Introducing the Company

In the United States, an insurance company must be licensed in each state where the company does business. Highlight Insurance has been profitable in the western states for years, but it doesn't sell insurance policies directly to consumers. Instead, the firm contracts with independent agencies, which are companies that are licensed to sell the firm's policies in a given state. The relationship between agency and insurer is similar to the relationship of retailer and manufacturer. Several agencies sell policies for the insurer. Each agency, however, sells policies for several insurers.

The executives at Highlight Insurance are conservative about their business. ("We protect our customers," says one, "and ourselves.") They avoid direct sales to avoid the expense of setting up a direct-sales program and to give the agencies an incentive to keep selling. The background here is that agencies need to compete with other agencies, but none of them wants the expense of marketing an insurance policy that a consumer can buy directly (and less expensively) from the insurer.

As Highlight Insurance considers a plan for expansion, the executives are aware of two related issues: legal requirements differ in different states, and legal requirements are changeable. State legislatures and insurance departments make political and regulatory decisions on varying schedules, sometimes with little warning.

Highlight is gaining approval to do business in additional states, where the firm will sell directly to consumers. The intent is to create an advertising campaign that directs automobile owners to a Web site. Some executives want to include a talking animal in the TV spots, but few take the idea seriously.