurance company, unless coverages are not available with that particular company. Usually compensated by commissions.
Agency Bill
A payment procedure in which a producer sends premium bills to the insured, collects the premium and send the premium to the insurance company, less any applicable commission
Describe the group marketing technique of affinity marketing
Involves insurance companies targeting various customer groups based on profession, interests, hobbies or attitudes.
Premium Collection - Statement Basis
The insurance company sends a statment to the producer showing the premiums that are due and the producer is obligated to pay or advise of errors
Principal
The party in an agency relationship that authorizes the agent to act on that party's behalf
How are distribution channels a communication conduit?
They promote and service products and communicate with existing and prospective insured's, such as internet, call centers, direct response, group marketing and financial institutions
Independent Agency
a business, operated for the benefit of its owner(s) that sells insurance, usually as a representative of several unrelated insurance companies.
Contingent commission agreement
a contract provision which an insurance agrees to make supplemental payments to producers based on profitability alone or on a combination of profitability, volume, and growth in the agency's book of business placed with that insurance company.
Independent Agency Networks/Agent Groups/Agent Clusters/Agent Alliances
a group of agencies that contractually link to share services, resources, and insurance companies gain advantages normally available only to large regional and national brokers.
agency contract/agreement
a written agreement between an insurance company and an agent that specifies the scope of the agent's authority to conduct business for the insurance company - gives the agent the right to represent the insurance company and to sell insurance on their behalf
Function of Insurance Producers: Businesses
more complex and takes longer to develop and analyze loss exposure information. Loss run reports are used as a guide
Function of Insurance Producers: Policy Issuance
the way in which the producer sends the insurance companies the policies that were issued.
Independent agency and brokerage marketing system
agents and brokers who are independent contractors rather than employees of insurance company - can represent as many or as few insurance companies as they want
Managing General Agent (MGA)
an authorized agent of the primary insurance company that manages all or part of the primary insurance company's insurance activities, usually in a specific geographic area. Can represent a single insurance company, although they more commonly represent several insurance companies and has the following advantages: 1. a low fixed cost 2. specialty expertise 3. assumption of the insurance companies activities
Broker
an independent producer who represents insurance customers - brokers shop among insurance companies to find the best coverage and value for their clients
Mixed Marketing System
an insurance company's use of more than one marketing system or distribution channel
Function of Insurance Producers: Individual or Family
an interview or completion of a questionnaire that assists in indentifying the prospect's loss exposures, often associated with property ownership and activities. The results help the producer suggest methods of risk control, retention of loss exposures and insurance
Alex owns and manages the Independent Insurance Agency. Alex would like to begin offering payment plans to his customers who have large insurance premiums. Alex has made arrangements with a local bank that will finance the premiums for his customers. How can Alex determine whether this type of arrangement is acceptable to the insurance company that he represents?
by consulting the agency contract or agency agreement. It specifies the scope of the agent's authority and relationship with the insurance company
Explain how insurance portals benefit customers
by offering the products and services of many insurance providers on one website. Can increase an insurance company's market share and brand awareness
Unfair Trade Practice Laws
certain prohibited business practices such as: misrepresentation and false advertising, tie in sales, rebating, deceptive practices
Cold canvass
contacting a prospect without an appointment
Mass Marketing/Merchandising
design an offer for their policies to large numbers of targeted individuals or groups
How can assessment of its internal strengths and weaknesses help an insurance company in the selection of distribution systems and channels?
determining where its strengths lie, an insurance company selects distribution systems and channels that maximize its opportunities to capture market share and minimize its weakness
Worksite markering or payroll deductions
employers can contract directly with an insurance company through a producer to offer voluntary insurance coverage as a benefit to their employees (health insurance)
What are the two types of actual authority?
express authority or implied authority
What qualities of financial institutions make them beneficial strategic partners for insurance companies?
financial institutions benefit strategic partners because they have a strong customer base, a predisposition to cross-selling, and strength at processing transactions.
What are the two typical forms of compensation for independent agents and brokers?
flat percentage commission on all new and renewal business submitted OR a contingent or profit-sharing commission based on volume or loss ratio goals
Affinity Marketing
insurance company's target various customer groups based on professions, interests and hobbies
Identify the purpose of trade association advertising
intended to create a favorable image of association members as a group and to make the public familiar with the logos and other association symbols
Identify three examples of administrative functions an exclusive agency insurance handles for the exclusive agent
issuing policies, premium collection and claim processing
Summarize the steps that a candidate must take to obtain a state insurance agent's license
must pass an examination on insurance principals, insurance coverages and insurance laws and regulations. Some states require a certain number of classroom hours before taking the exam. In some states, taking a recognized professional designation program waives the classroom and exam requirements
What is the agency's most valuable assets?
ownership of its expiration lists
Rebating
producers are not allowed to pay a portion of the premium or give any commission to a policy holder - cannot offer to do other business with the policyholder in exchange for the purchase of a policy.
