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Why is marketing important?
- marketing expense is about half of the loading expenses
- often marketing efforts are the first and only exposure the client has to the carrier
Marketing expense is about_____ of the loading expense
- An insurer or insurance company
- they are the bearer of the risk
Examples of carriers?
aig, chubb, travelers etc.
What is an independent agency?
- They represent more than one insurer
- they are independent contractors
- They are a legal representative of the insurer
Independent agents make their profits based on_________ and ________.
underwriting profitability and premium volume.
A/an_______ is a legal representative of the insurer.
In the case of an independent agency who owns the expiration rights and the client list?(carrier or agent?)
In general, the compensation of an independent agent is made through_______ plus_______.
commission and profit sharing
A broker is a legal representative of the _______________
How are brokers paid?
Through commissions or fees.
__________ was a historical way of compensating brokers, but now the practice has been slowed down.
The practice of paying brokers with contingent commissions was slowed down by the_______investigation.
What is a broker of record letter(BOR)?
contract that gives authority from a firm to the broker to represent their risk needs.
The satisfactory delivery of the products and services that result from the product development activity.
The necessary people and physical facilities to support the sale of insurance products and services.
The main insurance distribution systems are?(3)
- Independent agency and brokerage marketing systems
- Exclusive agency marketing system
- Direct writer marketing system
What are some of the common distribution channels to provide products and services as well as to communicate with existing and prospective insureds?(5)
- call centers
- direct response
- group marketing
- financial institutions
True/false.Independent agents and brokers are usually free to represent a many or as few insurers as they want?
_____is a business, operated for the benefit of its owner, that sells insurance, usually as a representative of several unrelated insurers.
______ is an independent business owner or firm that sells insurance by representing customers rather than insurers.
_______ shop among insurers to find the best coverage and value for their clients.
______ are not likely to have authority to commit an insurer to write a policy by binding coverage because they are not legal representatives of the insurer.
________have authority to commit an insurer to write a policy by binding coverage because they are legal representatives of the insurer.
_____ and ______ are intermediaries between insurance buyers.
Agents and brokers
True/false. The same person cannot act as an agent in one transaction and a broker in another.
Agency expiration list
The record of an insurance agency's present policyholders and the dates their policies expire.
True/false. The independent agency or brokerage can be organized as a sole proprietorship, a partnership, or a corporation.
True/false. If an insurer ceases to do business with an agency, the agency does not have the right to continue doing business with its existing customers by selling them insurance with another insurer.
false. the agency has the right to try to sell the policy to customers in their agency expiration list.
The ownership of___________ is an agency's most valuable asset.
True/false.An independent agency has the right to sell their book of business to another independent agent.
What are the two typicalforms of compensation regularly seen by agents and brokers
- A flat percent commission on all new and renewal business submitted.
- A contingent or profit-sharing commission based on the volume or loss ratio goals.
In addition to insurance placement agents and brokers may also assist their customers in:
establishing and managing self insure programs, implementing risk control measures, and determining alternatives or supplements to insurance
________ and ________ generally represent commercial insurance accounts that often require sophisticated knowledge and service
national and regional brokers
In addition to large insurance sales, large brokers may also:
provide extensive risk control, appraisal, actuarial, risk management, claim administration, and other insurance related services that large businesses need.
true/ false. large brokerage firms operate regionally, nationally and sometimes internationally.
How are national and regional brokers paid?
they receive negotiated fees for the services they provide, or they receive commissions, subject to state regulation
_______ consists of independent agencies and brokerages that join together to gain advantages normally available to only large national and regional brokerages.
Independent agent networks
An independent agent network can offer many benefits to its agent members including:(10)
- obtaining access to an increased # of insurers
- meeting countersignature law requirements for businesses in multiple states.
- combining premium volume to meet insurer requirements for profit sharing
- generating additional sales income
- receiving preferred agency contracts
- facilitating agency succession planning
- providing expertise in rm services
- offering expertise in financial planning services enabling resource sharing and expense reduction
- Increasing market share
Laws that require all policies covering subjects of insurance within a state to be signed by a resident producer licensed in that state.
Managing general agent
An authorized agent of the primary insurer that manages all or part of the primary insurer's insurance activities, usually in a specific geographic area.
_______ serve as intermediaries between insurers and the agents and brokers who sell insurance directly to the customer, similar to wholesalers in the marketing system for tangible goods.
