An independent insurance agent is a business person who represents multiple companies. Many insurance companies choose to market their product through independent insurance agents which is known as the “American Agency System”.
The independent agent may represent several companies and can place their customers with any of their contracted insurers. They make this decision based on several key factors including: policy coverage, price, company reputation, customer preference, level of service and the company’s financial strength.
A key term to understand about the “American Agency System” is “ownership of expiration’s”. The independent agent owns his or her business, and thus has a right and sometimes a duty to move a customer from one company to another.
Let’s use for example Scott, who is an independent insurance agent in Kansas City. He has several clients with one of his companies that he represents, but this company has seen a rate increase for their auto insurance policy holder’s due to an increased number of losses. Because they have had more losses than their competitors they have had to increase their rates a significant amount, to remain profitable. Scott realizes it’s unfair to ask his customers to pay more just because the insurance company has had more losses and so what Scott chooses to do next, is unique only to the independent insurance agent. Scott, chooses to move his clients upon expiration of their current policy, to another company. The new company that Scott chooses to place his customers with has a very good reputation and loss history. He can keep his clients insured with a great company, and he also allows his customers to remain in a competitively priced market for their car insurance.
The idea of the “American Agency System” is different than the exclusive agent agency system.
In the exclusive agency system, the agent works solely with one company. The advantages of this, are the right to be paid a set salary by the company they work for and represent. This salary may be based off production, or size of their book of business or variation of products sold.
Another advantage is the ease of doing business with just one company and understanding everything that the one company sells or does. This exclusive agent’s company handles much of the paperwork involved in the day to day of the business.
Often the company will help with the rent of the building, office supplies and equipment. Many times, the company will conduct marketing campaigns and then pass those leads on to the exclusive agent. In the exclusive agent business model, the term “ownership of expiration’s” does not apply.
The exclusive agent has no ownership in his or her book of business, and upon retiring or leaving the industry all together, the company that agent has worked for, is the sole owner of that agent’s book of business. The company may choose to sell this book of business to another agent that they have chosen to be the recipient of the business.