Describe two advantages of using qualified producers to handle claims
quicker service to policyholders and lower less adjustment expenses to the insurance company
What are three issues that must be considered when using a mixed marketing system?
requires consideration of these issues: maintaining consistent customer communications, providing a consistent customer experience, and matching the type of insurance with an appropriate distribution system and channel.
Function of Insurance Producers: Sales
selling insurance products and services is one of the most important activities of an insurance producer as its essential to sustain the livlihood of the agency and brokerage. Commission on business sold is the principal source of income for producers and the ownership of policy expirations for the agency.
Misreprensetation and False advertising
unfair trade practices for insurance companies include: 1. misrepresentation of benefits, advantages, conditions and terms of insurance policies 2. misrepresents the dividends to be received on any insurance policies 3. uses a name or title on insurance policies that misrepresent the true nature of the policy
Broker/Sales Representative
used for special categories for people who sell insurance
National and regional brokers
usually represents commercial insurance accounts that often require sophisticated knowledge and services - can taylor to customers or groups who require a particular type of coverage for multiple locations. Brokers receive negotiated fees for services they provide, or they receive fees in addition to commissions, subject to state regulation
Implied authority
the authority to grant an agent by custom, usage, or a principal's conduct indicating intention to confer such authority. Custom is the most common source of implied authority. The agent can act beyond the usual scope of authority in an emergency.
Premium Collection - Account Current Basis
the producer periodically prepares a statement showing the premiums due to the insurance company, after deducting the appropriate commisions, and send that amount to the insurance company. This is usually done monthly
What are the 6 methods prospects can be located?
1. referrals from present clients 2. referrals from strategic partners, such as financial institutions and real estate brokers 3. Advertising in multimedia and direct mail 4. Interactive Web sites 5. Telephone solicitations 6. cold canvass
Name 6 methods producers use to locate prospective clients
1. referrals from present clients 2. referrals from strategic partners, such as financial institutions and real estate brokers 3. advertising in multimedia and direct mail 4. interactive websites 5. telephone solicitations 6. cold canvass
What are two ways in which direct writer insurance companies can encourage their sales agents to develop new business?
1. relieving producers of non-selling activities 2. compensating at a lower renewal rate
What are 3 examples of reasons why some states require claim representatives to be licensed
1. so that those who make claim decisions for insurance companies are aware of prohibited claim practices 2. have a minimum level of technical knowledge and skill 3. understand how to handle insured's claims fairly
Distinguish between insurance agents and brokers in terms of the party each represents
Agents are representatives of the insurance company for which they sell insurance. Brokers are representatives of the insurance purchaser rather than the insurance company
Direct writer marketing system
An insurance marketing system that uses sales agents/representatives who are direct employees of the insurance company and may be compensated by salary, commission or both.
Actual Authority
Authority granted by the principal on an agent under an agency contract
Direct Bill
a payment procedure in which the insurance company assumes all responsibility for sending premium bills to the insured, collecting premiums, and sending any commission payable on the premium collected to the producer.
Commission
a percentage of the premium that the insurance company pays to the agency or producer for new policies sold or exisiting policies renewed
Loss Run
a report detailing an insured's history of claims that have occured over a specific period, valued as of a specific date.
Identify two key requirements an insurance company must meet to be licensed by a state
a state indicates that the insurance company meets minimum standards of financial strength, competence and integrity and that it has complied with the state's insurance laws and is authorized to write certain types of insurance.
Apparent authority
a third party's reasonable belief that an agent has authority to act on the principal's behalf.
Describe the practice known as tie in sales
a tie in sale occurs when a producer requires that the purchase of insurance be "tied" to some other sale or financial arrangement
Sponsorship marketing
a trade group sponsors an insurance company in an approaching a customer group. The sponsor participates in the profitability of the program.
Producer/Agent
any person who sells insurance (produces business) for one or more insurance comanies
All states require property-cauality insurance companies to receive _____ before operating within the state.
approval
Why do insurance companies provide contingent commission agreements?
as a form of incentive compensation for producers who exceed established benchmarks for profitability and volume of business
Tie in Sales
it is an unfair trade practice for a producer to require that the purchase of insurance be "tied" to some other sale or financial arrangement - a practice referred to as tie-in sales. Each transaction must stand on its own
What are the three factors that influence an agency relationship?
legal roles, legal responsibilities and scope of authority
For producers, claim representatives, and insurance consultants to operate they must pass what?
they must pass a written examination
Agent
the party that is authorized by the principal to act on the principal's behalf within certain guidelines determined by the principal
Function of Insurance Producers: Risk Management Review
the principal method of determining a prospect's insurance needs based on the customers and their characteristics
legal responsibilities of the princial to the agent
the principal's duty to pay the agent for services performed requires the insurance company to pay commissions and other specified compensation to the agent for the insurance the agent sells or owns.
