THE MULTIPLE-LINE AGENCY (MLA) SYSTEM
Although the insurance industry traditionally has been characterized as being divided into two parts,--life and health,and property/casualty—many companies have broadened their product portfolios to include both types of products.
Under the MLA system both types of products are marketed together to provide a total insurance program for the customer.
The MLA system also called the multiple-line exclusive agency system or all-lines exclusive agency system, is used to distributed through career agents the life,health,and property/casualty products of a group of affiliated insurance companies
Even though it may appear that a multiple line career agent is representing only one insurer,in actuality this agent is representing two or more companies that either are financially interrelated or are under some form of common management control.
Some MLA companies allow their agents to place business with other companies; other MLA companies do not. Multiple-line companies that do not rely on their own career agents to distribute products are using the independent agency system,which is also called the American agency system. In this section we limit out discussion to the MLA system
Although insurance regulation generally prohibits the underwriting of both life and health insurance and property/casualty insurance products under the same corporate entity, the insurance industry is able to overcome this limitation on underwriting powers through the use of holding company structures,parent subsidiary relationships,and other intercorporate forms of operation. Companies that use the MLA system are groups of affiliated insurance companies that have separate corporate identities,but that collectively possess the authority to sell both property/casualty and life and health insurance.
Although the insurance industry traditionally has been characterized as being divided into two parts,--life and health,and property/casualty—many companies have broadened their product portfolios to include both types of products.
Under the MLA system both types of products are marketed together to provide a total insurance program for the customer.
The MLA system also called the multiple-line exclusive agency system or all-lines exclusive agency system, is used to distributed through career agents the life,health,and property/casualty products of a group of affiliated insurance companies
Even though it may appear that a multiple line career agent is representing only one insurer,in actuality this agent is representing two or more companies that either are financially interrelated or are under some form of common management control.
Some MLA companies allow their agents to place business with other companies; other MLA companies do not. Multiple-line companies that do not rely on their own career agents to distribute products are using the independent agency system,which is also called the American agency system. In this section we limit out discussion to the MLA system
Although insurance regulation generally prohibits the underwriting of both life and health insurance and property/casualty insurance products under the same corporate entity, the insurance industry is able to overcome this limitation on underwriting powers through the use of holding company structures,parent subsidiary relationships,and other intercorporate forms of operation. Companies that use the MLA system are groups of affiliated insurance companies that have separate corporate identities,but that collectively possess the authority to sell both property/casualty and life and health insurance.
Examples of companies that are primarily property/casualty companies,but that also market life and health insurance products,include State Farm,Nationwide,and Allstate.
Today,many companies that are primarily life and health companies also have property/casualty affiliates. Prudential,Metropolitan,and Travelers are examples of companies in this category.
THE MLA APPROACH
The original concept for the MLA system began among property/casualty companies and was based on three factors :
(1). The idea that existing property/casualty policyowners constitute a “natural”
market for other types of personal and family insurance coverages such as
life and health insurance products
(2). The desire to provide property/casualty agents with additional sources of
income from the sale of other insurance products
(3). The fact that underwriting profits and losses experienced in the property/
casualty business are generally more cyclical than are those in the life and
health insurance business.Many property/casualty companies have tried to
smooth out their profit and loss cycles by offering life and health insurance
products,which traditionally have had more stable and predictable earnings
patterns.
The first two of these factors still apply to life companies use of MLA system in that (1) many life and health insurance policyowners also constitute a natural market for property/casualty coverages and (2) sales of property/casualty products can provide additional income to life and health agents.Benefits accruing from the use of the MLA system can include :
Today,many companies that are primarily life and health companies also have property/casualty affiliates. Prudential,Metropolitan,and Travelers are examples of companies in this category.
THE MLA APPROACH
The original concept for the MLA system began among property/casualty companies and was based on three factors :
(1). The idea that existing property/casualty policyowners constitute a “natural”
market for other types of personal and family insurance coverages such as
life and health insurance products
(2). The desire to provide property/casualty agents with additional sources of
income from the sale of other insurance products
(3). The fact that underwriting profits and losses experienced in the property/
casualty business are generally more cyclical than are those in the life and
health insurance business.Many property/casualty companies have tried to
smooth out their profit and loss cycles by offering life and health insurance
products,which traditionally have had more stable and predictable earnings
patterns.
The first two of these factors still apply to life companies use of MLA system in that (1) many life and health insurance policyowners also constitute a natural market for property/casualty coverages and (2) sales of property/casualty products can provide additional income to life and health agents.Benefits accruing from the use of the MLA system can include :
(1). Being able to cross-sell products. Many consumers prefer to use one agent and
“one company” to meet all their insurance needs.
