DEFINITION of 'Agency Plant'

The amount of presence that an insurance company has in a market. Agency plant includes both insurance agents that work for the insurer as well as independent agents that can sell the insurer’s policies. It can also refer to other personnel that an insurer may use to market its policies.

BREAKING DOWN 'Agency Plant'

Insurance companies make money by underwriting new insurance policies, which requires the company to undertake marketing efforts in order to create brand awareness. This may include advertisements placed in newspapers, appearing in television and radio commercials, as well as Internet campaigns. The goal of these efforts is to let individuals and businesses know what types of insurance policies the insurer offers, as well as to create the perception that the insurer is trustworthy.

While advertising can increase brand awareness, insurers will ultimately need to employ personnel who can sell the policies that it wants to underwrite. The company will be reliant on two types of personnel: agents that are directly employed by the insurer, and agents that are not directly employed but are authorized to sell the insurer’s policies. Each employment type carries its own benefits and costs, and insurers may ultimately decide to employ a mix of the two types of agents.

Independent agents may offer a variety of policies from different insurance companies. Without a fiduciary duty, the independent agent may push a policy from a company that provides the agent with the highest commission. This requires the insurer to compete with other companies, which can drive up costs. However, having an independent agent may make it easier for an insurer to gain access to new markets without having to invest in hiring its own agent.

Insurer-employed agents only provide the insurer’s policies. While this means that the insurer is not competing on commission, it also means that potential policyholders may feel that the agent is not offering the most cost-effective option. This type of agent works best for insurers of well-known brands.

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