How Much Do Insurance Agents Earn?

According to the U.S. Department of Labor, the median annual earnings of wage and salary insurance sales agents were $41,720 in May 2004. The middle 50 percent earned between $29,980 and $66,160. The lowest 10 percent had earnings of $23,170 or less, while the highest 10 percent earned more than $108,800. Median annual earnings in May 2004 in the two industries employing the largest number of insurance sales agents were $42,010 for insurance carriers, and $41,840 for agencies, brokerages, and other insurance related activities.

Many independent agents are paid by commission only, whereas sales workers who are employees of an agency or an insurance carrier may be paid in one of three ways-salary only, salary plus commission, or salary plus bonus. In general, commissions are the most common form of compensation, especially for experienced agents. The amount of the commission depends on the type and amount of insurance sold and on whether the transaction is a new policy or a renewal.

Bonuses usually are awarded when agents meet their sales goals or when an agency meets its profit goals. Some agents involved with financial planning receive a fee for their services, rather than a commission.

Company-paid benefits to insurance sales agents usually include continuing education, training to qualify for licensing, group insurance plans, office space, and clerical support services.

Some companies also may pay for automobile and transportation expenses, attendance at conventions and meetings, promotion and marketing expenses, and retirement plans.

Independent agents working for insurance agencies receive fewer benefits, but their commissions may be higher to help them pay for marketing and other expenses.

Source: Excerpted from U.S. Department of Labor, Bureau of Labor Statistics, Occupational Outlook Handbook, 2006-07 edition.

SUMMARY

There are several basic types of insurers:

  • Stock insurers
  • Mutual insurers
  • Lloyd's of London
  • Reciprocal exchange
  • Blue Cross and Blue Shield Plans
  • Health maintenance organizations (HMOs)
  • Captive insurers
  • Savings bank life insurance

An agent is someone who legally represents the insurer and has the authority to act on the insurer's behalf. In contrast, a broker is someone who legally represents the insured.

Surplus lines refer to any type of insurance for which there is no available market within the state, and the coverage must be placed with a non admitted insurer. A non admitted insurer is a company not licensed to do business in the state. A surplus lines broker is a special type of broker who is licensed to place business with a non admitted insurer.

In life insurance, several basic marketing methods are used:

  • Agency building system
  • Non building agency system
  • Direct response system

In property and casualty insurance, a number of marketing systems are used:

  • Independent agency system
  • Exclusive agency system
  • Direct writer
  • Direct response system
  • Multiple distribution system

Many insurers use group insurance marketing methods to sell individual insurance policies to members of a group. Employees typically pay for the insurance by payroll deduction. Workers no longer employed can keep their insurance in force by paying premiums directly to the insurer.

APPLICATION QUESTIONS

1. A group of investors are discussing the formation of a new property and casualty insurer. The proposed company would market a new homeowners policy that combines traditional homeowner coverages with unemployment benefits if the policyowner becomesinvoluntarily unemployed. Each investor would contributeat least $100,000 and would receive a proportionateinterest in the company. In addition, thecompany would raise additional capital by sellingownership rights to other investors. Managementwants to avoid the expense of hiring and trainingagents to sell the new policy and wants to sell theinsurance directly to the public by selective advertisingin personal finance magazines.

a. Identify the type of insurance company that bestfits the above description.

b. Identify the marketing system that management isconsidering adopting.

2. Compare a stock insurer with a mutual insurer withrespect to each of the following:

a. Identification of the parties who legally own thecompany

b. Right to assess policyowners additional premiums

c. Right of policyowners to elect the board ofdirectors

3. A luncheon speaker stated that "the number of lifeinsurers has declined sharply during the past decadebecause of the increase in company mergers andacquisitions, demutualization of insurers, and formationof mutual holding companies."

a. Why have mergers and acquisitions among insurersincreased over time?

b. What is the meaning of demutualization?

c. Briefly explain the advantages of demutualizationto a mutual life insurer.

d. What is a mutual holding company?

e. What are the advantages of a mutual holding companyto an insurer?

4. A newspaper reporter wrote that "Lloyds of Londonis an association that provides physical facilities andservices to the members for selling insurance. Theinsurance is underwritten by various syndicates whobelong to Lloyd's." Describe Lloyd's of London withrespect to each of the following:

a. Liability of individual members and corporations

b. Types of insurance written

c. Financial safeguards to protect insured's

5. Property and casualty insurance can be marketedunder different marketing systems. Compare the independentagency system with the exclusive agency systemwith respect to each of the following:

a. Number of insurers represented

b. Ownership of policy expirations

c. Differences in the payment of commissions