The Insurance Distribution channel’s overview

This post is part of a series of sponsored by Agent Sync.

Article Key Points:

• Insurance distribution involves various devices such as agents, iMOS, FMOs, brokers, aggregators, MGAs and MGUs.
• Airlines designate licensed agents to sell products, but the process varies based on product and state regulations.
• Airlines typically work with independent producers selling multiple carriers.
• Distribution partners, such as agencies and MGAs, help recruit agents and manage license and appointments.
• MGAS/MGUs assume some transport responsibilities, including agreements, insurance and claims, and must follow specific compliance standards.

Sometimes distribution channels for insurance products can involve a number of devices – agencies, independent marketing organizations (IMOS) and field marketing organizations (FMOs), brokers (and their respective brokerage channels) and aggregators – each player a slightly different role. Understanding how these devices are regulated and what a mature tech stack can do to help each one begin by understanding their place in the distribution channel for insurance products.

What is a distribution channel in insurance?

The fastest overview of a distribution channel for insurance products is the process where consumers buy insurance from licensed agents that have been contracted with a carrier to sell their products. But while this is a regular insurance distribution model, you learn that it is not as simple as the example makes it work.

The process of being properly licensed and contracted to sell a carrier products can be very confusing as licensing rules and regulations vary based on the state and the insurance product to be sold. Agent Sync was built to take on and simplify the complexities that arise from these variations in state rules.

Before we dive into how Agent Sync simplifies the process, let’s first call the different players involved in the insurance distribution process for insurance.

Definition of the insurance company role

The logical place to start by describing the parts of the distribution process is with insurance companies as they develop and offer insurance products that are ultimately purchased by consumers. Insurance companies are available in many sizes and offer products across the spectrum of coverage types. Most carriers are specialized in a particular insurance line or a few related insurance lines, but there are always exceptions.

Most insurance companies fall into the following types:

Within each of these standard lines, an insurance company can specialize in specific product types. For example, some life insurance companies can only specialize in semester insurance products, while others can offer all types of life insurance products; Thermal insurance, whole life, universal life, etc. Some health insurance companies can specialize in group coverage through employers, while others offer products directly to individuals, giving very unique insurance sales channels.

It is also important to note that there are many other insurance lines outside the lines mentioned, but these represent the largest and most common in the market.

Insurance agents and their role

Whether they work with captivity or independent agents, the carrier generally has an internal marketing team working to build marketing channels using insurance distribution partners who will recruit agents to sell the carrier’s products.

What is the difference between a captivity and independent insurance agent?

Insurance distribution for carriers typically involves an intermediate sales channel as opposed to directly for consumers, although a tendency for self -service tools has certainly seen an increase in the use of digital distribution channels in insurance. Some carriers have caught agents (which only sell the carrier’s product supply), but many work with independent agents who generally sell the products from several carriers. Whether an agent is trapped or independent, the insurance company has a compliance with a verification to verify that an agent selling their products is properly licensed in the states they sell in. The carrier typically also has to notify the states that the agent will sell their products in these states.

In order to sell an insurance product, the agent must have an active license with applicable lines of authority in the consumer’s resident state and have an active agreement with the carrier.

While insurance producers – both agents and brokers – are the basic unit of insurance distribution, the increase of independent agents has caused new challenges in insurance distribution management.

These difficulties have led to a weight in the carrier adopting modern insurance distribution technology. Without software such as manufacturer license management systems or commission payment systems, connecting airlines to the end of their insurance sales channels – their manufacturers – an almost impossible business.

Even insurance companies in captivity distribution can struggle to maintain a fully compatible distribution channel, but carriers that work through complex sales channels with multiple agencies have several layers of conditions and contract structures to work through.

Insurance Distribution Partners (the cluttered part)

Distribution partners can come in many forms that are part of what adds the complexity of the process. Depending on their structure and what types of products they offer, distribution partners can use a variety of brands. Among the most common are:

As mentioned earlier, insurance distribution partners are tasked with recruiting agents to sell insurance products. This includes several responsibilities such as:

• To get the agent properly licensed in their resident state with all appropriate lines of authority
• To get the agent licensed in all non -resident states they will sell in
• Working with insurance companies to request agreements with the carrier in the states that the agent is licensed in

Regardless of how these companies refer to themselves, any insurance business that is not a carrier or MGA is likely to be grouped as an “agency” or “business unit” for regulation or to define the partners in an insurance distribution sales channel. For more about some of the responsibility in the relationship between agencies and individual agents, see this piece about agent affiliation and appointed responsible licensed producers.

Special features of MGAS/MGUs

A characteristic of a CEO General Agent (MGA) or the administration of general insurance company (MGU) that separates them from other insurance distribution partners is that they assume some of the carrier’s responsibility that may include any combination of the following:

• Appointments
• Insurance
• Claims

MGAS/MGUs must follow some of the same compliance standards as carriers in addition to any rules they are required to follow as a distribution partner.

For more about MGAs, MGUs and their unique role in the insurance distribution channel, see an explanation of the MGA Act.

From carriers to manufacturers and with each agency or MGA/MGU in between, maintenance of the manufacturer’s compliance with insurance sales channels spread over 50 states No walk in the park.

Book a demo with us and learn how Agent Sync Management can grow your insurance distribution channels.