This post is part of a series sponsored by Actentsync.
The insurance distribution chain is the path from product production to consumer consumption. Everyone involved in the process (the different entities that can help the company provide products or services to consumers) are distribution channels that make up the overall distribution chain link.
This concept is not unique to insurance. However, the highly regulated nature of the industry adds a layer of complexity to distribution channels, which is unique to other industries. The different channels involved in selling, bidding or negotiating insurance products have different licensing requirements and bring different advantages to upstream and downstream partners.
How insurance is allocated
It is not easy to determine which channel to use.
There are many different participants in the insurance allocation. And where your company is in the distribution hierarchy can affect how and why it decides to interact with a specific channel.
So, let’s take a quick look at the appearance of this insurance distribution chain.
Top of the chain: vector
Since operators are the operators that create insurance policies and products, they are at the top of each insurance distribution chain. But once they create a product, they need to sell it to consumers.
There are many different ways for operators to sell their products. They can use internal agents, independent agents, agents, MGA/MGU, and the listing continues. For a comprehensive overview of distribution partners, please check out our distribution channel overview.
However, deciding which partner to work with is a strategic business decision because it has a large amount of compliance management impact.
For example, first, the vector may need to establish an internal channel for the agent. The carrier is responsible for ensuring that these agents receive the initial license, properly maintain their licenses and make the necessary appointments in the appropriate state.
But ultimately, the carrier can consider expanding its distribution hierarchy to be sold through external channels such as independent agents, institutions, or MGAS/MGU. Using these external distribution channels is fundamentally different from selling through a small number of internal agents.
Give up more direct control over agents accompanied by new regulatory requirements, business processes, commission structures and operational impacts. Carriers need to make sure they have bandwidth to manage additional work and ensure compliance buttons, because ignorance is not happiness when it comes to insurance compliance.
The middle of the chain: agent and MGA/MGU
Operators are not the only insurance entities that need to establish a distribution hierarchy. For example, despite being in the middle of the entire insurance distribution chain, agents and MGA/MGU (although they exist) also make calculation decisions about the distribution partners to use when selling the carrier’s products.
We usually see agencies and MGA/MGUs start with a single distribution channel (such as internal agents), but diversify over time.
For example, a new agency might have an in-house agent, but struggle to go to the carrier for a date because they don’t have a trail, a loss rate or anything that is actually worth working with. The agency may consider working with an aggregator, which is a united group that they unite to create an agency group. As the scale increases, the agency can negotiate with the operator to get the dates needed to sell the carrier’s products.
However, working through an aggregator network has other effects on the agency. The aggregator will take part of the Sales Committee from the agency as it is gaining licensing and compliance. This puts us in the real challenge of managing multiple distribution channels: regulatory requirements.
Bottom of the chain: Producer
Manufacturers are the final link in the distribution chain that connects insurance products to consumers. To sell, solicit or negotiate an insurance product or contract, the manufacturer must obtain a license in which state in which it operates and in any carrier, agent or MGA/MGU with which they contract.
The term “producer” refers to insurance agents and brokers. For more details on the differences between agents, brokers and producers, check out our 101 pieces of insurance that outline the quirks of these key insurance concepts.
Like other insurance distribution entities, manufacturers have flexibility in selling insurance and interacting with consumers. Manufacturers can operate with internal capabilities, serve as captive agents, sell only one carrier’s products, or external capabilities, serve as independent agents selling multiple carrier products, or switch between different channels.
But again, the manufacturer’s decision on how to sell insurance products has implications for the producer itself and for the compliance of the companies it operates. This makes it very important to track the channels the producers operate on.
What is the Unity Insurance Distribution Chain?
The insurance distribution chain is a complex player network, who may participate in the distribution channels of a given company. Each player has a different role in ensuring that consumers receive appropriate policies for all insurance needs.
But ultimately, every entity in the distribution chain has the same goal: to sell insurance products to consumers.
So, although for simplicity, insurers often start with a single distribution channel, they often develop into a diversified network of internal and external channels. However, decisions to manage multiple channels have administrative and regulatory implications that cannot be easily taken.
For more information on how Actentsync can help companies manage regulatory requirements for multiple distribution channels, check out our Solution Overview page.
How to visualize your insurance distribution channel
Operators, institutions, MGAs, producers – The more entities and individuals involved in the organization’s insurance distribution channels, the more complicated things will become. The position of each entity in the overall structure of an organization not only helps inform who is responsible for compliance oversight, but is also crucial in determining commission spending.
However, visualizing the complex hierarchy of relationships present within an organization’s distribution channel can be difficult, especially when organizations expand and reorganize to build more distribution partners. Traditional approaches to hierarchy management often involve updating spreadsheets and change logs. While not impossible, it is difficult to handle these relationships manually, and any oversight conducted in the process can lead to inaccuracy that the commission evades or requires state audits.
Actentsync hierarchy management provides an active approach to visualizing and managing distribution channels. Whether you are distributing products through the operators of a few internal agents, or your organization structure includes hundreds of external channels for independent agents, agents and middlemen, agency hierarchy management allows you to manage your hierarchy with confidence. Learn more about our solutions for accurate, efficient and compliant distribution channel management and schedule personalized demonstrations.
