How insurance reaches the customer:
Independent agency: the agent represents several insurers and is paid by commission. The agent is not tied to any one company.
Captive (exclusive) agency: the agent represents only one insurer.
General agency: the insurer appoints a general agent for a territory, who recruits and trains agents and may receive allowances for office, advertising and training costs.
Managerial (branch office) system: the branch manager is a salaried employee of the insurer, and the company runs the branch directly.
Direct response: no producer. The insurer markets by mail, internet, TV or phone, and the customer applies on their own.
An agent acts for the insurer (the principal). What the agent can bind the insurer to depends on the agent's authority:
- Express authority: written in the agent's contract with the insurer.
- Implied authority: not written, but reasonably necessary to carry out the express duties. Collecting the initial premium naturally includes giving a receipt for it.
- Apparent authority: authority the public reasonably believes the agent has because of how the insurer presents the agent, for example by supplying forms, rate books and company letterhead.
Express plus implied authority together are called actual authority. A broker, by contrast, acts on behalf of the client (next page).
Field underwriting: the producer is the insurer's eyes in the field. Insurers expect the producer to:
- submit a complete application, with the applicant's answers as given;
- report anything seen or known that bears on the risk, often in an agent's report, such as a stated income that does not fit the applicant's job;
- leave the decision to the underwriter, who accepts, modifies or declines the risk.
The producer may not change an applicant's signed answers.