Distribution channels and growth strategies in Spanish insurance: from networks of agents to branch offices (1870–1940)

Abstract

This article analyses the factors that determined the choice of distribution channel within the Spanish insurance industry and its relation with growth strategies performed by firms. To achieve this goal, we have gone through documentary sources from the main companies to examine the relationships between companies and agents and their costs, namely: the design of agency contracts, the different procedures on the selection of agents, and the guidelines for inspection, supervision and control of agent networks. Using the framework of agency theory, this study aims to enhance our understanding of the conflicts and dynamics that determined the distribution of such a complex financial product as insurance in a late development economy. We show how insurance companies began the transition to the branch system in the 1920s to reduce the costs arising from the control and monitoring of agents and to mitigate agency conflicts.

Keywords:

• Insurance
• distribution channels
• marketing
• agency system

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 However, long-term results of the company relied on other elements as well. See Adams et al. (2014) for a review of factors determining a firm’s growth.

2 In 1900, more than 67% of the Spanish population lived in municipalities of less than 10,000 inhabitants, and more than 27% lived in localities of less than 2,000 inhabitants (Carreras & Tafunell, 2005). Contemporary specialists and practitioners such as Cenamor Val (1935) or Anguera de Orovio (1907) noted the vital role of agents in rural areas.

3 Fiscal sources, such as the Estadística sobre la Contribución de Utilidades de la Riqueza Mobiliaria (ECURM), and reports by the supervising agencies, such as the Memoria de la Dirección General de Banca, Bolsa e Inversiones, allow us to draw an accurate map of the evolution of agent networks in Spain. In the case of Andalusia, there were 74 registered insurance agents in 1932: however, far from being uniformly distributed, these were concentrated in the provinces of Cordoba (14), Seville (30) and Malaga (30). The rest of the territory depended directly on auxiliary networks of these sales agents. See ECURM, Year 1932.

4 Gaceta de Madrid, 13 August 1893, 563–564.

5 Gaceta de Madrid, 11 July 1929, 275–277.

6 In 1933, there were fifteen provincial associations of insurance agents in Spain, as well as the National Association of Insurance Agents in Barcelona. Gaceta de Madrid, 27 August 1933, 1344.

7 Gaceta de Madrid, 1 January 1935, 5.

8 The case of La Unión y el Fénix Español goes far beyond this process: this company, the first in the Spanish market, built its own facilities in the main streets of provincial capitals with a very specific architectural style, in order to transmit a solid financial image to the public. (La Unión y el Fénix Español, 1964).

9 ‘Nomenclator de Directores y Agentes de Compañías’. Anuario Español de Seguros (1933–34), 195-224.

10 However, as noted by Pearson (2010, pp. 120–121), the company kept contact with the Spanish market through reinsurance treaties with domestic offices.

11 For a study on the shaping of a network based on the agency system, see Murphy (2008, 2010).

12 For a description of the procedure to select agents, see the contemporary description by Edmund Strudwick (1917, pp. 150–162).

13 This was one of the indispensable requirements for possible agents of insurance companies at any time and in any country. At the end of the 19^th century, the Nippon Life, founded in 1889, sought their first agents among individuals of local influence and bankers in order to build their agency network (Yoneyama, 2010).

14 Metropolitan Archives, Sun Insurance Office 1.31522-236, pp. 98–100.

15 For instance, Guillermo Lielmal (1864) for Barcelona or Julio Vizcarrondo (1866) for Madrid.

16 The company had a standard questionnaire of 26 questions to be presented to eventual candidates. Metropolitan Archives, Sun Insurance Office 1.31522-236, pp. 119–132.

17 For a comprehensive study on the development of tontine insurance policies, see Hellwege (2018).

18 The New York Life also offered high commissions, with an aggregated rate of 42%. The British Gresham Life paid commissions between 20 and 25% of the premiums after its establishment in Spain, while the Sun had traditionally offered commissions under 15% in Spain. See the Best’s Life Insurance Report, Year 1907/08, and Revista Ilustrada de banca, ferrocarriles y seguros (12/1907).

19 Hendrick (1907, p. 283).

20 In parallel, more conservative companies such as the Gresham Life or the Sun showed levels around 6% for the same year. See Revista Ilustrada de banca, ferrocarriles y seguros (2/1898).

21 In the same period, Prosper Lamothe became the Phoenix agent in Malaga on a 15% basic and 20% sub-agency commission (Trebilcock, 1985, p. 162).

22 However, the reluctance of the company to accept risks other than houses or mills was not an isolated case. British companies avoided complex risks when entering new markets throughout the nineteenth century (Ryan, 1984, pp. 46–47; 53).

23 Revista Ilustrada de banca, ferrocarriles y seguros (15/1899) and London Metropolitan Archive, MS 17917-1, Gresham Life, Notes on Spain, 1900–1919.

24 Dickson (1960, pp. 177–181) underlines the cautious position of the Sun in the Spanish market, despite the confidence gained by its main representative in the country, Mr. Basterra.

25 Ibid. and Revista Ilustrada de banca, ferrocarriles y seguros (19/1902).

26 London Metropolitan Archives, MS 18314.

27 Revista Ilustrada de banca, ferrocarriles y seguros (6/1903).

28 Diversification of members was a generalised strategy of mutual societies. Butt (1984, pp. 166–167) has noted a similar trend for the Standard Life in the 1930s.

29 Archivo Mutua General de Seguros, Libro de Actas del Comité del Ramo de Accidentes del Trabajo, 1, 21 December 1928.

30 Zurich Corporate Archive, Hispania. Book of Minutes of the Board of Administration 1909–1918, 18 June 1917.

31 Zurich Corporate Archive, Hispania, Internal Reports 1902–1952.

32 The company VITA was created in 1922 with the company Zurich as its main shareholder. It was granted a federal concession on 23 April 1923. Thanks to the initial help from collaborators of the parent company and then with the creation of its own organisation it expanded its activity and established itself in a considerable number of countries. In 1933, its internal organisation comprised 260 employees, including the general management in Zurich and its diverse branches abroad. Its external organisation was made up of some 250 professional agents and more than 1,300 free agents (Pons Pons, 2015, pp. 110–113).

33 Zurich Corporate Archive, Vita, 30000-1.

34 Zurich Corporate Archive, Zurich España, 1935–1943, Spain-Inspectores, 36183-1.

Additional information

Funding

This work was supported by the VI Research Plan of the University of Seville.

Notes on contributors

Jerònia Pons Pons

Jerònia Pons Pons is Full Professor of Economic History at the Department of Economics and Economic History of the University of Seville (Spain). For the last 25 years, she has researched in the field of private and public insurance in Spain in the XIX and XXth centuries. She has published the results of this research in the Economic History Review, Business History Review and Journal of European Economic History. In addition, she co-edited with Robin Pearson The Risk and The Insurance Business in History. She has also contributed to collective books edited by Peter Borscheid and Niels-Viggo Haueter, World Insurance and by Robin Pearson and Takau Yoneyama, Corporate Forms and Organizational choice in International Insurance, among others.

Pablo Gutiérrez González

Pablo Gutiérrez González is Assistant Professor at the Department of Economics and Economic History of the University of Seville (Spain). The focus of his research is the role of reinsurance in the development of the Spanish insurance market since XIXth century. He has published the results of his research as a book in the Economic History Red series of the Spanish Central Bank, and separate works in Enterprise and Society, Business History and The Economic History Review.