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Local Agent vs 1-800

 

Let me start off by saying that I may be a bit biased in this topic as I am a local independent insurance agent.  There are basically 3 distribution channels for insurance or 3 ways that you can choose to buy your insurance; Independent Agent, Captive/Exclusive Agent, and Direct.  Here are some examples of each channel.

Independent Agent: an agency like ours that is contracted with multiple insurance companies and can offer a wide array of different products.

Captive/Exclusive Agent: an agent that works for a company like State Farm, Allstate, or Farmers and usually only represents the products & services offered by that single company.

Direct: this channel does not use local agents but rather sells direct over the phone or internet.  The most familiar example in this channel is GEICO but there are others like USAA and AMICA.

My goal here is to explain each one of these channels and the pros & cons associated with each one.

Before we dive into what’s unique about each insurance buying option let’s start by asking a few general questions about insurance.  The answers are going to be different for or every family or business that buys insurance.  And yes, most insurance policy contracts basically have the same foundations (insurance geek sidebar: did you know that there’s an organization called the Insurance Services Office, or ISO, that develops standardized insurance policy language that most companies base their policies on?).  There has been a lot of movement towards the “commoditization” of insurance.  Basically this is the idea that all insurance policies are equal (kind of like milk) and the only thing the buyer needs to worry about is the cost.

So, here are some basic questions you need to ask yourself as an insurance buyer.

·         Why am I buying insurance? (seriously though, besides being required by law, how would you answer this question?)

·         When I buy insurance what is most important to me, is it the price, the coverage options, the size of the company I choose, the catchiness of their ads, their claim service, etc…?

·         How often do I need to interact with my insurance company?

·         What kinds of technology tools do I like to use for my financial services companies, like banks?

·         How often am I comfortable changing insurance companies?

·         Is insurance mainly for larger, catastrophic types of claims, or do I also want it to cover smaller, everyday types of claims?

Insurance as a commodity

 

There has been a lot of movement to make insurance just another everyday commodity, like milk & bread.  With so much focus in advertising on price as the only factor that matters, it’s no surprise that a lot of buyers focus primarily on the price they pay for their insurance.

What I have found to be the case is that there is a clear difference between buyers that have experienced a claim, or been affected by a claim, compared to those that have not.  We used to have a saying posted in one of our offices that said, “When a person buys insurance they care only about the price the pay.  When a person suffers a loss they care only about the coverage they have”.

I was watching a PBS special the other night about victims of the 2003 Cedar Fire in California.  This fire destroyed 2,820 buildings.  The PBS documentary focused on the claims paying practices by two major insurance companies and the negatively affected homeowners.  Many homeowners did not properly understand the coverage on their policy and were left severely underinsured after the fire and not able to rebuild their home.  A lot of the homeowners also explained that they were led to believe that they had adequate coverage.

The bottom line is that not all insurance policies are equal.  I tell people all the time that if the policy does not cover the loss completely, and make you whole again, then what were you really paying premium for?  In risk management we explain that there is no such thing as an uncovered loss, it will either be covered by an insurance policy or buy your own bank account.

Pros & Cons

 

So, in my opinion, here is what you get and what you don’t get when you buy from an independent agent, a captive/exclusive agent, or direct.

 

Independent

Captive/Exclusive

Direct

Licensed Professional Representatives

X

X

X

Multiple Product Selection, i.e. auto, home & umbrella

X

X

X

Excellent financial ratings

X

X

X

High customer satisfaction

X

X

X

High claim satisfaction

X

X

X

Online policy service tools

X

X

X

Mobile apps

X

X

X

Usage based rating programs

X

X

X

Largely local employers

X

X

 

Personal relationships with the same agent

X

X

 

Access to multiple insurance companies

X

 

 

Ability to write virtually all types of insurance

X

 

 

Flexible underwriting rules that allow more types of people to qualify

X

 

 

 

To be completely fair, one area that direct writers shine is that they do focus more on technology.  After all, they want their customers to be able to do much of the work an agent does by themselves.  Therefore, their online self-service tools and mobile apps do normally offer more functionality.

Like I said at the beginning, I do have to admit my bias as a local independent agent.  But I really do feel that what we offer does bring the best value to you as the insurance buyer.  You get to deal with a local insurance professional that you can trust and that has your best interests in mind.  It is very fulfilling to see an insurance policy make a family or business whole again after they have suffered a loss and to know that I had a part to play in that process.

--

Daniel Dye, CIC, CRM

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