SIC 6411 Insurance Agents, Brokers, and Service
SIC 6411
This industry includes agents primarily representing one or more insurance carriers, or brokers not representing any particular carriers who are primarily engaged as independent contractors in the sale or placement of insurance contracts with carriers, but not employees of the insurance carriers they represent. This industry also includes independent organizations concerned with insurance services. Establishments engaged in searching real estate titles are classified in SIC 6541: Title Abstract Offices.
524210
Insurance Agencies and Brokerages
524291
Claims Adjusters
524292
Third Party Administrators for Insurance and Pension Funds
524298
All Other Insurance Related Activities
Agency and brokerage firms selling and servicing insurance policies constitute the majority of the insurance agency, brokerage, and service industry. These companies are primarily engaged in representing one or more insurance carriers as independent contractors in the sale or placement of coverage. The industry also encompasses various specialty entities that offer services to insurance companies and to policyholders, such as independent claims adjusters, information bureaus, pension and retirement planning services, and research organizations.
In the late 1990s, the insurance industry underwent some adjustments that affected the roles of agents and brokers. While most agents and brokers continued to specialize in life insurance, a growing number began selling policies that cover life, property/casualty, and health and disability. Moreover, agents and brokers began using Internet technology to increase their reach and to offer faster and more convenient service to their clients.
The fortunes of insurance brokers and agents reflect larger trends in the industry. The insurance industry experienced unprecedented losses in the wake of the September 11, 2001 terrorist attacks, which exacerbated an already faltering economy, and agents and brokers found themselves forced to raise premiums, sometimes as much as 50 percent in the early 2000s. However, by the mid-2000s an improving economy and demographic changes, notably the graying of the boomer generation, resulted in the steady growth of premiums. According to the Insurance Information Institute, total industry premiums totaled $1.06 trillion during 2003, up from $1.01 trillion in 2002. Property and casualty insurance accounted for 54 percent of premiums, and life and health insurance premiums accounted for 48 percent. An improving economy spurred a positive outlook for the industry during the mid-2000s.
Insurance agents and brokers bring insurers and people or companies needing insurance together. They help their clients select the right policy for their particular needs. Although their primary function is to sell policies offering financial protection against loss, agents and brokers may also help their clients plan for personal, family, or business financial security. In addition, they often provide advice about various insurance products, prepare reports and maintain records, and help policyholders settle insurance claims.
Insurance agents typically represent an insurance carrier under a contract arrangement. The agreement furnishes the agent with a small salary, fringe benefits, and commissions. The agent relies primarily on commissions for compensation, which are earned by selling new insurance policies and by renewing and servicing in-force or existing policies. An important characteristic of the agency relationship is that the agent is under the authority of the principal, or insurance carrier, and has the ability to make decisions as a representative of the carrier. Therefore, the principal can be held legally liable for the agent's business actions. Additionally, the agent is bound to place all business that he or she solicits with the principal.
Brokers, in contrast to agents, do not necessarily work under the authority of an insurance company. Rather, brokers place insurance policies for their clients with the carrier offering the most appropriate rate and coverage. The broker is remunerated by the carrier, though typically at a rate lower than that paid to the carrier's agents. Brokers may also charge clients who purchase insurance fees for services not compensated by the carrier's commission. Brokers serve an especially beneficial role for organizations with large and varied insurance needs requiring professionals to represent their interests. Some brokers also act as agents in certain areas of their business.
Commercial insurance in the United States is organized into four principal parts: insurers, who bear risk and manage surplus capital for their clients; field organizations, including agents and brokers, that maintain public contact, sell policies, and settle claims; intercompany organizations that establish standards, devise rates, and represent the political interests of insurers; and associations, or boards of agents and brokers that influence legislation, conduct research, and establish standards for the agency and brokerage industry. The American Insurance Association (AIA) is an example of an entity representing the interest of the industry and helping to establish professional standards. Many other organizations offer professional designation programs and lobby for agents' and brokers' interests.
Agents and brokers serve four basic types of insurers: national companies, regional insurers, mutual companies, and reinsurers. While some agents represent only one company's products, an increasing number of agents in the mid-2000s sold policies for all industry types of insurers or tiers. According to the Insurance Information Institute, the average independent insurance agency represented seven personal line insurers, 6.7 commercial line insurers, and 5.3 life and health insurers. The first tier, national companies, includes such massive organizations as Prudential Financial and Met Life. These companies typically offer multiple lines of insurance for both individuals and businesses, and they support hundreds or thousands of agencies in cities throughout the United States. Agents who represent these companies benefit from such factors as public familiarity with the insurer, national advertising programs, and geographic diversity, which strengthens the carrier. The second tier, regional insurers, support agencies in a limited geographic area. Although some regional companies offer multiple lines of insurance, many emphasize one line of coverage, such as auto or home insurance.
The third tier, mutual insurance companies, in contrast to stock corporations, differs from most national and regional firms because mutual insurance's clients own a part of the company. Mutual agents essentially sell a membership to a cooperative, allowing each member to simultaneously become insurer and insured by purchasing a policy. The fourth tier, served mainly by brokers, is the reinsurer. Reinsurers provide coverage for insurance companies against unforeseen losses that could devastate the organization.
Agents and brokers sell various forms of life, health, accident, property, and casualty insurance, each generating nearly equal amounts of annual revenue from premiums. Many of them also market financial instruments that complement their product offerings. Many agents and brokers sell policies in both the life/health and property/casualty divisions, although more agents specialize in selling life policies than any other line of coverage.
Life insurance differs from many other forms of insurance because it is usually considered a long-term investment and offers significant tax advantages. Typical products offered by agents in this market include whole life products; term products, such as universal, variable, and universal variable life insurance; and annuities, which are effectively tax-deferred investment instruments. From the late 1990s through the mid-2000s the number of owners of individual life insurance remained steady, with about 50 percent of American families owning an individual policy. However, in 1960 over 72 percent owned life insurance. The number of employees with group life insurance coverage declined from 56 percent in 1999 to 48 percent in 2005.
Whole life policies combine a death benefit with a forced savings plan. In other words, the insured effectively overpays during the early years of his or her coverage when the risk of death is small. The interest earned on the savings is used to build the policy's cash value so that in the future the insured can borrow against the savings at a low interest rate. The policy also carries a redeemable cash value that can be withdrawn at once or used for retirement income. Term coverage differs from whole life in that the customer can avoid the forced savings plan, thus reducing his or her total investment. Products such as universal life insurance combine term and whole life advantages. Annuities, in contrast, do not provide a death benefit. The agent is essentially selling investment instruments that offer potentially higher returns than are available in whole life products, yet retain tax advantages.
Life insurance can also be divided into group and...
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