What is a General Agent?

When I’m asked what I do for to support myself and my family, I usually answer by saying I work in employee benefits, health insurance, or both, depending on my audience. But every now and then, I’ve been asked, “what is it you actually do?”

That’s a great question, but before I’m able to answer it, I should explain what my employer does. They are a general agency in the employee (group) benefits market in several states throughout the country. Insuranceopedia has a good starting definition of the concept:

The general agency (GA) works for one or more insurance companies. This can be beneficial for these companies because the general agency only gets paid for insurance products that are actually sold. The GA, moreover, can take care of preliminary underwriting activities for the company. It also markets the insurance products in an area.

Put another way, in the employee benefits field, a general agent is a “broker for brokers.” Retail brokers may represent several different carriers, thus allowing them to make the best recommendations for their clients, who could be individuals or businesses. My company is a general agency in the group benefits space, which primarily services businesses who are seeking to add or maintain their employee benefits offerings; thus, our clients are the brokers who sell to the companies’ decision makers.

My particular company offers the following services to its brokers:

• Facilitation of carrier relationships
• Quoting and cost comparisons
• Market news, insights, and information
• Underwriting and installation
• Technology and process solutions

A general agency has the infrastructure for everything except end-user sales; in a B2B market like employee benefits, the “end user” is the business offering employee benefits. A GA will employ a sales team, but those salespeople call on brokers. With a few rare exceptions, they don’t call on non-brokerage businesses directly. Instead, their “elevator pitch” to brokers is usually something along the lines of we take care of the back-end work so that you can spend more of your time selling.

Why is this important?

In the case of group benefits, the broker’s work doesn’t end with a successful sale. Most group benefit insurance contracts run for twelve months, which means that they come up for renewal every year. In addition, many brokers — particularly in the small group space where I’ve spent most of my career — also provide support for their clients throughout the year, helping and extending their own human resources staff by taking some of the burden related to the benefits subfield. (The exact line between HR and broker varies considerably according to client size, organizational dynamics and complexity, in addition to the decision makers’ own preferences.)

All of these functions, which are vital to the administration of group benefits, are “non-revenue-generating activities,” that is, functions that don’t produce additional gross income for the company. Yet businesses ignore non-revenue employees at their peril: Zendesk, quoting Forbes, indicates that, on average, 64% of sales representatives’ time is spent on non-revenue activities. That ratio can’t be ignored, but there’s a chicken-and-egg problem when it comes to sales vs. support activities: better sales support means more sales, but increasing sales often requires better sales support.

Outsourcing the support is an obvious alternative, since it’s usually cheaper and more effective than hiring dedicated employees. It also allows a business to focus its primary efforts on lead and revenue generation, in addition to relieving their commission-based sales representatives of a lot of unnecessary stress. That’s what a general agency does for a broker: it lets the broker focus on sales by taking care of the support function for them. The GA and the broker negotiate a commission split, which is then paid out by the carrier.

Complicating the matter for benefits brokers is that there has been a general decline in broker commission levels throughout the industry. The traditional commission structure has always been a bit problematic (there are potential conflicts of interest), but the advent of stricter loss ratio requirements under the ACA has severely limited the carriers’ ability to pay them, particularly in the case of plans for smaller employers. Some carriers, in fact, have stopped paying commissions altogether. But the idea of client-paid broker fees is still too new to the industry for a broker to be able to rely on them; there’s too much competition from no-fee brokerages and even the carriers themselves. Brokers have been feeling the pinch for several years: commissions are down, but administrative complexity is increasing.

Still, some brokers prefer not to work with GAs because they don’t like to split commissions and/or they feel as though they lose control of their client relationships. Both of those are valid concerns, which is why the decision whether to work with a GA varies by individual broker (or brokerage). Many brokerages use GAs for back-end support in some functions but not others, or for some carriers but not others. Alternatively, in some markets, carriers require brokers to work through a GA so that they can make use of economics of sale; in that case, a GA relationship is necessary just to get a foot into the market.

In other words, a GA relationship (usually) isn’t strictly required for a broker to be successful, and they’re not right for every broker. But many brokers do feel that the pros of a GA relationship outweigh the cons, and that trend has been increasing.

Given that general agencies are behind the scenes, most people outside of the insurance field haven’t ever heard of them. I have yet to come across anyone who recognizes my employer’s name, except for other people who work in the insurance industry. That’s all right. Name recognition from the general public is important, but it’s not the only factor that can drive profitability. Revenue can be generated using lots of other means, and my employer has a good reputation within the industry. Just in my not-quite-two-years there, we’ve expanded into two new markets, with more coming during the remainder of 2024 and into 2025. We wouldn’t be doing that if we weren’t successful!

As a side note: while it’s not hard to find out where I work, I’m not authorized to speak for my employer, which is why I don’t name them in this post. In addition, I should note that any opinions, errors, and so forth are mine and not theirs. (If you do want something official, drop me a line and I’ll get you in touch with an authorized representative.) That said, because of their reputation, they wouldn’t have hired me unless they felt I could contribute in a meaningful way, and I’d like to think I do.

Now that you know what my employer does, it’s time for me to explain what I do. Keep an eye out; there’s a follow-up post coming soon!