THE AGENCY SYSTEM OF INSURANCE

COMPANIES.

By ROBERT CHAPMAN,

General Manager, Caledonian Insurance Coy., Edinburgh.

A Paper read before the Insurance and Actuarial Society of Glasgow, 3rd December, 1906.

WHEN you honoured me with the request that I should this winter deliver a paper before your Society, I cast about in the fertile field of Insurance interests which lay before me, with the desire to find a subject which would, while coming within the scope of my powers, be one interesting and useful to all members of the Society, without regard to any particular branch of insurance work with which they might be more immediately connected. In my subject, "The Agency System of Insurance Companies," I am confident I have one which at any rate meets the last-named requirement, as no one, whether junior or senior, can be indifferent to what is the very life-blood of the system which furnishes for him his life's work.

Few of us, I fancy, realize the unique position occupied by the agency system of our business. We have in the Insurance Companies of this country organizations which, taken collectively, occupy in point of magnitude of financial transactions fourth-if not third-place in the financial interests of our land. The important work of obtaining business for these companies is carried on by an army of men who are not salaried employees of the companies, who have not been trained by those companies for the work and over whom the companies can exercise very little direct control. If you look at any of the other important financial and commercial interests which exist among us, you will find that not only is the managerial and clerical work conducted by salaried servants, but also that the bulk of those who have been picturesquely termed the Ambassadors of Commerce, the men who go out to shop and factory, to cottage or to hall, to introduce the

business of those who employ them, the men who are responsible for bringing the grist to the mill which keeps the machinery in constant demand, are men bound by the strongest tie of selfinterest, that of receiving a settled stipend, to do their work, and whose business life is at the absolute disposal of their employers. The agent to an insurance company is in an entirely different position. He is a volunteer-a paid one, certainly, but only by results. He is generally a professional or commercial man, whose interests are naturally centred first in his own profession or occupation and who adds thereto an insurance agency, either because of his connections, which will automatically yield him business of this nature, or because he has spare time at his disposal and believes that he has the aptitude to secure business which will aid him to increase his ordinary income.

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Of this country, at any rate, it may be said that insurance companies have scarcely any other style of representative than this of spare-time agents. Brokers who devote the whole of their time to insurance work-always, however, on commission termsus and do a large business; but large as this business is, viewed from the standpoint of single agencies of the usual class, it forms a very small proportion indeed of the bulk of the premium income gathered in by insurance companies, and for the present outlook we may disregard it as a factor, and say that the huge amount so accumulated is supplied by the men who are unattached in any official sense, being merely as they are called-agents, who undertake voluntarily to represent Offices they select and who can at any time and at very little inconvenience to themselves transfer their services, with a large share of the business existing in the agencies, to other institutions of a similar nature. It is, therefore, remarkable that what appears on the face of it to be rather a haphazard system should have yielded such good results; but the figures are undeniable and point in no uncertain way to the fact that, so far, at any rate, as the past is concerned, the system has worked well. The premium income of all insurance companies of this country-fire, life, and casualty of all descriptions-is shown by the latest available returns to be some sixtyfive millions of pounds annually-truly a gigantic sum! And when it is considered that this is gathered mainly by the exertions of our agents, without whose efficient services much of this thrift would never have been born, our admiration goes out, to a system so simple and yet so effective.

PRESENT-DAY DEFECTS.

Great admirer as I am of this system, which has been carried on so successfully for so long a period, I wish I could devote the time I have at my disposal to-night to going step by step with you through the entire working of it with nothing but commendation to bestow. But abuses have crept in, and it is vain to cry peace when there is no peace. I therefore propose to direct my remarks to what appear to me to be the weak spots of the system as it exists in the present day, rather than to follow what would be the much more pleasant course of reviewing only the many sides of the system which call clearly for our admiration as we pursue the tenour of our work. Like all parasitic growths, these abuses when originated were of small account; but, the appetite growing with what it fed on, they have reached dimensions which to the reflective mind not only bespeak impairment of usefulness, such as undoubtedly exists at present, but threaten the very existence of the system.

