American Agency System

What Is the American Agency System?

The American agency system is a method of selling insurance policies. The system involves independent insurance agents who locate the best insurance policies for their customers and receive a commission for each policy they sell. The American agency system uses independent agents who sell policies from a wide variety of companies rather than captive agents who can only sell insurance products offered by a single company.

Key Takeaways

  • The American agency system is an insurance system made up of independent insurance agents.
  • It allows agents to locate and sell policies from a large pool of companies.
  • The system allows agents to act independently of insurance companies to find policies at the right price.
  • The American agency system also benefits buyers by finding the best coverage for their financial and lifestyle needs.
  • Unlike independent agents, captive agents work for a single insurance company.

How the American Agency System Works

Up until a few decades ago, consumers were only able to get homeowners, auto, or life insurance by contacting an agent in their area or a particular insurance company. This involved calling different insurance companies and comparing quotes to get the best possible price and coverage. So if you went to your local Prudential office, you'd walk away with a Prudential policy.

This system still remains today. In fact, many consumers still purchase insurance policies in this manner. But the insurance industry has gone through sweeping changes thanks to the internet and direct-sales insurers (who are armed with national advertising budgets, massive online operations, and legions of online agents), resulting in what's called the American agency system.

There are scores of independent agents who work in the American agency system. This allows consumers to connect with a single professional rather than multiple agents. This one point of contact removes the guesswork from choosing the right policy. They do all the work of researching different policies and companies on the customer's behalf. In the end, it may help a customer obtain a better deal.

Professionals who work within the American agency system are called independent agents.

Special Considerations

GEICO is one of the most popular names operating in the insurance industry in the United States today. But contrary to what most people believe, it isn't just one company. In fact, there are multiple operating companies involved, so if you ask for a quote, you may get it from one or more of them.

Owned by Berkshire Hathaway (a massive holding company made famous by Warren Buffett), GEICO insures more than 30 million vehicles in the U.S. GEICO also sends customers looking for homeowners and other types of insurance to companies with which it has agreements in each state. For example, if you want homeowners insurance in New Jersey, GEICO may refer you to Stillwater Insurance Group.

The Friendly Society was the first insurance company in the United States. It was established in 1735 in Charleston, South Carolina, and went under five years later.

American Agency System vs. Captive Agents

As noted above, the American agency system is distinct from traditional channels, which involve captive agents who work for just one insurance company. This means that when you go to see a captive agent about a policy, you'll only get a quote for coverage from that one company. As such, they are only versed in the products, fees, and services that their insurance company provides.

Because they understand the ins and outs of the company, captive agents are better equipped to meet the very specific needs of new and existing clients. But one of the downfalls of using captive agents is that they often have quotas to fill, which means they may try to sell products to consumers that they may not necessarily need.

Article Sources
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  1. GEICO. "Corporate Ownership."

  2. GEICO. "GEICO At A Glance."

  3. Insurance Information Institute. "Brief History."

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