Insurance Lesson 2
Marketing Distribution Systems
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Opportunities available to licensed Insurance Agents
1) Captive Career Agent 2) Non-Captive Career Agent 3) Managing General Agent (MGA) 4) Personal Producing General Agent (PPGA) 5) Internet-based Producers
Types of Agent Authority
1) Express Authority 2) Implied Authority 3) Apparent Authority
Defamation
Making or circulating false or malicious information regarding an insurer is illegal and includes both Libel (written defamation) and slander (spoken defamation).
Captive Career Agent (Captive Agent)
Sells insurance on behalf of a single insurance company, either as an employee or as a commission-based agent. This type of agent represents only one insurance co. an promotes only its products to the general public. Benefit= amount of agent support provided, including company training and promotional materials given to the career agent. - In health and life insurance, majority of insurance salespeople are captive agents.
Non-Captive Agent (Independent Agent)
Sells insurance on behalf of multiple insurance companies and is paid commission from each insurer in which e or she is appointed. Benefit= he or she can provide many options to help find the correct plan based on the needs of the applicant. -Many indie agents work autonomously or through insurance agencies that provide a work setting, such as a call center.
Personal Producing General Agent (PPGA)
Similar to an MGA in which sub-agents are managed and an override commission is paid to the PPGA. A PPGA is essentially an extension of several insurance companies. Some insurers provide both technical and marketing support to help aid in sales production. Sub-agents are usually employed by the PPGA, but receive commissions from the various insurers that are marketed through the PPGA.
Churning
Similar to twisting, it is the act of depleting the funds of one insurance policy to purchase another policy within the same company for no purpose other than to generate new commission for an agent or agency from an existing customer.
Appointment
A legal contract between an insurance company and a licensed agent by which the insurance company gives an agent the contractual permission, or 'express authority' to conduct insurance business on behalf of the insurer in exchange for compensation, referred to as Commission.
Agent as a Fiduciary
An individual who maintains a certain trust and/or confidence is known as a Fiduciary. - Being honest and trustworthy - Having a good business reputation - Being qualified to perform insurance sales functions - Having the knowledge of, and abide by, state laws and regulations - Using good moral judgment and acting in good faith
Managing General Agent (MGA)
After working in the industry and gaining enough experience, an insurance producer may hire and train additional agents to work under him or her, and in turn, the MGA will receive an override commission on each sub-agent's sales in addition to his or her own commissions. An MGA is essentially an agent who manages additional agents to perform the same sales duties, thus helping the insurance company achieve additional sales.
Authority to Collect Premium
An insurance agent is never authorized personal use of the applicant's premiums including submitting an applicant's premium using the agent's banking account, or depositing any applicant funds into personal banking accounts. - Premiums must always be provided directly by the applicant to the insurance agency.
1) Agent
Authorized by an insurance co. to solicit and negotiate insurance products on the company's behalf. All states provide for the licensing of life, annuity, health, accident, disability and sickness agents. The insurance company is often referred to as the Principal or Insurer. Agents often represent several insurers in order to help consumers shop for the policy that fits their needs.
Apparent Authority
Based solely on the actions of the agent and the 'apparent' acceptable response of the insurer. This type of authority refers to the possibility of a situation where an applicant is under the impression that the agent has the authority to act on behalf of the insurer, even though no expressed authority actually exists. - Legally, even if no expressed contract exists, or the agent has not yet been appointed, an insurer can be liable for an agent's actions if the insurer supplies the agent with marketing material or other items with the company's name or logo.
Agents vs. Brokers & Solicitors
Both agents and brokers solicit insurance, collect premium and deliver policies; however, an agent is paid a commission by the insurer he or she represents, while a broker is paid a fee by the consumer he or she represents. **Life and health insurance can be transacted through both agents and brokers, as is the case in California and a few other states; however, most states only recognize and license insurance agents, not brokers or solicitors.
Sliding
Charging an applicant for ancillary (supplemental) coverage without their knowledge or advising that such additional coverage is required by law with the purchase of insurance.
Commission
Compensation to a licensed agent from the insurer they conduct business for.
Express Authority
Contractual agreement between an insurance company and an agent, to market and sell the insurer's products. An agent's express authority (or permission) is clearly defined in words through the company contract, or appointment, with the agent.
