Support for Agency-Building Distribution Systems
Some insurers have a single agency unit in the home office that handles all supervisory and support activities and reports to the company’s sales director or to the chief marketing officer. In other insurance companies, supervisory & support functions are divided between an agency operations unit and an agency services unit. The agency operations unit assumes the supervisory functions and is headed by the manager of agency operations, also known as the director of agencies. This person is the primary link between the insurer’s home office and its agencies.
His responsibilities are:
- Supervising agency operations through the insurer’s regional managers and agency managers.
- Establishing strategic goals and objectives for agencies.
- Establishing policies and procedures for the operation of agencies and sales of insurance products.
- Developing goals for sales production & persistency.
- Evaluating the performance & profitability of the agencies.
Whereas the agency operations have management authority over the company’s agencies, other areas of the company provide support services for these agencies.
Recruiting & Contracting
Insurance producer recruitment is primarily the responsibility of agency managers. However because finding new producers is such an important and expensive aspect of establishing and maintaining agencies, the home office typically helps agency managers with recruiting by establishing formal guidelines for recruitment. Some desired characteristics of an insurance producer recruit may include ambition, self-motivation, enthusiasm, strong communication ability, and congeniality.
One screening test that is widely administered is the Career Profile+ questionnaire developed by LIMRA International Inc. This test gathers information about a candidate’s work history & personal background and uses that information to predict the candidate’s work history and personal background and uses that information to predict the candidate’s success as an insurance producer.
Candidates who successfully complete the screening phase are then eligible for pre-contact training, a trial program that permits an insurance producer candidate to prepare to become a producer while continuing to work at her current job.
A producer must sign an agency contract with the insurer before beginning to sell insurance products on behalf of an insurance company. The agency contract contains the following provisions:
- A statement of the existence of the contract.
- A statement that the insurance producer is or is not an employee of the company.
- A description of the insurance product’s authority to represent the company, including the authority to solicit & submit applications, collect initial premiums and issue premium receipts.
- A description of the limitations placed on the insurance producer’s authority, such as prohibiting the producer from changing life insurance premium rates, altering contracts, incurring debts on the company’s behalf.
- A list of the insurance producer’s performance requirements.
- Minimum production & persistency rates required for the insurance producer to earn compensation and remain associated with the company.
- Termination provisions
- The insurance producer’s compensation schedule stating the rate of commissions.
- A statement of the insurer’s right to revise the commission schedule and to reduce commission rates on policies.
- Vesting provisions.
- Expense provisions covering the types of expenses.
- A list of the circumstances under which the insurance producer is permitted to submit life insurance applications.
Licensing & Training
The federal Gramm-Leach-Biley (GLB) Act encouraged the states to adopt uniform producer licensing laws or enact reciprocity requirements for licensing. Reciprocity is a term used to describe a situation in which two states agree that one state will give residents of the other state certain privileges, on condition that the other state will give the same privileges to the first state’s residents.
To obtain an insurance producer’s license, a person must submit an application to the appropriate regulatory body. The applicant must also pay a licensing fee, pass a written examination in each line of insurance that he plans to sell, and provide assurance that he is of reputable character.
Many jurisdictions require that, before an insurance producer begins to solicit insurance product sales, the insurer must appoint that producer as its agent. To appoint a producer, the company files with the IRA a notice of appointment, which is a written statement made by an officer of the insurer indicating that the insurer designates a specific person as an insurance producer for the line of insurance the producer is authorized to write for the insurer.
Licensing specialists in the insurer’s home office oversee producer licensing. These specialists ensure that company’s producers
- Have been properly appointed by the company to sell insurance products on its behalf.
- Are qualified to sell insurance products.
- Are appropriately licensed to sell insurance products.
- Are conducting business only in jurisdictions in which they’re licensed to do.
Whenever an insurance company terminates a producer’s appointment, the home office is responsible for notifying the appropriate insurance regulator. The insurer files with the insurance regulatory body a termination report that specifies the date of and reason for the termination.
Producer Training
Producer training is conducted through self-study and through formal classes at the home office, at regional office, or at local sales offices. A comprehensive training program includes the following
- Basics of life insurance & annuities
- Product knowledge
- Sales techniques
- Company procedures
- Company goals, plans & policies
- Ethics & compliance issues.
Compensation
For life insurance, insurance companies have traditionally operated under a heaped commission schedule, which is a sales commission system that features relatively high first-year commissions(first-year commissions) and lower renewal commissions(renewal commission).
A vested commission is guaranteed payable to a producer even if the producer no longer represents the company when the commission comes due.
Level commission schedule provides the same commission rate for the first policy year and renewal policy years.
Levelized commission schedule in which the first-year commissions are higher than renewals commissions, but the difference between first-year and renewal commissions is much smaller than the difference in the traditional heaped commission schedule.
For annuities, there are two kinds of schedules:
Deposit-based commission schedule percentages are applied only to new premium payments.
Asset-based commission schedule rewards an annuity seller according to the accumulated value and growth of an annuity’s policy funds.
In addition to commissions, insurance companies may provide the insurance producers with the following types of compensation:
- Service fees are a small percentage of premiums payable on a life insurance policy after renewal commissions have ceased.
- Security benefits, such as group life insurance, group health insurance, group disability income insurance, and pension plans.
- Bonuses to reward production, persistency or both.
- Expense allowances to reimburse producers for certain business expenses they incur.
Minimum Production Requirements
Insurance companies to recover some of the costs associated with the distribution systems, impose minimum production requirements on their producers. Insurers commonly impose two types of requirements
· Minimum requirement to maintain a full-time agency contract.
§ An insurer might require producers to earn at least $20,000 per year.
· Minimum requirement to qualify for security benefits.
§ Product might have to earn at least $25,000 in first-year commissions to qualify for security benefits.
Sales Support
Advertising & Sales Aids
Institutional advertising promotes an idea, a philosophy, a company, or an industry, rather than a specific product or service.
Product advertising is any advertising used to promote a specific product or service.
Advanced Underwriting Department
Estate planning ,the producer works with a prospect to develop a program that’ll cover the prospect’s current and future financial needs and will provide a means of conserving, as much as possible, the personal assets that the person wants to pass on to her heirs at her death.
To assist insurance producers with financial planning & estate planning, some insurers establish an advanced underwriting department. The advanced underwriting department is typically staffed with lawyers and financial planning specialists and usually performs following services:
- Prepares proposals for producers based on the information
- Provides staff to accompany the producer.
- Provides computer support services.
- Conducts seminars and counsels producers regarding tax laws and methods of using insurance products in financial & Estate Planning.
Support for Non-Agency-Building Distribution Systems
It includes brokerage systems, personal-producing general agency systems, and financial planners. Insurance companies provide less support for their independent producers than they do for the agency-building distribution systems. The following aspects of home office support for independence producers are similar to home office support:
- Producer Contracts
- Producer Licenses
- Compensation
- Sales Support & Advertising
- Compliance monitoring
- Technology
Support for Financial Institutions Distribution Systems
Because variable life insurance & annuity products are considered to be securities in the United States
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