It is considered an unfair trade practice for insurance agents to make, issue or circulate information that exhibits certain characteristics. Identify examples of such characteristics that indicate that information could be construed as misleading or as false advertisting
- misrepresents the benefits, advantages, conditions or terms of any insurance policy. - misrepresents the dividends to be received on any insurance policy - Makes false or misleading statements about dividends to be received on any insurance policy - Uses a name or title on insurance policies that misrepresents the true nature of policies
what are the 5 legal responsibilities of the agent to the principal?
1. be loyal to the principal 2. Obey the principal's lawful instructions 3. Exercise a reasonable degree of care in actions on behalf of the principal. The agent must act as a reaonsably wise person would under the same or similar circumstances 4. Account promptly for any of the prinipal's money that the agent holds. Under the duty of accounting, the agent is responsibile to the principal for all of the principal's money and property that comes into the agent's possession. 5. Keep the principal informed of all facts relating to the agency relationship. This is the duty of relaying information.
What are the three main insurance distribution systems?
1. independent agency and brokerage marketing system 2. the exclusive agency marketing system 3. the direct writer marketing system
Richard, a salesman for a car dealership, also holds an insurance agent's license with Bemond Insurance. Julia purchases a car from Richard, who insists that Julia obtain insurance on the car from Bemond. When she refuses, Richard tells Julia that the loan on her new car will be denied unless she purchases a policy from Bemond. The unfair trade practice in which Richard is engaging in this cause would be characterized as...
A tie in sale - tying the sale of insurance to the financing of the car.
Identify one advantage and one disadvantage of the direct response distribution channel
An advantage is commission costs, if any, are greatly reduced. A disadvantage is is that advertising costs are typically higher
Describe the types of information included in a loss run that may be of use to a producer
lists of losses and their total cost. Provide details that can lead to additional questions and suggest areas of risk management improvement
What are the two essential elements of an agency relationship?
the agents authority to act for the principal and the principal's control over the agent's actions on the principal's behalf
Function of Insurance Producers: Prospecting
locating people, business and other entities that may be interested in purchasing the insurance products and services offered by producer's principals
What considerations relating to existing markets might an insurance company evaluate during the process of selecting distribution systems and channels?
should consider the characteristics of its existing book of business. If agents or brokers own the expirations for current accounts, the insurance company must either give up that business and start over or purchase the expirations from producers. The insurance company should also consider the possibility that a change in distribution systems and channels could disrupt communication channels, causing changes in communication patterns that can result in policyholder dissatisfaction and lost accounts
what factors must an insurance company evaluate relating to its profile when selecting distribution systems and channels
strategies and goals, strengths, existing and target markets, geographic location and its desire or required degree of control over producers
Binding authority
the agent's authority to effect coverage on behalf of the insurance company IE- Chris buys a new car, calls his agent to add it to the policy before he drives it off the lot, Lisa tells Chris his deductible and Lisa binds coverage and processes the paperwork for an endorsement (policy change). Chris now has coverage and will pay the premium when he receives the bill - Lisa issued an oral binder
Express authority
the authority that the principal specifically grants to the agent
legal responsibilities to 3rd parties
the law presumes that knowledge acquired by the agent is knowledge acquired by the insurance company - if the agent sees a vacant building that could suspend or void the policy, the insurance company cannot deny the claim to the insured because the agent failed to communicate that information to the insurance company
Premium Collection - Item Basis
the least complex method - the premium less commission is sent to the insurance company when the producer collects it or when it becomes due.
Identify what determines how an insurance agent receives sales commission
the method of premium collection determines how sales commissions are received. If the insurance company handles billings and collections (direct billing), the insurance company periodically mails a commission check to the agency. If the agency collects the premiums (agency billing or producer billing) it subtracts its commission on each policy and remits the balance of collected premiums to the insurance company.
Distribution Systems
the necessary people and physical facilties to support the sale of insurance product and services (agents and brokers)
What are the five duties that the law of agency imposes on insurance agents?
1. be loyal to the principal 2. obey the principal's lawful instructions 3. exercise a reasonable degree of care in actions on behalf of the principal. The agent must act as a reasonably prudent (wise) personal would under the same similar circumstances 4. Account promptly for any of the principal's money that the agent holds. Under the duty of accounting, the agent is responsible to the principal for all of the principal's money and property that comes into the agent's possession.
What are three examples of the right and duties an agency contract addresses?
1. the right to make insurance coverage effective and any limitations on that right. 2. How the agent is to handle funds, including stipulations on how and when the agent must remit premiums to the insurance company. 3. And gives the agent the right to employ subagents, who may act on behalf of the insurance company according to the terms of the agency contract
Agency expiration list
the record of an insurance agency's present policyholders and the dates their policies expire. If the insurance company ceases to do business with an agency, the agency has the right to continue doing business with its existing customers by selling them insurance with another company. *the agency's most valuable asset.