Managing general agents(MGA's)
An insurer operating through an MGA reaps several advantages including(3)
- a low fixed cost
- specialty expertise
- Assumption of insurer activities
What do the exact duties of an MGA depend on?
The insurers it represents
How are mga's paid?
Through a commission override on business its subagents sell. they may also receive contingent commissions.
A_________ typically develops an expertise in particular markets and design insurance programs in collaboration with the insurers they represent.
Managing general agents (MGA)
True/ false. Insurers must supervise the MGA's that represent them.
What do surplus lines brokers do?
Find business for insurers and customers with nonadmitted insurers
________ have access to insurers that have the capacity to provide the needed insurance, which might not be available from insurers licensed to do business in that state.
Surplus lines brokers.
Situations in which a customer might need to use a surplus lines broker include:
- A customer that requires:
- high limits of insurance
- unusually broad or specialized coverage
- an unusual or unique loss exposure
- loss exposures requiring a tailored insurance program
- an unfavorable loss exposure
Surplus lines brokers work to ensure that(3)
- coverage is placed only with eligible nonadmitted insurers
- the customers unique or unusual requirement can be met by the prospective surplus lines insurer
- the financial security of the surplus lines insurer is properly evaluated
- Not employees of insurers .
- Usually restricted by contract to representing a single insurer.
Do exclusive agents own expirations?
Direct writer marketing system
- uses sales agents who are employees of the insurers they represent.
- they sell insurance for the insurer at office locations provided by the direct writer insurer.
how are sales agents in the direct writer marketing system compensated?
by salary, commission or both.
do sales agents have ownership of expirations?
insurance portal(aka aggregator)
web based insurance distributors
direct response distribution channel
An insurance distribution channel that markets directly to the customer using phone, internet, or mail
call center staff can
- respond to general inquiries
- handle claim reporting
- answer billing inquiries
- process policy endorsements
A type of group marketing that targets various groups based on profession, association, interests, hobbies or attitudes.
employers can contract directly with an insurer to offer voluntary insurance coverage as a benefit to their employees
Insurers view financial institutions as beneficial strategic partners because:(4)
- strong customer base
- predisposition to product cross selling
- strength at processing transactions
- efficient use of technology for database mining geared to specific products and services
mixed marketing system
using more than one marketing strategy or distribution channel
combining insurance distribution systems and channels requires consideration of several issues:(3)
- maintaining consistent customer communications
- providing a consistent customer experience
- matching the type of insurance with an appropriate distribution system and channel
- represent one or more insurance companies
- as a source of insurance knowledge for its customers , producers provide risk management advice, solicit or sell insurance, and provide follow up services as customers loss exposure concerns change.
Insurance producers typically perform these functions(8)
- rm review
- policy issuance
- premium collection
- customer service
- claim handling
locating persons, businesses, or other entities interested in purchasing insurance or insurance related products.
Contacting a prospect without an appointment
risk management review
The principle method of determining a prospect's insurance needs
is it more complicated to do a rm review for a family/individual or for a business?
A report detailing an insured's history of claims that have occurred over a specific period , valued as of a specific date.
What are the steps in the sales process?
- contacting the prospective client
- determining the prospect's needs
- preparing and presenting a proposal
- and closing the sale
A pmt procedure in which a producer sends premium bills to the insured, collects the premium, and sends the premium to the insurer, less any applicable commission.
What are the three widely used methods of transmitting premiums to the insurer?
- Item basis
- statement basis
- account current basis
item basis method of transmitting premiums to the insurer
the premium(less commission) is forwarded to the insurer when the producer collects it or when it becomes due. (least complex of the three methods)
statement basis method of transmitting premiums to the insurer
insurer sends statement to producer showing that premiums are due. the producer is then either obligated to pay or to show that the statement is in error.
account basis method of transmitting premiums to the insurer
producer periodically prepares a statement showing premiums are due to the insurer, after deducting appropriate commissions, and transmits the amt to the insurer. The producer must submit the account current statement once a month(or some other specified interval of time)
to give the producer some protection against policyholders late pmts, premiums are usually not due to the insurer for_________days after the policy's effective date
30 or 45
direct bill process
A pmt procedure in which the insurer assumes all responsibility for sending premium bills to the insured, collecting the premium, and sending any commission payable on the premium collected to the producer.
What differentiates independent agents and brokers in the mktplace?
value added services and personalization of insurance packages .
