Insurance theory · page 8 of 10
Distribution
Direct sales, brokers and commission.
Distribution is how policies reach customers. Harbour Mutual sells in two ways.
- Direct: the customer buys from Harbour Mutual itself, online or by phone. In the data,
policies.broker_idis null. - Through brokers: an intermediary finds the customer, often compares several insurers, and places the policy. The broker is paid a commission, a share of the premium (
brokers.commission_rate, 8% to 18% at Harbour Mutual).
A broker acts for the customer, an agent for the insurer; Harbour Mutual works with brokers only. Just under half of its policies in force today came through one of its 24 brokers.
Why the channel matters
- Cost: commission is an acquisition expense; a broker-sold policy must earn it back.
- Quality: brokers bring different customers, and their books can have different loss ratios and retention.
- Concentration: if a few brokers bring much of the business, losing one hurts.
Judge a broker by the profit of their book, loss ratio and retention after commission, not by volume alone.
On Day 3 you will join policies to brokers and regions; on Day 6 you will rank them in a league table.
Check your understanding
Answer every question, then check.