Until the 80’s or so, most insurance companies would recruit, hire, train, motivate and manage their agency in order to build a block of profitable business. In any major City in Canada, there could be up to 15 different insurance carriers trying to recruit new agents to their staff. Managers or Directors would be hired to “manage” a team of agents. Managers would be paid a base salary and override reflecting the level of successful sales and the recruiting results they were able to obtain. Agents were also provided with support staff, a work area (sometimes an office), supplies, fax machines, telephones and all the training material they require to complete their provincial license in order to begin in the insurance world. Insurance Companies would provide incentive programs to motivate the agents to reach certain targets which were referred to as the Company Conventions. Agents were expected to sell exclusively for the company which they represented and be experts in the product line of that company. This was often referred to as a “captive agency system”.
Over time, experienced agents would be recruited by other companies for numerous reasons such as more competitive products, higher compensation or other monetary incentives. This meant that the original company had invested a lot of time and money in an agent that would leave and potentially become successful in another company. It would also mean that there would be a clientele left behind that would not be serviced properly. These clients would eventually let those policies lapse or cancel their coverage. Agents who were not successful in one company could be enticed to move to another with the belief that they would be more successful somewhere else.
In addition, companies began developing “niche market” products which would set their agents apart from the competition. The development of these products was extremely costly and the need to distribute the product to make a profit became a major focus for the carriers. The old system was a ‘high maintenance/high cost’ system. It didn’t allow for achieving economies of scale. To compete in today’s marketplace, the industry needed to redefine itself, and consolidation was inevitable. Having MGA’s is like outsourcing the distribution task, it allows insurers to achieve economies of scale, which means they can focus on creating competitive products and leaving distribution up to the field experts that know it best (the MGA).
The Wake-Up Call.
Many companies began looking at the cost involved in supporting the sale of their insurance portfolio of products and searched for new ways to market their products. Understanding the need to expose the products to other companies’ agents, a Brokerage Service was created by many companies. This gave agents access to a multitude of products through a dedicated division that would cater to the “Broker”. The Broker had to be sure that they had “permission” through their contracting to deal with other insurance companies. Over time, the regulation to do this became more lenient. The Broker was simply looking for product and not the training or management support that an agent would expect.
Today’s scene.
In today’s world, many companies now promote their products exclusively through the brokerage markets. Most are no longer responsible for licensing, managing or recruiting agents to sell their products. In order to establish distribution centers, the carriers are now distributing their products through a Managing General Agency (referred to as a MGA). The MGA can choose the carriers they want to promote and deal directly with the main Head Office of each of the insurance companies. The carriers can also choose the MGA’s they wish to have promote their product. Carriers will often look for reputable, profitable and reliable MGA offices to be associated with.
Brokers: Insurance Brokers are experts in the fields of personal and business insurance. They represent several insurance companies and advise their clients on their best insurance options. As front-line professionals, they ensure that their clients are adequately covered for their needs and they help their clients manage their risk. Most insurance Brokers act as independent business people, and they offer financial products and services such as financial planning, Investment vehicles, Disability, Critical Illness, Long Term Care and Health Benefits. These Brokers have to obtain Provincial licenses to sell these products and are governed by Provincial compliance and insurance rules and regulations as well as Company regulations and guidelines. The MGA
The MGA office is responsible for the full distribution of the products of each of the carriers that they choose to promote. Some MGA’s will open offices (branch offices) in major cities in Canada whereas others will focus on developing in a chosen city. The MGA is paid an override on the volume of business that they can generate from the MGA operation. From that override they will run their operation as a business and pay their own business expenses. They can also pay a portion of the override to the Broker based on target production amounts agreed to in advance during the contracting process. An MGA will provide numerous services to the Brokers who write business through their operation.
These services include:
• Training and ongoing support on product information • Continuing Education sessions • New business & service administration support • Software and Supplies for each carrier they promote • Contracting documentation from each supplier • Commission incentives for each company • Sales ideas • Compliance supervision
What to look for when choosing a MGA
Some companies continue to have an Agency force working with them. Those agents will look for an MGA for ancillary products not offered by their current Agency. They may also look outside their current Agency for “second opinions” on difficult cases. Some Brokers have come from an Agency operation and have chosen to have a more liberal approach to their clientele. Those Brokers will look for a full service office to assist them in their development. They have no preferred carrier and will simply choose the best product based on their clients needs and budget. Some candidates come into the business as a Broker. These Brokers are also looking for a full service MGA but may require more guidance than the prior group. They have had no base training and present more of a risk than experienced Brokers. An important aspect for all Brokers is the clear understanding of the Broker’s ownership of the business written.
Regardless of the experience or history of the Broker, the Broker should be clear on what reasonable services they expect from their MGA. The Broker and MGA should understand their respective responsibilities.
Basic services should consist of:
• Training and ongoing support on product information • Continuing Education sessions • Specialists available on a non-commission sharing basis • Compliance support • Competitive commissions & overrides • Full new business & service administration support • Technology facilitating easy access to case information • Software and Supplies for each carrier the MGA promotes • Contracting documentation from each supplier • Incentives from companies offering programs • Ongoing sales ideas • Confidentiality of Brokers & Clients information • Business Succession Planning Assistance • Networking contacts for professionals ie, Mortgage Broker, Chartered Accountant, Legal Assistance.
Note: This information applies strictly to the Life and Accident and Sickness insurance areas.
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