Covered Losses under E&O
E&O insurance pays both the legal costs of defending the agent in court, as well as any compensation to the plaintiff involved in the legal suit against the agent.
Implied Authority
General business practices that an agent could perform that is not necessarily part of the agent's contract, but could be acceptable by the insurer. ex: For instance, while an agent's contract does not include collection of premium beyond the initial payment, if an agent collects and remits ongoing premium payments to an insurer on behalf of a client and the insurer accepts the premium, it is then implied that the agent has the authority to collect ongoing premium. **Since the company does not authorize the agent to collect and remit ongoing premium, the company views the agent as working on the client's behalf. If the agent were not to remit this premium to the company, the agent, not the company, would be liable for the lost premium payment.
3) Solicitor
In an effort to increase revenue, some states allow agents and brokers to hire individuals to help with the sales process. This type of producer performs many of the same tasks as an agent or broker.
Claims-Made E&O Policy
In comparison, a Claims-Made E&O policy provides an agent with liability coverage against claims that are filed while the agent is insured under the claims-made policy. Instead of providing protection against future claims, it insures against any claims of current or prior incidents that occurred, as long as the agent is insured under the claims-made policy.
Agency System
Incorporates agents, either exclusive to the insurer, or who are considered 'independent agents,' meaning that they market several insurers products to consumers with the goal of matching the correct insurance policy based on the needs of the consumer.
Producer - 3 Types
Individuals licensed by their home state to solicit insurance, collect premium, and deliver policies to newly insured individuals. - given the authority to solicit insurance to the general public and are paid a commission on insurance sales. - generally categorized as 'agents,' 'brokers' or 'solicitors.' - each of type of producer may solicit insurance sales, but they cannot bind coverage
Captive Agent
Insurance agent who market only one insurer's products
Errors & Omissions (E&O) Insurance
Insurance agents purchase E&O insurance, also known as 'professional liability' insurance to protect against claims relating to negligent Errors, or mistakes that were made on behalf of the agent, as well as any claims of Omissions, or vital policy information that was excluded by the agent. Most lawsuits are expensive to defend against; however, E&O insurance provides protection to pay these legal fees, as well as any settlement owed to the client. - Legal action can be taken against an agent at any point during his or her career, as well as after he or she leaves the industry
Internet-based Producers
Internet marketing has greatly reduced insurer overhead and marketing costs, as well as provided for quicker policy approval by expediting the entire insurance process. Internet marketing has allowed agents to market insurer products to customers in multiple states (in which the agent is licensed) and has provided for larger accumulated commissions for agents. - Agent sales are no longer limited to the area in which he or she lives and as a result, annual income for insurance agents has been rising. Referring back to the Department of Labor Bureau of Labor Statistics, - 'Technology, specifically the internet, has greatly affected the insurance business, making the tasks of obtaining price quotes and processing applications and service requests faster and easier. The Internet has made it easier for agents to take on more clients and to be better informed about new products.'
Boycott, coercion, and intimidation
It is illegal to commit an act of boycott, coercion, or intimidation that results in unreasonable restraint of, or monopoly in, the insurance business.
False Financial Statements
It is illegal to publish false statements regarding an insurer's financial condition with the intent to deceive.
Misrepresentation (Lesson 2.4 has Quiz)
Lying to a customer regarding covered benefits or the terms of the policy, or guaranteeing insurance is illegal and grounds for license revocation. This includes false or deceptive advertising as well as defamation of an insurer.
Direct Response System
More common in today's marketplace. Insurers market products directly to consumers through mass marketing as well as through their own sales force, including company sales employees and 'captive agents' (agents who market only one insurer's products)
General Responsibilities of the Insurance Company
Must follow the agent/insurer appointment and all associated provisions of the contract Compensate agent according to the contract Reimburse the agent for any allowed expenditures Review and issue or decline an application in a timely manner Abide by all state and federal laws regarding health regulations
Home Service System
Oldest and original system for marketing insurance products. Most insurers no longer use this marketing approach, but lower-valued life insurance products called Industrial life insurance, still market through the home service distribution system - A rep of the insurer meets initially with the insured to deliver the policy and collect the initial premium. typically on a weekly (or monthly) basis, the representative continues to visit the insured to collect ongoing premiums at the insured's home, as opposed to receiving a monthly bank draft from the insured.
