Your Introduction to the Insurance Industry: Distributing Insurance Products

Welcome to insurance!

Are you just getting started on a career in insurance? Congratulations! Careers in this industry can be majorly rewarding. But trying to level up your knowledge can make you feel like the dog that caught the car: What do you even do?

If you’re looking for a way to get smart quick, we’re here to help. After writing hundreds of posts on insurance, we’ve learned a thing or two. Consider this our roadmap to help you learn more about the inside of the industry. This blog covers the distribution chain of insurance; how insurance carriers move products to their end consumers. And you may want to grab some sauce, a fork, and meatballs, because sometimes it looks a bit like spaghetti.

How the industry moves product

Before we begin digging into the distribution channels, check out this quick video that illustrates the basic concept of how insurance products move from the carriers that underwrite them to the consumers who use them: 

Insurance carriers have actuaries write policies based on sets of risks, and underwriters help determine the risk and cost of a prospective client, but how do carriers get policies in front of prospects? It can be as simple as a direct-to-consumer online form. Or it can be very complicated, with layers of third-party agencies connecting the carrier to an insurance producer who’s face-to-face with the consumer:

Insurance 101: The Insurance Distribution Channel Overview

To simplify things, at AgentSync, we generally break all those intermediary players into three basic categories: 

• Carriers are the entity that develops and bears responsibility for the product. They’re the ones that take on the risk, collect premiums, and have to pay claims.
• Agencies are entities that specialize in drawing together multiple producers to collectively sell under a common contract with a carrier, and that often use cute acronyms to talk about themselves.
• Managing general agencies, or MGAs (also known as managing general underwriters, or MGUs) are entities that may have a special relationship with a carrier. They’re like an agency, with multiple downstream producers writing on their contract, but they underwrite and take on risks on behalf of the carrier when selling the products. In reality, many businesses don’t know they’re MGAs, or they think they’re MGAs but aren’t, or they know they’re an MGA but they don’t call themselves one. TL; DR: MGAs are complicated.

All of these entities use producers as their end sales team to sell to consumers. Producers may also be called agents or brokers, but for the sake of consistency we’re going to call them “producers” – they’re typically the same thing. Most producers are independent, meaning they may work through multiple agencies and work with multiple carriers. It’s important to remember these aren’t 1:1:1 relationships; a producer may write for more than 20 carriers at a time. 

Keeping your producer relationships compliant

Carriers (and sometimes MGAs) have to report their producers to the state in most states. That relationship is called an appointment. Agencies sometimes have to report their producers to the state. That relationship is called an affiliation. Most states don’t require affiliations. States that require affiliations have their own state-specific process for handling them. NIPR helps states handle producer licensing and appointments.

How AgentSync helps: AgentSync Manage allows carriers and agencies to map their relationships, view licenses and appointments, and obtain new licenses and appointments when necessary. By building in the ability to hold off on appointments until statutory limits, with AgentSync Manage, carriers can also avoid unnecessary fees by not appointing producers who never sell (a provision known colloquially as “Just-in-Time appointments”):

Taking Advantage of Just-In-Time Carrier Appointments

To “sell, solicit, or negotiate” insurance contracts, insurance producers have to have a resident license in their state – generally the state they live in, or where their primary business is. They also have to have a license in every state they sell insurance in. To keep their licenses in force, producers generally have to maintain a certain amount of continuing education (CE) credits and update things like contact information, criminal history, background information, and fingerprinting (depending on the state, of course). While this is largely on the producers’ shoulders, carriers and MGAs also have to check that this information is up-to-date with states and that they’re only appointing producers who are in good standing. Also, agencies often handle this information on producers’ behalf as part of their relationship.

How AgentSync helps: New licenses? License renewal reminders? Those are the purview of AgentSync Manage (or Autopilot, for that matter). Our products make onboarding a smooth process, integrating with background check providers and fingerprint services to make the process more automatic. 

Sooooooooo…

Carriers, MGAs, and agencies trying to make sure their sales and commissions are all done by producers with the proper licenses and appointments may have to comply with more than 50 jurisdictions of regulation, each line item of which may come with a litany of additional requirements. They have custom systems that were built a million years ago that have decades of data about producers, clients, commissions, products, etc.:

Insurance, Technical Debt, and the Surprising Cost of Business as Usual

They know they need to upgrade, but the sheer weight of systems built on top of each other is daunting, as – particularly with legacy carriers – trying to replace a single system is a bit like replacing blocks in Jenga.

If your business is looking for a reliable partner to replace those Jenga blocks, AgentSync has a suite of products and services to help you find a best-fit approach to compliance and producer management. If you’re interested, schedule a demo today.