Strategic Resources for Your Insurance Agency

Standards & Guidelines For Appraising Insurance Agencies / Brokerages 2015


Independent Agency System – A system of marketing insurance through independent contractors (agents / brokers) who sell insurance on a commission or fee basis with one or more insurers. An independent agent retains ownership, use and control of policy records and as well as Expiration Rights associated with business; and is free to move customers from company to company.

Independent Agency vs. Exclusive / Captive Agency -- An independent agent has the freedom and choice to represent more than one carrier, if the agent so chooses. A captive or exclusive agent, on the other hand, is bound contractually by the carrier it represents to represent that carrier exclusively.

Insurance Agent / Agency -- A person or organization that solicits, negotiates, or instigates insurance contracts on behalf of an insurer. Agents are generally legal representatives of insurers, rather than policyholders, with the right to perform certain acts on behalf of the insurers they represent.

Insurance Broker -- In the United States, a broker is an insurance intermediary that represents the insured rather than the insurance company. They often do not have the authority to act on behalf of insurers. While some brokers do have agency contracts with some insurers, brokers usually remain obligated to represent the interests of the insureds rather than insurers. In Canada, and many foreign countries the term “broker” and “agent” have no difference in meaning.

Loss Ratio -- Carriers judge the profitability of the book of business written by an agency by examining the book’s loss ratio. Although a loss ratio may be calculated using various elements, in its simplest form a loss ratio represents the dollar amount of losses paid by the carrier divided by the dollar amount of premiums written by an agency, all during a specified period of time. Loss ratios are expressed as a percentage. For example, if there are $250,000 of losses for policies that generate $500,000 of premiums, the loss ratio would be expressed as being 50%. Among other elements often included in the loss ratio calculation are “loss adjustment expense” and “reserves” assigned to claim that have not been settled.

Non-Competition Covenant -- A provision in a written agreement which seeks to prevent an employee or independent contractor from competing in the same business in a specific geographic area during the term of employment, and for a limited period of time after termination of employment. Certain states require that a Non-Competition Covenant be restricted to a specific geographic area.

Non-Piracy Covenant -- A limited form of non-competition or non-solicitation covenant which seeks to prevent an employee or independent contractor producer from soliciting or placing insurance or financial services products for customers and active prospects of the agency for a limited period of time after termination of the employee’s or independent contractor’s relationship with the agency.

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