What Are Insurance Hierarchies & How Do They Work?

We talk a lot about levels in the insurance industry. During your career as an insurance agent, you may be at several different levels in a hierarchy, even at the same time! But what are they and how do they work?

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Not only do agents get assigned a level in a hierarchy, but organizations like field marketing organizations (FMOs) do, too. FMOs may also define the levels of agents contracted through them. Insurance carriers play a big part in determining both agent and organizational hierarchies, and not all carriers play by the same rulebook. Exploring general definitions and trends can help you know where and why you fit into carrier and FMO hierarchies.

Multilevel Marketing in Insurance

The world of insurance participates in a sales strategy called multilevel marketing (MLM), and as an insurance agent, you participate, too. We know what you’re thinking, “You mean one of those scams where an acquaintance I haven’t heard from since high school calls me about a ‘getting in on the ground floor of a great business opportunity?’” We get the concern, but MLM is a legitimate business strategy and structure that benefits more from writing business and less from recruiting everyone who’s ever given you their number to join the business. It’s also different than an illegal pyramid scheme.

With MLM, direct sales companies, like insurance carriers, bring participants into the business to help sell the company’s products and/or services. For every sale made, the participant receives a commission. Participants can take the form of contractors, independent business owners, distributors, or direct salespeople, meaning insurance agents like you!

There can be more layers between the participant and the direct sales companies, too, like other participants who recruit more people to join. Typically, these recruiters will receive a percentage of their recruits’ sales. The recruiters are the uplines, while the recruits are the downlines.

MLM is a legitimate business strategy and structure that benefits more from writing business and less from recruiting everyone who’s ever given you their number to join the business.

In the insurance industry, FMOs don’t receive a portion of your commission but they are your upline. Instead, they receive an administrative fee from the carrier called an override.

If you’re contracted with an agency (another upline), they will receive an override, too, for training and general agent support services, depending on the level determined in your contract (more below). Agencies may receive a portion of your commission in return for lead opportunities and marketing support but usually don’t.

Insurance marketing also differs from those less-savory MLMs in that you’re not required to “buy-in” up front by purchasing stores of product you need to package and resell or risk losing your investment.

In its very definition, MLM embraces hierarchy. How those hierarchies look depends on the industry. In insurance, carriers are the main players in determining who fits where, and it’s not always easy to understand.

Why Do Insurance Carriers Create Hierarchies?

Knowing why hierarchies exist in insurance provides the foundation for understanding how they work. Carriers and FMOs create hierarchies of levels to help define who qualifies as:

• FMOs
• Agencies
• Street-level agents
• Sub-street-level agents
• Licensed only agents (LOAs)

Making these distinctions is important because each of these groups makes different amounts of money in different ways. So that the carrier can pay everyone appropriately, they must know the level.

So that the carrier can pay everyone appropriately, they must know the level.

Insurance companies can also use levels to incentivize agents and organizations to “climb the ladder” toward more earning potential. Carriers like when agents and organizations climb the hierarchy because that means more agents are selling their products and profiting. Those agents or agencies with higher levels also take responsibilities off the carrier like managing and training downlines and providing support and services.

Types of Hierarchies & How They Work

When looking at general trends, we can investigate different types of hierarchies. Both carriers and those at the top of the hierarchy (e.g., FMOs) define level parameters, sometimes in different ways.

Organizational

Within the industry, many kinds of insurance organizations exist:

• FMO
• Independent marketing organization (IMO)
• National marketing office (NMO)
• National marketing alliance (NMA)
• Supervising general agent (SGA)
• Managing general agent (MGA)/brokerage general agency (BGA)
• General agent (GA)

Carriers don’t agree on the exact qualifications between the groups, as we discuss in our post on FMOs vs. IMOs. vs. NMOs vs. MGAs vs. GAs, but they do agree on the general progression from the bottom of the hierarchy to the top.

Remember, insurance carriers and certain uplines in the hierarchy, like FMOs, can establish requirements for downlines to maintain their position. These requirements will depend on production or number of downline agents, and carriers and FMOs often choose different numbers.

