
American Agency System
The American agency system is a method of selling insurance policies in which independent insurance agents locate the best insurance policies for their customers and receive a commission for each insurance policy sold. The American agency system is a method of selling insurance policies in which independent insurance agents locate the best insurance policies for their customers and receive a commission for each insurance policy sold. While many insurance customers these days are accustomed to calling different insurance companies and comparing quotes online, an independent agent, working in the manner known as the American agency system, does the work of researching different policies and companies on the customer's behalf. The American agency system uses independent agents who can sell policies from a wide variety of companies, unlike captive agents, who can only sell one company's insurance products. Up until a few decades ago, the only way to get a homeowners, auto or life policy was to contact an agent in your area_ — _either one representing a single company, known as a captive agent, or an independent agent, who represents multiple companies.

What is the American Agency System?
The American agency system is a method of selling insurance policies in which independent insurance agents locate the best insurance policies for their customers and receive a commission for each insurance policy sold.
The American agency system uses independent agents who can sell policies from a wide variety of companies, unlike captive agents, who can only sell one company's insurance products.



How the American Agency System Works
While many insurance customers these days are accustomed to calling different insurance companies and comparing quotes online, an independent agent, working in the manner known as the American agency system, does the work of researching different policies and companies on the customer's behalf. This may help a customer obtain a better deal.
How Insurance Is Sold
Up until a few decades ago, the only way to get a homeowners, auto or life policy was to contact an agent in your area_ — _either one representing a single company, known as a captive agent, or an independent agent, who represents multiple companies. If you went to your local Prudential office, you'd walk away with a Prudential policy. At the independent agency's office, you might buy a policy from any one of dozens of companies that the agency represented.
This system still endures today, but the landscape has changed with the rise of internet and direct-sales insurers armed with national advertising budgets, massive online operations and legions of online agents. There may not be a person in North America who doesn't know the phrase that if you've got 15 minutes, GEICO can save you 15% on your car insurance.
GEICO, however, isn't one company. It's eight operating companies and you may get a quote from any one of them. GEICO is in turn owned by Berkshire Hathaway, the massive holding company that Warren Buffett made famous. It insures more than 28 million cars in the U.S. GEICO will also send customers looking for homeowners and other types of insurance to companies it has agreements with in each state. For example, if you want homeowners insurance in New Jersey, GEICO may refer you to Stillwater Insurance Group.
The direct sales model has changed how U.S. consumers shop for insurance, and this appears to be cutting into the business of independent agents. As of 2018, roughly 36,500 independent agencies were operating in the U.S., down from 38,000 two years earlier. According to McKinsey & Co., the average age of an independent agent was 59. Some independent agencies have been slow to adopt to new technology and internet sales channels.
Related terms:
Berkshire Hathaway
Berkshire Hathaway is a holding company for a multitude of businesses, run by chair and CEO Warren Buffett. read more
Broker Of Record
A broker of record, in insurance, is an agent designated by the policyholder to represent and manage a policyholder's insurance policy. read more
Brokerage General Agent
A brokerage general agent is an independent firm or contractor working for an insurance company that sells insurance products to select insurance brokers. read more
Captive Agent
A captive agent is an insurance agent who only works for one insurance company and is paid by that one company, either by salary, commission, or both. read more
Commission
A commission, in financial services, is the money charged by an investment advisor for giving advice and making transactions for a client. read more
Disintermediation
Disintermediation is the removal of a middleman in the supply chain to allow producers to sell directly to their customers. read more
Independent Agent
An independent agent can sell the insurance or financial products of several carriers and is not captive to just their direct employer's products. read more
Insurance Premium
An insurance premium is the amount of money an individual or business pays for an insurance policy. read more
Satellite Operation
A satellite operation is a small office or branch office in a different location from a company or government agency's main office. read more