Portfolio theory and the selection of companies by independent agents

The strength of the independent insurance agency system is the fact that it represents many insurance companies so that the needs of clients can be better met. This pool of companies put together by an agent can be considered a portfolio, constructed to make sure that the agent has products to offer the various segments of the market served. The relationship between the reported/perceived risk of independent agents and the actual calculated risk inherent in their portfolios is examined. To complete the study, 1,000 independent insurance agents were surveyed regarding the insurance companies they represent and the percent of business placed with each company. The results indicate that independent agents appear to construct their portfolio of companies without regard to the riskiness of the insurance companies.