As you can see, although there is some crossover at the top, the hierarchy typically boils down to an FMO at the top and writing agents beneath, perhaps with some agency partners (GAs, MGAs, SGAs) in between. Being at the top, FMOs must maintain the highest production and downline requirements.

We can also take the bottom stair of writing agents and expand it further into agent hierarchies.

Insurance carriers and certain uplines in the hierarchy, like FMOs, can establish requirements for downlines to maintain their position.

Writing Agent

Writing agents can be broken down into three main levels: street-level agents, sub-street-level agents, and LOAs. The main difference between the three is how each is paid.

Street-Level Agents

Many, if not most, independent insurance agents are street level, meaning they do not have any downlines and receive the industry standard commission when they make a sale. Depending on the type of contract an agent has with a carrier, they receive payment directly from the carrier or through the FMO (who receives payment from the carrier).

For Medicare Advantage (MA) plans and prescription drug plans (PDPs), the Centers for Medicare & Medicaid Services (CMS) annually sets this standard for commission or the maximum amount a carrier can pay an agent for a sale. For Medicare Supplement (Med Supp) plans, there is no federal standard, but to stay competitive with each other, carriers keep the commission amount within dollars of other carriers.

Many, if not most, independent insurance agents are street level, meaning they do not have any downlines and receive the industry standard commission when they make a sale.

Sub-Street-Level Agents

When an agent joins an agency, they may sign a contract to become a sub-street-level agent, meaning that, in exchange for a portion of their earned commission, the agent receives support and services from their immediate upline. Support and services can come in the form of leads, marketing resources, training, and access to useful technology.

Licensed Only Agents

At the bottom of the hierarchy is the LOA, who assigns all their commission to their immediate upline. How the upline pays the LOA for their work depends on the contract between the LOA and the upline. They might receive a percentage back of the commission or an hourly wage and benefits as a W2 employee.

With an assignment of commissions contract, your upline can keep your renewals if you leave them. It’s important to discuss with your upline, before signing a contract, what happens to your book of business should you leave their agency.

For those agents who want to “plug and play” into an infrastructure that provides many services, being an LOA can make sense. Many LOAs enjoy the predictability of a set hourly wage, schedule, and benefits package.

Here’s how these three types of writing agents look on the hierarchy staircase:

Can Agents Be More Than One Level at the Same Time?

Although levels keep everyone organized in the FMO’s or carrier’s eyes, they can be confusing for agents to navigate because of the lack of standardization. Carrier A may require an agent to have 10 downline agents to qualify as a Level 6, while Carrier B might require 12. To add to the confusion, carriers measure sales of MA plans and PDPs differently than Med Supps. Even carriers selling both types of products will use a different measuring stick for each:

• MA and PDP contracts will base level eligibility on the number of contracted downline agents.
• Med Supp contracts will base level eligibility on the volume of production over the most recent 12-month period (measured by dollar amount).

Agents and agencies could be one level for one carrier and a different level for another carrier. An agent could be one level for MA plans and a different level for Med Supps, even under the same carrier. That’s not even getting into different product lines like life and final expense! Cue even more levels.

FMOs may establish their own level systems, taking the most common approaches from carriers and combining them into an attempt at standardization. FMO levels can streamline the process, since they take the focus off all the different carrier levels and put it on the one set of levels established by the organization through which you have most or all your contracts.

Level Up with Ritter

Ritter Insurance Marketing is an FMO with an established level system. Just like we make our agents’ lives easier by being an FMO where you can get the contracts you want, we also simplify carrier levels. We’re here to help you determine where you want to be on that hierarchy and how to get there. Our dedicated agency team assists agents who want to take the step from a street-level agent to an upline with downline agents.

Explore Ritter’s levels and learn more about climbing the hierarchy to form an agency in our free eBook, Developing an Agency — Your Guide to Getting Started!

With the lack of hierarchical standardization, figuring out the particulars of your different carrier levels can get complicated. Joining us at Ritter means you don’t have to keep track of as many! We’re a top-of-hierarchy FMO for most major national and regional carriers and are committed to our agents’ training and growth.

Still have questions? We’d love to help you understand the world of levels more, think critically about where you want to land on the hierarchy, and move up the ladder if you’d like! Contact your agency sales specialist with your questions.