Overview of insurance distribution channels

This post is part of a series sponsored by Actentsync.

Key points of the article:

• Insurance allocation involves various entities such as agents, IMOs, FMOs, brokers, aggregators, MGAs and MGUs.
• The operator appoints a licensed agent to sell the product, but the process varies according to the product and state regulations.
• Operators typically work with independent manufacturers selling multiple operator products.
• Distribution partners, such as agencies and MGAs, help recruit agents and manage licensing and appointments.
• MGA/MGU assumes the responsibilities of some carriers, including appointments, underwriting and claims, and must comply with specific compliance standards.

Sometimes, the distribution channels of insurance products can involve many entities – agents, independent marketing organizations (IMOs) and field marketing organizations (FMOS), brokers (and their respective broker distribution channels), and aggregators – everyone is on the rise Slightly different functions. Understand the specifications of these entities and the steps a mature technology stack can take to help each entity understand its position in the distribution channels of insurance products.

What is the distribution channel of insurance?

The fastest summary of the insurance product distribution channel is the process by which consumers purchase insurance from licensed agents who have signed with the carrier to sell their products. But while this is a common insurance distribution model, you will learn that it is not as simple as the examples.

The process of obtaining appropriate licenses and signing a contract to sell carrier products can be confusing because licensing rules and regulations vary by country and the insurance products to be sold. Actentsync aims to assume and simplify the complexity arising from these changes in national rules.

Before we dig into how Aptentsync simplifies the process, let’s first call up different participants involved in the insurance sales distribution process.

Define insurance company roles

The starting point is the logical place that describes the distribution process is to develop and provide insurance products that are ultimately purchased by consumers with insurance companies. Insurance companies are available in a variety of sizes and offer products in a variety of coverages. Most operators specialize in specific insurance or several related coverages, but there are always exceptions.

Most insurance companies fall into the following types:

In each of these standard lines, insurance companies can specialize in specific product types. For example, some life insurance carriers can only specialize in term insurance products, while others may offer all types of life insurance products; term insurance, whole life, universal life, etc. Some health insurance companies may specialize in group insurance through their employers, while others can directly provide products to individuals, providing a very unique insurance sales channel.

It is also important to note that there are many other insurance lines outside of the listed production lines, but these insurers are the largest and most common on the market.

Insurance Agent and its Roles

Whether they are working with captive or independent agents, the operator usually has an internal marketing team that works to build marketing channels using insurance distribution partners that will recruit agents to sell the carrier’s products.

What is the difference between captive and independent insurance agents?

Insurance allocations by operators often involve intermediate sales channels rather than direct consumers, although the trend of self-service tools will certainly increase the use of digital distribution channels in insurance. Some carriers have captive agents (they only sell the carrier’s product products), but many who work with independent agents usually sell products from multiple carriers. Whether the agent is captured or independent, the insurer has a responsibility for compliance to verify that the agent selling its products is properly licensed in the state in which it sells. The carrier also usually must notify the state agents that will sell their products in those states for the agents.

In order to sell insurance products, agents must hold proactive licenses in the consumer resident state with applicable authority and make active appointments with carriers.

Although both agents and brokers’ insurance producers are fundamental units of insurance allocation, the rise of independent agents has created new challenges in the management of insurance allocations.

These difficulties have led to the focus of operators adopting modern insurance distribution technologies. Without software like a producer license management system or commission payment system, connecting an operator to the end of its insurance sales channel (its producers) is a nearly impossible feat.

Even captive distributed insurance companies may struggle to maintain a fully compliant distribution channel, but operators operating through complex multi-institutional insurance sales channels have multi-layered relationships and contract structures.

Insurance distribution partner (messy part)

Distribution partners can come in many forms, which is part of increasing process complexity. Depending on their structure and the type of product they offer, distribution partners can use a variety of tags. The most common ones are:

As mentioned earlier, the task of insurance distribution partners is to recruit agents to sell insurance products. This includes several responsibilities, such as:

• Correctly license agents in their resident countries through all appropriate authorization channels
• Get licensed by an agent in all non-resident states to be sold
• Working with insurance companies to require the appointment of agents with state carriers that have been licensed

Regardless of how these businesses refer to themselves, any insurance business that is not a carrier or MGA may classify it as a “agent” or “business entity” as a regulatory purpose or define partner sales channels in insurance allocations. For more information on certain responsibilities in the relationship between an agency and an individual agent, please check out the article on agent affiliation and designate a responsible licensed manufacturer.

Special features of MGA/MGU

One distinction characteristic that distinguishes the Managing General Agent (MGA) or Managing General Underwriter (MGU) from other Insurance Distribution Partners is that they assume certain responsibilities of the carrier, which may include any combination of the following:

• Dating
• Underwriting
• Propose

MGA/MGU must comply with the same compliance standards as the carrier, except that they are obliged to comply with any provisions of the distribution partner.

For more information on MGA, MGU and its unique role in insurance distribution channels, please see the interpretation of the MGA Act.

From operators to producers, and every agency or MGA/MGU in between, maintaining compliance with insurance sales channels in 50 states is not within the park.

Book a demo with us and learn how Admentync Management can grow your insurance distribution channel.