We will take first the degradation of the status of the insurance agent, caused by the ease with which insurance agencies can now be obtained. Compared with the procedure of former years, the present-day mode appears a supremely ridiculous one. The records of the Company I have the honour to serve show that at its inception and for many years thereafter an agency for it was sought after with diligence and that when secured it was greatly prized. Stately negotiations were followed by strict enquiries on the part of the Company as to the suitability of the applicant. If these enquiries resulted satisfactorily, appointment ensued, when in all cases, without regard to the prospective agent's standing in the business or professional world, guarantees for his intromissions were asked for; and, strange as it may appear in light of present-day usages, these were invariably obtained. After appointment, the agent was expected to look upon the interests of the Company as committed to his charge, to give a considerable portion of his time to the working of the Company; and most loyally were these requirments fulfilled. This formed an ideal state of affairs-too ideal, perhaps, to last long, looking to the slender thread of control held by the Offices over these men.

The smart man, ubiquitous in business life, arose in the business of insurance as he has arisen in others. His watchword was progress, without respect to seemliness, and unfortunately he

has been followed in his evil practices by many, until competition in our business has ceased to be legitimate competition, and has degenerated into an unseemly scramble for supremacy, the motto of many engaged in insurance work at the present day being evidently "Get business-honestly and decently if you can-but get it." Some companies located in England sought, legitimately enough, pastures new in the sister countries. Those established in Scotland and Ireland in turn invaded England. Provincial companies, who up to this time had been content to attract business from the local centres where they were established, finding their restricted spheres of operations encroached upon by these progressive Offices, also sought expansion; with the result that agencies grew apace-confined still, however, to suitable men of standing and influence. These were the days when all agents corresponded with head offices, branch offices being unknown. As business grew and agencies became established over the length and breadth of the land, the branch office was instituted, when competition became fiercer than ever, the managers of these branches being judged largely by the results in the way of new agencies attracted, with expected increase of figures therefrom. Results which could even then have been foreseen followed. All suitable men were very shortly enlisted as agents. It might have been expected that a pause would then have taken place in the establishment of new companies and that, if the thirst for expansion on the part of the existing companies was not appeased, caution, at any rate, would have suggested a slower pace, devoted to consolidation of existing connections. The reverse has been the case. Appointment of agents has grown more reckless each year, until now that army is composed of the most heterogeneous conglomeration of individuals it is possible to imagine. So well is this known to be the case, it has been said that nowadays if one scratches a day labourer he will find an insurance agent. This is a lamentable state of affairs. Instead of these agencies being sought after as honourable and profitable means of employment, the name insurance agent has become a byword, one almost for derision and reproach. The substantial men who have the means of introducing a large volume of business, automatically reaching them, continue to hold agencies, the monetary consideration therefrom being too valuable to relinquish ; but all pride in that part of their business is at an end, as shewn by the growing unwillingness year by year on their part to do

anything further with these agencies than to forward such business as comes to them in natural course. The holders will not go into the market-place to compete for business, and to be classed with the rag-tag and bobtail who style themselves equally Insurance Agents. The large class of able men whose prototypes in the past applied for agencies, not by reason of existing connections but from intention to give honest hard work and well-directed effort to attract insurance business, now fight shy of a calling which has been brought to so low an ebb and the profits of which are disappearing to vanishing point owing to this injudicious crowding of the business with undesirables, and other evil practices which we shall touch on later.

That the onus for this state of affairs lies with Insurance Offices, or rather with injudicious representatives thereof, and not with the members of the general public or even with the agents so appointed, is shown by the many cases one comes across where people appear to have had insurance agencies, like greatness, thrust upon them. In my Inspector days, I have met agents of this type, as doubtless many of you have done-men who, when approached by an official of an office introduced by his local agent, reply, in response to a request that they should consider the matter of insurance, as applicable either to them or to their property, that they are themselves insurance agents. Asked which Office they represent, they are in many instances unable to name it, a wild search through the drawers of the office desk or under the counter sometimes resulting in the unearthing of some prospectuses and other papers still carrying the pristine freshness with which they were despatched from the printing shop. From these, this latterday representative of an Insurance Office is able to supply its name. A little judicious handling almost invariably brings to light the fact that this precious agent's own life is not insured (his stock or his furniture may be-through the agency of another company), also that he had not carried through one single proposal for any of the departments of the Office he was supposed to represent-in fact, that he had never made the slightest effort to secure one, the explanation of the existence of the agency being also almost invariably that an official from the company had called and, although told that his prospective victim held no aspirations towards an agency for any company, nor any hope that he could introduce business if he were endowed with one, an appointment letter, with a large supply of stationery, had followed the visit. Is this not