by darnardo1 » Thu May 28, 2009 12:22 am
I notice that incorporated insurance companies like Prudential, Northwest Mutual and John Hancock like to use captive agents and brokers as their main distribution channel/s.
Private companies like Metlife however have 6 channels and almost 25% of their FYP goes to general agents (PPGAs).
Is this because incorporated companies must answer to stock owners who see the use of an independent agent as a loss of company profits (they have to pay higher commissions to independent agents)?
The private companies must answer to their customers however. This would mean keeping policy prices low making other channels more sensible.
Please tell me your thoughts on this...
Private companies like Metlife however have 6 channels and almost 25% of their FYP goes to general agents (PPGAs).
Is this because incorporated companies must answer to stock owners who see the use of an independent agent as a loss of company profits (they have to pay higher commissions to independent agents)?
The private companies must answer to their customers however. This would mean keeping policy prices low making other channels more sensible.
Please tell me your thoughts on this...
Posted: Thu May 28, 2009 10:31 am Post Subject:
Denardo, you appear to be confused. You are confused in both your terminology and the facts about the companies.
All companies are incorporated unless they are set up as sole proprietorships or partnerships. All of the companies that you mentioned are incorporated.
Some insurance companies are owned by their stock holders. Some are owned by their policy holders. Companies which are owned by their policy holders are mutual companies. Companies which are owned by stock holders are stock companies. Most of these are publicly traded companies.
For the companies that you mentioned, they break down as follows:
Mutual Companies:
Northwestern Mutual
Stock Companies:
Prudential
John Hancock
Met Life
None of the companies that you mentioned have agents that are truly captive. A captive agent can't sell the products of another company.
All of Northwestern Mutual policies get sold by Northwestern Mutual agents. They don't accept brokered business.
A PPGA is basically a broker. They are simply able to get a higher paying contract because they give a lot of business to the company.
The Stock companies are the ones who use brokers more, not less.
The big mutual companies are New York Life, MassMutual, Guardian, and Northwestern Mutual. Most of their products are sold by people who have career contracts with the company.
The use of an independent agent is not a loss of company profits. They don't price their products to sell at a loss. Independent agents are cheaper even if they tend to get a higher first year commission. The company doesn't have to pay any of the following expenses for an independent agent:
1) Training costs
2) Health insurance
3) office space
4) 401(k) match
5) pension contribution
6) FICA
7) Etc...
Posted: Thu May 28, 2009 12:17 pm Post Subject:
Hi darnardo1,
I'm truly curious to know how this idea came up to your mind that a carrier would hire professionals to sell their products at a loss. Do you have any concrete data to support your view? Or is it just your personal belief?
Steven
Posted: Fri May 29, 2009 12:49 am Post Subject:
Thank you Insurance Expert
You're right Metlife are incorporated...I'll get my facts straight next time sorry. :?
None of the companies that you mentioned have agents that are truly captive. A captive agent can't sell the products of another company.
I am using the term captive agent to represent an agent that must sell at least 75% of their affiliated insure's products. Also this agent must usually recieve permission if selling products from another insurer (correct?) If you have another term that would better fit this than "captive" please let me know
I'm truly curious to know how this idea came up to your mind that a carrier would hire professionals to sell their products at a loss.
There seems to be a misunderstanding...I did not mean sell at a loss. If a company uses an independent channel they are able to save more on training, monitoring and other supportive overhead costs as Ins Expert mentioned. Therefore they could pass on these savings to the customers couldn't they?
Do you have any concrete data to support your view?
This is just a theory...I have access to statistical data on premiums, channels, sales figures and such. What I'm trying to find out is why some insurers use multiple channels and others just use 1...
A PPGA is basically a broker. They are simply able to get a higher paying contract because they give a lot of business to the company.
As I am aware brokers don't recieve overriding commissions on personally produced business whereas PPGAs do. Doesn't this make broker contracts cheaper to the insurer?- Less middlemen...
Sorry for all the questions...I have been working for my insurance company for 2 months now and they expect me to be an expert...I am in Korea and the only foreigner working for my company. They know only about the Korean market and I am here to teach them about the US market...I have an MBA and teaching experience but am new to the insurance industry
Thanks for your help~
Posted: Fri May 29, 2009 10:03 am Post Subject:
You're right Metlife are incorporated...I'll get my facts straight next time sorry.
I think that you are really trying to talk about stock vs. mutual companies or to put it another way, companies that are owned by their policy holders vs. companise are owned by stock holders. The majority are owned by stock holders.
I am using the term captive agent to represent an agent that must sell at least 75% of their affiliated insure's products. Also this agent must usually recieve permission if selling products from another insurer (correct?) If you have another term that would better fit this than "captive" please let me know
I think that a better term for what you are describing is "career agent". A career agent has a contract with a primary carrier and is an employee (but still working on commission) of that company. They recieve a W-2. Some career agents can do no outside business. Some can do limited outside business. Some can do unlimited outside business.
