Functional Divisions Of Insurers
Irrespective of organizational type, every insurer performs certain functions or activities. These are marketing, underwriting, claims, actuarial, legal, accounting and auditing, and investment. The following discussion examines these functions as they are related to nongovernmental insurers. The marketing function is discussed in greatest detail because of its dominant influence on the success of the insurance enterprise.
Marketing
Life and health insurers are among a unique category of businesses which must sell in order to produce. In other words, sales are the same as production because the sale of a policy produces insurance equal to the face of the policy. In most cases sales-production activities require a close relationship between the home office, the field organization, and the sales force. Home office. The home office marketing or agency department is responsible for the recruitment, selection, training, supervision, and compensation of the field or sales force. This department is also responsible for sales production and, consequently, is directly involved with sales promotion, public relations, and decisions relating to the most advantageous dispersion of field force personnel. Obviously, this department must work closely with the other functional departments, particularly the legal and actuarial departments.
Field organizations
The primary objectives of a field force are to produce new insurance sales, to keep previously written insurance in force, and to provide service to those who have purchased insurance. Several types of field organizations are utilized to accomplish these ends. These include the general agency system, the branch office system, the direct writing system, and the direct reporting system or some combination of systems.
A pure general agency system centers around a general insurance agent who has complete responsibility for the development of sales within a territory. In fact, the general insurance agent acts as an independent contractor and is free of any control from the home office outside of that stated in the agency contract. The home office gives the general insurance agent franchise rights within a given territory, and the insurance agent bears almost all the costs and problems of developing the territory. He must select, train, and finance insurance agents and pay all the expenses of operating the sales office. The company’s main control over the general insurance agent is the right to cancel the agency contract should the general insurance agent violate any of its terms. Compensation for the general insurance agent includes a fixed scale of commissions for all business produced by the agency and what is known as a collection fee to cover the clerical costs of premium billing and collection. The general insurance agent pays his insurance agents a commission that is somewhat less than the commission he receives from the company. The difference is called an override and is used to help cover the costs of operating the agency. The branch office counterpart of the general insurance agent is the branch manager. He has many of the same goals and responsibilities of the general insurance agent; however, he is a salaried employee of the company and as such must report to a home officer superior. His compensation, while not directly tied to sales, is usually affected favorably by increased production. In some cases he actually receives commissions and is encouraged to engage in personal production. The home office bears all the expenses of maintaining the office, selecting and compensating the agency force, issuing policies, and billing the individual insureds. Some insurers, particularly the smaller, newly formed ones, have insurance agents reporting directly from the field to the home office. In situations of this type, the marketing department becomes directly involved in activities usually relegated to the branch office or general agency.
Finally, there are direct writers which do not use insurance agents. These firms market insurance through salaried salesmen, vending machines in airports, and the mails. Strictly speaking, an insurer rarely will utilize only one form of field organization. But because of special needs or preferences, most companies use adaptations and combinations of the various types of field organizations. Sales force. The backbone of most insurance sales efforts is the agency force. Agents are usually classified as to the type of business they produce. For example, there are ordinary insurance agents, industrial or debit insurance agents, and group insurance agents. Another major type of insurance salesman is the broker.
The ordinary insurance agent gets his name from selling ordinary or whole life insurance. He operates over a relatively large area and is primarily responsible for developing his own sales leads or prospects. On the other hand, a debit insurance agent sells industrial forms of life insurance. He derives his name from the premium collection route which is called a debit. Some insurance agents handle both industrial and ordinary sales and are called combination insurance agents while others sell only group insurance and are called group representatives. In the great majority of cases, these insurance agents represent only one company.
Another important type of insurance salesman is the broker. The broker, however, represents several insurers and places his business with a particular insurer because of factors such as the coverages and services offered by that insurer, the client’s preferences, the cost of insurance, or the commissions paid.