“Cross-selling”,-defined as selling both property/casualty and life and health
insurance,as well as other financial services products,to the same customer,-
eflects the industry’s movement from a product-centered to a customer-centered
more market-driven approach to conducting business. Agents who use cross-selling
generally place automobile coverage first and homeowners’s insurance second,and
than proceed to life and health insurance. In general,cross-selling to existing clients
is casier than initiating sales to new clients
(2). Helping to reduce prospecting problems.Consumers are more likely to seek out or
shop for property/casualty products than they are life and health insurance. These
leads become exellent prospects for life insurance. Furthermore,when they service
different lines insurance for the same policyowner,agents maintain closer and more
frequent contact with their customers,thus developing more opportunities to seek
out additional customer needs for life insurance. An agent’s delivery of a homeowner’s
policy,an automobile claim that brings a policyowner to an agent’s office,or the addition
of a new driver to a policyowner’s coverage. The time an agent spends servicing existing
business becomes,in part,time spent prospecting for new life insurance sales.
(3). Improving persistency. Cross-selling is believed to improve persistency. The more busi-
ness an agent obtains from a customer,and the more satisfied the customer is with the
products and service provided by the agent,the more likely the customer is to persist.
In addition,the increased income helps decrease agent turn over and,thus,decreases the
number of orphaned policyholders,also improving persistency. Conversely,a policy-
owner’s dissatisfaction with one of a company’s products (or the service provided with
the product) can lead to the policyowner’s dissatisfaction with the rest of the policy –
owner’s products from that company. For example,a policyowner’s dissatisfaction with
the way an agent or a company handles an automobile insurance claim might adversely
affect the policyowner’s persistency on life insurance coverage that the policyowner has
purchased from that particular agent or company. In general,however,multiple-line
policyowners have a tendency to remain with a company and an agent longer than do
single-line policyowners.
(4). Achieving economies of scale. Companies that use the MLA system may be able to
reduce some of the marginal costs associated with their distribution,data processing,
accounting,and other operations and systems by preading fixed company and agent
expenses,--including agent development costs --,over additional product lines.
COMPARISON OF MLA AND ORDINARY AGENCY SYSTEMS
Like ordinary agents,multiple-line career agents are considered independent contractors rather
than employees of the insurance company. The MLA system is quite similar to the ordinary
agency system with the following exceptions :
(1). Most career ordinary agents work out of large field offices that are established and maintained by an insurance company or a general agent. By contrast,most career agents within the MLA system establish and maintain their own detached offices and personally hire all necessarily clerical staff. Usually,MLA career agents must pay for their own office expenses with little or no expense allowance from the company.
Most MLA claims and policyowner service functions are handled at centralized locations. The MLA career agent’s support staff take messages,make appointments, handlroutinebookkeeping, and refer policyowners needing further assistance to larger central locations,which are managed by the home office.
(2). Commission rate structures for property/casualty products are different from those for life and health products.Most commission schedules for property/casualty business are level or levelized schedules,and renewal commissions re generally payable for as long as the policy remains in force and the agent remains under contract with the company. Consequently,first-year commissions for life insurance sales are generally much higher than are first-year commissions for property/casualty sales,but the aggre-gate long-run commissions on a life insurance sales may be somewhat less than those received from a property/casualty sale.
(3). Under the MLA system,renewals on property/casualty products usually are not vested and the insurance company,rather than agent,generally owns the renewals. Since the insurance company owns all property/casualty business written by the agent,the company can,upon termination of the agent,transfer the business and the commissions payable to a new agent of the insurer’s choice. The rates and terms under which commissions are paid on life and health products,however,are generally the same under the MLA system as they are under the ordinary agency system
(4). Insurers distributing their products through the MLA system generally angage in sub-stantial national (or regional) advertising and promotional campaigns directed to the consumer. These compaigns emphasizes the image of both the company and its agents and the close relationship between them.
For property/casualty products,the MLA system is primarily used to distribute personal lines of
insurance, such as automobile and homeowner’s insurance,to individual and family markets.
Consequently, most life and health insurance sales by multiple-line career agents are made to individuals who already own property/casualty policies with the company or group of companies
with which the agents are affiliated. Although the MLA system is also used to distribute annuity contracts and group life and health insurance to small groups,most multiple-line career agents sales consist of individual coverages.
Sources : Life and Health Insurance Marketing (Page 408-412).FLMI Insurance Education Program Life Management Institute LOMA,Atlanta,Georgia,USARetyped by : HMU Suwendi – ci-sat-070106
“one company” to meet all their insurance needs.
