The General-Agency System

The first two systems have been adopted most generally as the plans for organizing and controlling the operations of agents. The general-agency system is the oldest and most widely used of the two plans, and aims to accomplish through general agents what the other system is designed to do through branch offices. According to the plan the company appoints a general agent to represent it within a designated territory over which he is given control, and by contract agrees to pay him a stipulated commission on the first year's premiums plus a renewal on subsequent premiums. In return the general agent usually agrees to devote himself to the upbuilding of the company's business in his district to employ and supervise the local agents, to collect premiums, and to pay all expenses (save only the fee paid to medical examiners) connected with the operation of his agency. He is also empowered to engage sub-agents on such terms as he may deem best. Thus he may pay them all of his first year's commission plus a renewal somewhat smaller than that which he receives from the company, or he might pay all of the commission on the first year's premium and retain the renewals himself, or, again, he may retain a portion of both the first year's premium and the renewals. If the agency is already established when the general agent is appointed, the company will usually pay him collection fees on the premiums turned in on the business which his predecessors developed, expecting that this income will be utilized for the upbuilding of the agency. If the agency, however, is just being established, the company will often advance to the general agent the capital necessary for development and reimburse itself out of the commissions accruing under his contract. Frequently the contract also requires the general agent to produce a stipulated amount of business within a designated time.

Two classes of general agencies are described by Edward A. Woods in his article on "Agency Management" viz: (1) those where the general agent relies chiefly upon his own personal business for his main profit and considers the income derived from his sub-agents as of minor importance; and (2) those where the general agent subordinates his personal business and aims to develop a large force of sub-agents with a view to deriving his chief profit from the marginal difference between the commissions and renewals paid by him to such agents and those which he receives from the company. If belonging to the first class the general agent will consider his personal business of greatest importance and will select those prospective applicants which he can handle best himself. Needless to say such an agency is not as advantageous to sub-agents as the second class where, although it should always be the aim of the general agent to obtain some personal business he will nevertheless promote the welfare of his agents in preference to the interests of himself or his office. As Mr. Woods explains:

It should be the policy of the general agent to subordinate his own interest and that of the office to his agents; to have them feel that their interests are preferred, that they will be given first opportunity to profit by leads of all kinds secured by the office; in all cases of conflict of interest to give all reasonable preference to sub-agents. Some agencies further protect them by refusing business from all outsiders or by declining to pay, or permitting their agents to pay, so-called "helpers or handshakers" or any outsiders any part of their commissions in any way, causing it to be understood that the interests of its agents are first in the agency. Such an agency will be built up slowly, because obviously the small marginal commission upon first, if any, and renewal, premiums will be slow in aggregating any considerable amount; but it should ultimately exceed what will be possible for the first form of general agency.

When thoroughly established the latter will not be so dependent upon the personal effort of the general agent and will gradually attract more and more successful agents to its standard.