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Standards & Guidelines For Appraising Insurance Agencies / Brokerages 2015


Company vs. Carrier-- These are interchangeable words that generally refer to the companies that issue policies to the public and others. Examples of well-known carriers include Allstate, State Farm and Hartford.

Company or Carrier vs. Agency-- An agency is a business that represents one or more insurance carriers. Consumers and businesses normally purchase policies directly from agencies, and agencies represent the carriers that issue the policies. Agencies often also service the policies issued by carriers, acting as a liaison between the consumer and the carrier.

Contingency and Profit-Sharing Income-- Contingency income refers to special bonuses that agencies receive from insurance carriers. These may also be referred to as company profit-sharing bonuses. The calculation of contingency amounts is normally based on (1) how profitable the agency is for a carrier, or (2) production growth, or (3) retention of policies, or (4) a combination of these factors during a defined calculation period, usually a calendar year.

Direct Writer System -- A system of marketing insurance through employees of the insurance company that only market products of that company. The direct writer insurance company retains ownership, use and control of policy records and expirations rights.

Employee Benefits Business-- Programs or plans that employers provide to their employees, that usually are paid for or partially paid for by the employer, which generally include health, life and disability insurance, as well as other related products.

Employment / Independent Contractor Agreement– A written agreement setting forth the rights and duties between an agency and its employee or independent contractor representative, which often includes non-piracy (or non-solicitation) or non-competition provisions.

Exclusive / Captive Agency System-- An insurance distribution system through independent contractor agents that represent only one company or a group of companies under similar management. The insurance company retains ownership, use and control of policy records and expirations rights.

Expirations / Expiration Rights-- "‘Expirations’ or ‘book of business’ refers to the policies or copies of policies which include the name and address of the insured, a description of the article insured, expiration date of the policy, premium, and all other information necessary to execute an insurance contract. Such information is of vital assistance to the agency in carrying on the insurance business and is recognized as a valuable asset in the nature of goodwill." From "Couch on Insurance."

Fees-- Includes revenue generated from services provided to clients in addition to or in lieu of commissions paid by insurance companies. Fees are a form of Operating Income (like Commissions), as distinguished from Contingency Income. Fees include, but are not limited to, Risk Management Fees, Policy Fees, Service Fees and even Premium Financing Charges.

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