There seems to be a misunderstanding...I did not mean sell at a loss. If a company uses an independent channel they are able to save more on training, monitoring and other supportive overhead costs as Ins Expert mentioned. Therefore they could pass on these savings to the customers couldn't they?
It's probably 6 of one vs. half dozen of the other. Their expenses in those areas might be lower. However, they have nobody who is dedicated to selling their products. How are they going to make more sales? They have to pay higher commissions. Additionally, without any agent loyalty, the policies are much more likely to be replaced.
As I am aware brokers don't recieve overriding commissions on personally produced business whereas PPGAs do. Doesn't this make broker contracts cheaper to the insurer?- Less middlemen...
The more that a broker sells, the higher of a commission that they can demand. In other words, if the broker sells a lot, he will be able to demand much of the override. If he doesn't, the override will still be paid, but not to that broker. It will be paid to the brokerage that he is using.
In the life insurance business, it seems as if the really strong companies are the mutual companies and they primary use career agents. The stock companies tend to use brokers.
Posted: Sat May 30, 2009 07:17 am Post Subject:
Hi darnardo1,
Therefore they could pass on these savings to the customers couldn't they?
See...different companies have different business objectives. So, it might be difficult to comment whether it depicts more savings for a carrier who uses an independent channel like you've mentioned over here.
I have access to statistical data on premiums, channels, sales figures and such.
Statistics would often throw light upon hard facts. Do you have anything that you might share with us over here?
Steven
Posted: Mon Jun 01, 2009 01:50 am Post Subject:
career agent has a contract with a primary carrier and is an employee (but still working on commission) of that company. They recieve a W-2. Some career agents can do no outside business. Some can do limited outside business. Some can do unlimited outside business.
I have used captive agents because they are tied to a company. As I understand career agents are not always tied to(owned by) 1 company. They may be primarily affiliated but not owned. The addition of "Exlusive agent" confuses things even further. Like career agents they sell primarily 1 carrier's products however they may be independent and recieve little or no support in the area of training, monitoring, hiring and financial support.
Among all the definitions (agency-building, captive agent, career agent, exclusive agent) captive is the only 1 I can see that is tied to (owned by) an insurance carrier. I have learned to seperate "affiliated" with "tied". 1 is owned by a company the other (affiliated) may not be.
Statistics would often throw light upon hard facts. Do you have anything that you might share with us over here?
I am preparing a ppt on the US distribution system...I have compiled a lot of data into graphs and charts...I'd like to share some slides with you...your comments are welcome
h p://new.flyupload.com/files/view/XgRmyc3Mrq6vHNn
h p://new.flyupload.com/files/view/fK4Dy7jzucZXpba
h p://new.flyupload.com/files/view/sVwISeASewEd6aQ
h p://new.flyupload.com/files/view/mWe0ZlRvTiUVbZS
Posted: Tue Jun 02, 2009 08:51 am Post Subject:
I have used captive agents because they are tied to a company. As I understand career agents are not always tied to(owned by) 1 company. They may be primarily affiliated but not owned. The addition of "Exlusive agent" confuses things even further. Like career agents they sell primarily 1 carrier's products however they may be independent and recieve little or no support in the area of training, monitoring, hiring and financial support.
Among all the definitions (agency-building, captive agent, career agent, exclusive agent) captive is the only 1 I can see that is tied to (owned by) an insurance carrier. I have learned to seperate "affiliated" with "tied". 1 is owned by a company the other (affiliated) may not be.
What do you mean by "tied to (owned by) 1 company"?
Very few agents are truly captive. A captive agent can only sell the products of one company. The companies that are primarily P&C companies tend to use captive agents (State Farm, All State, etc.). The companies that are primarily life insurance companies, don't. Some primarily use career agents. Some primarily use brokers. But, few use completely captive agents.
I would argue that "captive agent" is a subset of career agent. An insurance broker, by definition, can't be captive.
Posted: Tue Jun 02, 2009 09:07 am Post Subject:
What do you mean by "tied to (owned by) 1 company"?
I mean a tied agent is an actual employee of the insurer not someone who has a contract with the insurer
thanks for the help
Posted: Sat Jun 06, 2009 03:23 am Post Subject:
What you are saying doesn't make sense because it is the contract that makes the agent an employee. The contract spells out what the salesman can or can't do and whether they are an employee or not.
Whether one is a broker or a captive or non-captive agent (employee), they will still have a contract.
Posted: Sun May 15, 2011 02:14 pm Post Subject: yXcULVdHDpYj
Incorporated carriers.. Awful :)
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