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This articles provides an in-depth look into insurance distribution providers such as Agencies, Wholesalers and Agency Networks.
Agent / Producer
An insurance agent represents one or more insurance companies and sells their policies for a commission. They can either work full-time at insurance sales for an agency, or as independent contractors. They are a middleman
An insurance agent has to be licensed in each state they want to operate in. They also need to have an appointment (relationship) with a Carrier to sell policies of that carrier.
Captive vs Independent Agents
Captive Agents - These are agents that represent only one insurance company and sell policies only of that company. They receive a salary and commission from the insurance company.
Independent Agents - These are agents that represent more than one insurance company. They are not tied to just one insurance company. They work only based on commission.
Broker
An insurance broker represents consumers/insured in their search for coverage and can sell policies from several different insurance companies for a commission. Unlike captive and independent agents, who represent one or more insurance companies, a broker’s primary duty is to the client/consumer.
Brokers must also go through a licensing process in each state they want to operate in.
Agent vs Broker
While both agents and brokers act as intermediaries/middleman between insurance buyers and the insurance market, and can offer insurance quotes on different policies, there are two key differences between the two:
- Agents represent insurers (insurance company), while brokers represent the client.
- Agents can complete insurance sales (bind coverage), while brokers cannot.
- A broker can find insurance from multiple companies, but the agent can only offer insurance from the companies they represent (are appointed with).
Agency
An insurance agency is basically the company registered by the insurance agent or broker. A single insurance agency can have multiple insurance agents/producers/broker in it. It can also have support staff, receptionists, accountants etc.
Agency Network
An insurance agency network, also known as an insurance aggregator, cluster, or network aggregator, is a group of independent agencies that work together. These networks offer members benefits and support, and can provide scale and advantages that are usually only available to larger agencies.
An individual small agency might not be able to bargain or negotiate with insurance companies, software providers etc. However, if 100 small agencies get together and form a network they can negotiate as one and get a lot of benefits.
Some Agency networks might even have a monthly/yearly membership fee to be part of the network and other pre-qualification criteria.
Wholesaler
A wholesaler in insurance is a specialized type of insurance broker who acts as an intermediary between retail brokers (or agents) and insurance carriers, but they do not work directly with the insured.
If an Agency is not able to find insurance with the carriers they represent they might go to a wholesaler who represents many more carriers. The wholesaler will basically find a carrier to provide the agent/business owner with insurance.
The wholesaler never interacts/deals with the actual customer looking for insurance. They only deal with the Retail agent/agency representing the customer. In this relationship the agency/agent coming to the wholesaler is called the “Retail Agent/Agency”.
Managing General Agent / Managing General Underwriter (MGA/MGU)
MGA stands for Managing General Agent. An MGA is an insurance agent or broker who can act on behalf of an insurer/insurance company. MGAs have the authority to underwrite the policies they sell to clients. That means they can set the price for the policies they sell.