Established Business Relationship (EBR)
Prior or existing relationship formed by a voluntary two-way communication between a person or entity and a business or residential subscriber with or without an exchange of consideration (payment), on the basis of an inquiry, application, purchase or transaction by the business or residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party. As stated by the FTC, an established business relationship with a company exists for three (3) months after the inquiry or application.
Principal
The Insurer that an agent works for is often called a Principal
General Responsibilities of the Agent
The agent is responsible for submitting the initial premium from the applicant to the insurer. It is the agent's fiduciary responsibility to disclose to the insurer all applicant information, as well as any potential adverse risks that the applicant may disclose to the agent. Once a policy is issued, the agent is responsible for the delivery and explanation of the policy to the newly insured, as well as the collection any initial premium due, if not already collected.
Twisting
The practice of inducing a policyowner through misrepresentation to forfeit or change insurance from one company to another in order to gain commission for an agent or agency. Properly changing insurance coverage requires careful examination of new plan limitations as well as pre-existing medical conditions. Policy forfeiture or change should always be beneficial to a consumer without sacrificing current benefits.
Rebating & Fruad
The practice of rebating, or offering anything of value (including personal favors) to a customer as an inducement to purchase an insurance contract, whether life, annuity, or health, is illegal in every state. Promising dividend returns or company profits as an inducement to a sale is also prohibited. Any fraudulent act while transacting insurance or any attempt to defraud a consumer is strictly prohibited and enforced by the Commissioner. **Paying dividends or bonuses fairly to all policyholders in a mutual or stock company is not considered rebating, nor is adjusting premiums over time based on the risk experience of a group.
Presumption of Agency
The presumption from a potential customer's POV that an agent is conducing business on behalf of an insurer, given the materials he or she presents to the potential customer or the clothing he or she wears bearing the company's name or logo. - following the presumed authority standpoint, the courts will usually side on behalf of the customer if it can be adequately presumed from the customers POV that the agent was acting on behalf of the insurer, due to the impression he or she gave the customer. **If an agent acts alone and purposely sells insurance without the proper appointment from the insurance company he or she is promoting, the insurance company would not be liable for such actions, and the agent would bear the full extent of any penalty incurred from any unauthorized acts
Unfair Discrimination
Unlawfully discriminating between individuals of the same class or insurance risk by charging different rates of premium, offering different benefits, or charging extra fees based on residence, race, religion, or national origin.
Insurance Licensing Exam
Whether an individual becomes an agent or broker, passing this insurance licensing exam and obtaining an insurance license are the first steps into the insurance industry. In regards to an insurance agent, the next step of a life and/or health agent must take is to contract with each insurance company the he or she intends to sell insurance on behalf of and become 'appointed' by those insurance companies.
Unsolicited Advertisements
any material advertising the commercial availability or quality of any property, goods or services which is transmitted to any person without that person's prior express invitation or permission, in writing or otherwise.
Extended Reporting
can be purchased as an add-on to claims-made E&O policy to protect against claims made after the agent cancels his or her E&O coverage and is sued while not currently covered under a claims-made policy. - this called covering the 'gaps' in coverage
Non-Covered Losses under E&O
illegal activity and prohibited practices are not insurable under any E&O policy.
Full Prior Acts Coverage
protects the agent by covering ANY incidents prior to the current policy, instead of limiting coverage to a specific retroactive date, as is required by a typical prior acts policy.
Occurrence E&O Policy
provides an agent with liability coverage against any current or future claims that result from negligent errors or omissions that occur during the period of time in which the E&O policy is in force. Under an occurrence policy, an agent continues to be covered for incidents that occurred while the policy was in force that are claimed after the policy has terminated. **Essentially, the agent is permanently covered for his or her actions during which time he or she was covered under the occurrence policy, without regard to when a lawsuit is filed against the agent.
Prior Acts or 'nose' Provision
retroactively dates the agent's new E&O policy to an earlier date, usually to the beginning of his or her prior E&O coverage. Any claims made against the agent now for incidents that occurred during the agent's prior policy period as far back as the stated 'retroactive date' are fully covered under the new policy.
2) Broker
works on behalf of a consumer to negotiate and transact insurance with one or more insurers. An agent represents the insurer, while a broker represents the consumer.