“Cross-selling”,-defined as selling both property/casualty and life and health
insurance,as well as other financial services products,to the same customer,-
eflects the industry’s movement from a product-centered to a customer-centered
more market-driven approach to conducting business. Agents who use cross-selling
generally place automobile coverage first and homeowners’s insurance second,and
than proceed to life and health insurance. In general,cross-selling to existing clients
is casier than initiating sales to new clients
(2). Helping to reduce prospecting problems.Consumers are more likely to seek out or
shop for property/casualty products than they are life and health insurance. These
leads become exellent prospects for life insurance. Furthermore,when they service
different lines insurance for the same policyowner,agents maintain closer and more
frequent contact with their customers,thus developing more opportunities to seek
out additional customer needs for life insurance. An agent’s delivery of a homeowner’s
policy,an automobile claim that brings a policyowner to an agent’s office,or the addition
of a new driver to a policyowner’s coverage. The time an agent spends servicing existing
business becomes,in part,time spent prospecting for new life insurance sales.
(3). Improving persistency. Cross-selling is believed to improve persistency. The more busi-
ness an agent obtains from a customer,and the more satisfied the customer is with the
products and service provided by the agent,the more likely the customer is to persist.
In addition,the increased income helps decrease agent turn over and,thus,decreases the
number of orphaned policyholders,also improving persistency. Conversely,a policy-
owner’s dissatisfaction with one of a company’s products (or the service provided with
the product) can lead to the policyowner’s dissatisfaction with the rest of the policy –
owner’s products from that company. For example,a policyowner’s dissatisfaction with
the way an agent or a company handles an automobile insurance claim might adversely
affect the policyowner’s persistency on life insurance coverage that the policyowner has
purchased from that particular agent or company. In general,however,multiple-line
policyowners have a tendency to remain with a company and an agent longer than do
single-line policyowners.
(4). Achieving economies of scale. Companies that use the MLA system may be able to
reduce some of the marginal costs associated with their distribution,data processing,
accounting,and other operations and systems by preading fixed company and agent
expenses,--including agent development costs --,over additional product lines.
COMPARISON OF MLA AND ORDINARY AGENCY SYSTEMS
Like ordinary agents,multiple-line career agents are considered independent contractors rather
than employees of the insurance company. The MLA system is quite similar to the ordinary
agency system with the following exceptions :
(1). Most career ordinary agents work out of large field offices that are established and maintained by an insurance company or a general agent. By contrast,most career agents within the MLA system establish and maintain their own detached offices and personally hire all necessarily clerical staff. Usually,MLA career agents must pay for their own office expenses with little or no expense allowance from the company.
Most MLA claims and policyowner service functions are handled at centralized locations. The MLA career agent’s support staff take messages,make appointments, handlroutinebookkeeping, and refer policyowners needing further assistance to larger central locations,which are managed by the home office.
(2). Commission rate structures for property/casualty products are different from those for life and health products.Most commission schedules for property/casualty business are level or levelized schedules,and renewal commissions re generally payable for as long as the policy remains in force and the agent remains under contract with the company. Consequently,first-year commissions for life insurance sales are generally much higher than are first-year commissions for property/casualty sales,but the aggre-gate long-run commissions on a life insurance sales may be somewhat less than those received from a property/casualty sale.
(3). Under the MLA system,renewals on property/casualty products usually are not vested and the insurance company,rather than agent,generally owns the renewals. Since the insurance company owns all property/casualty business written by the agent,the company can,upon termination of the agent,transfer the business and the commissions payable to a new agent of the insurer’s choice. The rates and terms under which commissions are paid on life and health products,however,are generally the same under the MLA system as they are under the ordinary agency system
(4). Insurers distributing their products through the MLA system generally angage in sub-stantial national (or regional) advertising and promotional campaigns directed to the consumer. These compaigns emphasizes the image of both the company and its agents and the close relationship between them.
For property/casualty products,the MLA system is primarily used to distribute personal lines of
insurance, such as automobile and homeowner’s insurance,to individual and family markets.
Consequently, most life and health insurance sales by multiple-line career agents are made to individuals who already own property/casualty policies with the company or group of companies
with which the agents are affiliated. Although the MLA system is also used to distribute annuity contracts and group life and health insurance to small groups,most multiple-line career agents sales consist of individual coverages.
Sources : Life and Health Insurance Marketing (Page 408-412).FLMI Insurance Education Program Life Management Institute LOMA,Atlanta,Georgia,USARetyped by : HMU Suwendi – ci-sat-070106
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