Insurance 101

Industry Knowledge – the Challenges

Whether you’re an insurance noob or an industry wonk looking to refresh your knowledge base, getting definitive answers about even the fundamentals of the insurance industry can be a hurdle. Who do you trust? Where do you turn?

Endless scrolling online is no match for the tested experience of those who have broader – or deeper – knowledge gleaned from years of working in multiple levels and segments of the insurance industry. From blogs with hot-takes about how the industry should or might function to expensive “consultants” who have spent more time in public speaking than they did working in insurance, there are a lot of potential points of confusion or error. 

Filling the Gaps: Understanding Insurance Basics

What are the basic organizational structures operating in insurance? How do they work to get a product from its conception to the end client? What are the major players in the regulation of the industry, and why does it seem so complicated to stay in compliance?

  • The Insurance 101 series is here to help answer the questions you may not have even thought to ask. Through blogs and articles written by industry insiders and validated by seasoned insurance veterans, learn about:
  • The Insurance Distribution Channel Overview: Once a product has been developed, learn about the basic organizations that may be part of the sales funnel that actually puts coverage in place for the end consumer.
  • Regulating the Distribution Channel (and AgentSync’s Supports): While many jurisdictions have control over insurers, MGAs, and agencies, tech solutions can make complying with the myriad regulations less cumbersome.
  • Agent License Renewals: The numerous variations in state regulations make license renewals a beast, but this primer on what to look for can help simplify the process.
  • MGAs and MGUs: What is a managing general agent (MGA), what is a managing general underwriter (MGU), and what is the difference between the two? 
  • Insurance Agents vs. Insurance Brokers vs. Insurance Producers: What you call an insurance professional matters, and learning the nuances between each term can help you more clearly understand – and communicate – in an industry that often relies on subtlety.

Insurance 101 FAQs

1. What is the insurance industry?

The insurance industry is made up of businesses that are responsible for developing contracts that insure against risk, as well as the network of businesses, professionals, nonprofits, watchdogs, regulatory bodies, technologies, and various subsidiary systems that support that core business.

2. What is insurance?

Insurance is ultimately a contract against risk that an insurer, also known as a carrier, sells to a pool of people for a premium – a series of regular payments – that is collected to pay out in the event that the risk is realized for any single member of the pool in a given timeframe.

3. Who pays insurance claims?

Carriers or, in some cases, MGAs, pool the collective money of the premiums paid by contract holders and ultimately use some portion of those premiums to pay out claims.

4. How do carriers decide products and pricing?

This process is called underwriting. The carrier has a back office of people who research the need for coverage for a particular risk, how likely that risk is to happen to any given person (or business), and then calculate the cost of insuring against that risk. Risks that are more likely to happen, such as the likelihood someone will need medical care in their lifetime (almost a 100 percent certainty) are more expensive to cover.

5. Why do people say the insurance industry is “highly regulated?”

Insurance is regulated by each state individually, as well as through the federal government and through joint state agreement on boards such as the National Association of Insurance Commissioners. Further, there are many, many products that intersect not only insurance but also the securities market through indexing or variable products. The sheer number of regulatory bodies as well as the number of regulations – from broad industry standards regarding who needs a license to pinpointed legislation that targets sectors as small as Maine residents who are licensed both as attorneys and as title insurance agents – justifies the moniker of “highly regulated.”

6. What is an insurtech?

A cute moniker made from the combination of “insurance” and “technology,” an insurtech is just that: Technology that specifically supports the people and process involved in the buying or selling of insurance. Many popular insurtechs focus on making insurance more accessible and easier for end consumers to buy, while others focus on the internal supports and regulatory compliance efficiencies that can help make the industry leaner, more useful, and more competitive in the modern century.