Two major advantages to have claim handling by qualified producers
- quicker service to policyholders
- lower loss adjustment expenses to the insurer
consist of the necessary people and physical facilities to support the sale of insurance products and services
communication conduits for promoting and servicing products as well as communicating with existing and prospective insureds
true/false. the initial fixed cost of entering the mkt through the exclusive agency system or direct writer system is greater than doing so through the independent agency system.
- financial resources
- core capabiliies
- expertise and reputation of producers
insurer profiles include(5)
- strategies and goals
- strengths, existing and target markets, geographic location, and the degree of control required.
an exclusive agency is when agents are independent contractors that represent a single insurer
how are exclusive agents paid?
with a commission
Do exclusive agencies own the book of business(expiration rights)?
no, the book of business belongs to the carrier
an employee of the insurer that markets an insurers product
are direct writers independent contractors?
no, they tend to work for the insurer and in the facilities of the insurer
how are direct writers paid?
they receive a salary and some bonus compensation.
do direct writers own expiration rights to the book of business.
when an insurer doe not use agents or an intermediary
what are agency agreements?
- They are contracts between insurers and its agents/producers
- insurers are very careful about who they allow to represent them
- agency agreement sets powers and duties of the agent/producer plus the insurer
does an agent have the ability to bind coverage?
the ability of an agent o create an enforceable contract with the policyholder
binding coverage is limited to:
specific lines and limited amounts of coverage
written acknowledgement of an oral contract
What are the functions of an agent?(5)
- policy issuance
- customer service
- claims handling
- collect premium
what are the two types of billing procedures an agent can participate in?
agency bills or direct bills
when an agent assists an underwriter in the collection and the assessment of the risk
An agents' field underwriting performance can be evaluated by studying what?
the agents loss ratio
what is an example of agents providing information for application?
in the case of auto, the agent will get information about territory, primary use of vehicle, age, driving experience, accidents, moving violations etc.
_________ and applications are often the #1 source of underwriting information
what are some additional sources of underwriting information?
inspection reports and government records
provide loss control advice and alert insurer of problems
government records include
- motor vehicle records and
- civil court records
a statutory provision in state insurance codes that allows insurance buyers access to nonadmitted insurance companies via specially license brokers when the states licensed insurers cannot fulfill the buyer's insurance needs
another term for surplus lines insurance is the ______ market
characteristics of a soft market or cycle
- insurers write many classes
- flexible with loss history
- competitive premiums
- optional coverages available
- goal is to increase market share
characteristics of a hard market or cycle
- insurers write less classes
- not flexible w/ loss history
- increased premiums
- less optimal coverages
- goal is to reduce writings to a profitable level
what is another name for a surplus lines broker
surplus lines broker
a specialty broker licensed by the state that places or procures insurance from eligible surplus lines insurers
wholesale insurance broker
a broker or producer providing insurance products(usually specialized insurance products) to retail producers
a broker or producer who deals with the public to provide them with insurance products and solve their insurance problems
are hard markets good or bad for intermediaries?
foundation of surplus lines is freedom of _______ and from form regulation
rate and form
why is there freedom of rate and form in the surplus lines industry?
there are varying risks and limited data on those risks and the risks differ considerably
What are the four main types of risks that go through the surplus lines market?
- distressed(aka they stink)
- risks wit high capacity requirements
what are distressed risks
crappy risks nobody wants to take on
they are risks that move in and out of the admitted market as the underwriting cycles change
what are the two types of risks that the E&s market faces?
- cyclical risks
- catastrophe exposure
- a type of risk the E &s market deals with.
- it varies depending on the recent loss experience, location and type of risk.
legal requirements of a surplus lines placement include(5):
- risk must be placed by a specially licensed broker
- risk must be placed with eligible companies
- risk must first be rejected by the licensed market(3 times min)
- application or policy must contain warning
- and taxes must be remitted to authorities
what are some disadvantages of E &S?
- high prices
- no guaranty fund
- deregulated policy forms
t/f E&s is shrinking
fase. despite its drawbacks E&s is growing
what does MGA stand for?
- a marketing /production intermediary between an insurer and an agent
- they are a wholesaler who performs many functions an insurer normally performed(underwriting, issuing policies)
what are advantages of a Managing general agency?
- lower fixed costs vs a branch office
- the insurer takes advantage of the mga expertise/reputation in a given market
MGA's often_____ in special programs
disadvantages of an MGA?
- they lose some control over underwriting
- and there is potential for excessive risk taking