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Independent Agencies Continue to Dominate Commercial Insurance, but Play a Lesser Role in Personal Lines, Business and Industry Trends Analysis

Insurance may be sold to the policy holder directly by the underwriting company, or by various types of agents or agencies.  Independent agencies are businesses that are not connected to any insurance underwriter.  Independents typically represent several insurance companies at once and are paid on a commission basis.  In contrast, a “captive” or “exclusive” agency is independent, but it represents only one insurance company.  Examples of underwriters selling through captive agencies are State Farm and Farmers Insurance Group.
Insurance agencies vary widely in size and scope, from one-person offices to multi-state operations employing large numbers of people.  Some agencies write insurance of all types; others specialize in certain types of insurance such as commercial, marine or aviation insurance.  An insurance underwriter that sells through agencies is often called an “agency company.”  A company that primarily sells directly to the customer, via direct mail, telephone, in-house agents or e-commerce, is often called a “direct company.”
An insurance broker or brokerage is quite different from an insurance agency.  Generally, an insurance agent or agency represents the insurance underwriter, while an insurance broker’s role is to represent the end customer.
The Independent Insurance Agents & Brokers of America, Inc. reports that independent agents and brokers write a higher percentage of all commercial insurance than agencies, while writing a smaller percentage of personal lines.  Independents face daunting competition from direct sellers and captive agents.  Underwriters like GEICO that specialize in selling personal lines make it very difficult for independent agents to compete.  For example, GEICO's famous television ads are extremely effective at promoting the company's auto insurance.
Overall, the number of insurance agents in the U.S. has been shrinking.  Insurance companies are facing far tougher regulatory environments, which squeeze profits, and more and more firms are downsizing staff numbers.  For example, MetLife sold its network of 4,000 sales agents to Massachusetts Mutual Life Insurance Co.  Likewise, American International Group, Inc. sold its AIG Advisor Group to Lightyear Capital (a private equity firm) and PSP Investments (a pension manager based in Canada).  A growing portion of insurance sales has migrated to the internet.

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