I’d like to know how a franchise insurance agency works in terms of:
- revenues (are the premiums collected given back to the insurance company, which invests them and gives back a commission to the franchise agency, or retained by the agency that gives a % of them to the insurance company?)
- investment (if the franchisee retains the premiums, does he also invest them and handle fund management? or does he simply retain them as liquid cash resources?)
- underwriting (who does it, the agency or the insurance company? in case a claim is legitimately filed, is it the agency or the insurance company to use its own resources to pay the reimbursement to the insured?)
- any other differences with respect to a normal insurance agency
I need this information for a research project
Thank you very much for your time
Premiums are ALWAYS given back to the insurance company, and a commission is paid to the agency, based on the premium dollars.
Agencies may not invest premiums, manage funds, or retain them. Many times, they may not write claims checks.
Agencies do “front line” underwriting, which is double checked against the carrier’s underwriters. The better front line underwriting an agency does, the more leeway they have, when requesting “exceptions” or favors.
Agencies do not pay out claims from their own funds - carriers hire adjusters to do that. In a few states, the agencies will have a carrier checkbook to pay small claims like windshield or towing claims - but NEVER anything third party, or liability. Claims authority is usually limited to $500, and limited to first party, nonmedical.
Franchise insurance agencies, you follow the rules and standards of the franchies. You borrow the name and get some advertising benefits. You use the franchise contracts, but your loss ratios and retention numbers are your own - and can hurt you. You don’t get any profit sharing checks, usually.
Your own agency, you follow the rules and standards of your carriers, generally pay your own advertising, and your loss ratios and retention numbers can both hurt AND help you, in the form of profit sharing checks if the numbers are great.