All companies create similar products in much the same way. It is when companies attempt to get these products into the hands of consumers that they really begin to differentiate themselves. As we have noted, although direct methods of marketing products do exist, their success has been limited, and in reality, the overwhelmingly dominant distribution method is the individual producer who makes face-to-face sales. Because these producers operate in field offices (typically called agencies) in locales wherever a market for life insurance exists, this method of distribution is called the agency system.
The agency system has two main branches. In the first, a company builds its own agency distribution system by recruiting, financing, training, motivating, housing, and supervising new agents to represent it "exclusively." This branch of the agency system is identified with the descriptive adjective "building." In the second, a company taps into the existing pool of agents created by the building branch referred to above to create an "instant sales force." This branch is referred to as being "nonbuilding."
The driving force in either of these branches is an individual who represents the company on the local level, either as an employee or an independent contractor, and who is the company�s local sales force manager.
In the first branch of the agency�the building agencies�the individual in charge is typically called a manager or general agent, and it is he or she who does the recruiting of new, inexperienced recruits and develops them into a sales force. In the second branch of the agency system�the nonbuilding agencies�companies win an established producer�s attention through the use of an intermediary who acts as a sort of "manufacturer�s representative"�either as an employee or independent contractor�and convinces established producers to sell their company�s products through one type of arrangement or another.
The producers described earlier are arrayed in the field in an almost countless variety of organizational structures based on company policy in the building companies and on the arrangement between the manager, general agent, or manufacturer�s representative in the nonbuilding companies. For the most part, however, almost all of the existing field structures fall into one of the following general broad categories (or one very similar):
- Agency building�managerial. In this type of field organization, the manager (along with a staff of second-line managers) is a direct extension of the company, and his or her role is strictly to hire, train, and manage a sales staff. In some companies production by the manager is either discouraged or not allowed, while in other companies it is allowed but not usually expected. Expenses tend to be borne entirely by the company. This form of organization is usually for home-service agents, multiple-line exclusive agents, and to a lesser degree, ordinary agents. Managers are compensated by salary, overrides, and commissions on personal production�all of these or a combination, depending on what the company wants the manager to do.
- Agency building�general agent. The goal in this type of field organization is also to build a sales staff, but the person in charge, usually called a general agent, is an independent contractor and is compensated primarily for building the agency�s staff, although personal production is common. Quite often, the general agent is given an expense allowance and is then expected to manage his or her own agency expenses. The ordinary agent is the dominant producer in this structure.
- Regional director approach (RDA)�personal-producing general agent. This type of structure is favored by companies that prefer to have primary-carrier relationships with their PPGAs. Inherent in the evolution of this strategy was the concept of exclusive representation. However, because of the pressure of competition for qualified PPGAs, exclusive representation or exclusive territorial rights rarely exist today. Companies that employ this approach hire only experienced producers and are not committed to new agent development in any way. They provide little, if any, continuing generic education or training, some product orientation, and no office facilities or supervision. As the name of this type of structure implies, PPGAs are hired and supervised by regional directors. Typically, a regional director appoints about
12 PPGAs per year and maintains a working relationship with about
40 PPGAs.
- Managing general agent approach�personal producing general agent. This type of structure originated with independent agents in the casualty insurance business. There, an independent general agent representing a company in a particular region was authorized to appoint other independents to represent the company. While wielding more "clout" with the carrier, the managing general agent (MGA) operated essentially as a regional agency for the company and usually had territorial rights as well as certain powers. The MGA also often specialized in a particular product. The MGA concept differs from the RDA approach because the MGA is an independent contractor authorized by the company to appoint PPGAs, and there is much less primary company orientation. Typically the MGA is a franchisee who represents one company for a particular product in a particular territory. Since their producers are already paid the override, MGAs are compensated on a percentage of commissions and assume such administrative expenses as recruiting and mailing costs.
- Brokerage supervisor approach. The brokerage supervisor is a company employee who solicits business from producers with whom that company has no primary relationships. Brokerage supervisors are most often associated with agency-building companies�providing them with an additional distribution option�and with life affiliates of property-casualty companies where they primarily target independent property-casualty agencies. Companies that use this approach tend to offer a full line of products and rely on their ability to provide technical help to producers whose main business is not life insurance, such as property-casualty agents and stockbrokers. Because brokerage supervisors are usually housed in the field, they are able to solve local producers� problems when and where they occur.
- Independent brokerage general agent approach. This approach provides companies access to a producer through an independent brokerage general agent (IBGA) who is authorized to solicit business for the company and to appoint producers on its behalf. IBGA companies tend to be ones that offer specialty products or that provide process-oriented service, including liberal underwriting and speedy policy issue and commission payment, to producers who typically are agents of other companies. IBGAs offer some administrative services, usually represent several carriers for the same product, and are paid by overrides on business generated through their efforts while their producers are compensated by basic commissions.
Before we leave the subject of the structure of field organizations, it should be noted that some companies have provided their field forces with a larger number of products to sell or have expanded their distribution capacities without having an impact on their existing field force. Companies have done so by entering into manufacturer-distributor agreements with nonaffiliated companies. Under these agreements one company distributes products manufactured by the other company. Such agreements offer companies product diversification and the ability to capture outside business. The manufacturing company gets additional distribution capacity and easier access to producers; the distributing company adds income sources for its producers, enhances its agents� service capabilities, and has a chance to test market products without the cost and effort required to develop the product itself.
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