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The Best Way To Purchase Insurance. A Totally Biased View From An Independent Agent.

March 20, 2017

Today’s insurance shopper has more options than ever.  Insurance companies are spending billions of dollars in advertising to try to convince you that they are your best option for auto, home, or business insurance.

It can be difficult to cut through all that noise to make the best decision for you.  Let’s simplify things a bit.

Obvious Independent Agent Bias Disclaimer 

Just so you know up front, I am an Independent Agent.  I make no apologies for my biases.  They have developed over the 23 years that I have worked in the insurance business.  I have seen how each distribution channel works in the real world and have chosen to be an independent agent because of many of the lessons that I have learned along the way.

In my previous post about overlooked homeowners insurance rating factors, I mentioned that there are 3 major distribution channels for insurance.

The 3 major distribution channels for purchasing insurance are:

  • Direct writers
  • Captive Agencies
  • Independent Agencies

In some areas, there are other emerging options, mostly related to technology and robots and such.

They have not really caught on at this point, but could in the future.  For now, the 3 distribution channels mentioned above dominate the market.  So, we will stick with them.

Let’s break them down a little.

You cannot turn on your TV, radio, or computer without seeing advertisements for Direct Writers.  They tout savings and convenience above all else with “Name your price tools” and promises of “15 minutes to save 15%”.  They are absolutely everywhere.

Full disclosure:  I have a hard time being objective about Direct Writers because we hear so many bad experiences with them on a daily basis.  But I am going to try to be nice.

Pros

  • Convenience - They truly have someone available via toll free number or their website 24/7.
  • Funny Commercials - I gotta admit that their commercials are pretty clever.  Not sure that really helps in providing quality insurance, but we will call it a “Pro” anyway.
  • Price - They will give you a cheap price.  It may come at the expense of quality coverage, claims service, etc., but they can find you a cheap price.  Their claims are somewhat over blown, though.  Captive and Independent agents are able to compete with them on price in most instances.

Cons

  • Lack of Choices - Direct Writers generally only represent 1 company.  So, they can only offer their policies, whether their policies are right for you or not.  What if their rates or service deteriorate?  What if you also need to buy a policy for your business?  They do not have other options to offer, which is very limiting.
  • Limited Expertise - When you call their 800 number, you are talking to a call center employee who is likely reading from a script, rather than a true insurance professional with the expertise of an Agent.  This is a crucial difference and should not be discounted.  Having a professional to help guide you in purchasing the right coverage for you could be HUGE for you in the event of a claim.
  • Relationship - This is a biggie.  Having a relationship with your insurance carrier is vital.  When your agent knows you, they learn things that might affect not only the cost of your insurance, but also coverage gaps that need to be filled.  They can take a holistic view of your insurance needs in order to make solid recommendations.  A call center just can’t do that.

Besides, if you have an actual agent, you are likely to see them in the community, which means they are much more likely to go out of their way to make you happy.  Because nobody wants to run into an angry client at a high school football game.

These are companies like State Farm, Allstate, and Nationwide.  They are generally national brands who are well known by the public.  They sell through local agents and offer service at those agency locations as well as providing online and after hours service directly through their companies.

Pros

  • Relationship - Since Captive Agents are located in the community in which they live, they can get to know their clients personally.  This allows them to do a good job of analyzing their clients’ overall needs and giving good advice.  Additionally, when claims occur, they are there to help their clients in that process.
  • Recognition - You have likely known the “Good Neighbor”, “Good Hands”, and “On Your Side” slogans for much of, if not all of, your life.  These are very recognizable companies and the public has a good general idea of what these companies are all about through their branding.  This builds in an additional layer of comfort when dealing with Captive Agents.
  • Franchise - Technically, Captive Agents are not necessarily franchises, but they get a lot of advantages that franchises enjoy, such as testing things across thousands of agencies.  Having a parent company that has seen it all and done it all thousands of times is a big advantage.  They are able to test processes and systems amongst all of their agents to determine which are best.  Then, they can install them in all of their agencies to use with their clients.  This ensures a consistent and predictable result for the client, agent, and company.

Cons

  • Choice - Captive Agents are exclusive, meaning they sell the products of 1 company and 1 company only.  That company may have multiple policies for any line of insurance, but they will all be written by the same company.  This limits their options when price or coverage needs change.  They can try to shuffle within their company’s offerings, but cannot look to another company when theirs is not a good fit.  It is like going to a restaurant that only serves oatmeal.

Also, if their one company decides to stop selling a particular kind of insurance or policy, the Captive Agent does not have an option to sell it either.  To combat this weakness, many of the better Captive Agents have developed relationships with other agents who may be able to help in situations that they cannot themselves and will freely refer their clients to another agency when it is best for the client.

  • Narrow Expertise - I want to be clear.  I am in no way suggesting that Captive Agents have the same expertise limitations that Direct Writers do.  Most Captive Agents know their products very well and may also know those of their competitors just as well.  However, the scope of their offerings is narrow.  Most Captive Agents work nearly exclusively with personal insurance for auto, home, umbrella and related policies.  This is enough for a lot of the market.  However, they generally do not have the depth of knowledge in commercial insurance that Independent Agents do.  So, clients with more complicated commercial insurance needs are more likely better served elsewhere.

Finally, we get to the real heroes of the insurance world.  The top dogs.  The best of the best…  OK, maybe I am a little biased.

Independent Agents are generally locally owned and operated agencies that represent multiple companies rather than just one.  So, instead of having only one company's products to offer, they have many.  It's like having a delicious insurance buffet.

As a rule, they do not advertise on a national scale.  The type of business that they write will vary from a general agency that does personal and commercial insurance to an agency that serves just one micro niche industry like contractors workers compensation, physicians professional liability, or restaurants.

The agency is not beholden to any one company.  Instead, they contract with multiple companies.  They generally truly own their businesses as well.  So, they have authority to change their business as they see fit and sell or transfer the business themselves at retirement.

Pros

  • Choice - As previously stated, Captive and Direct Writers generally have only one company to chose from.  Independent agents have many.  This means that when you want to shop your rate, we can provide multiple prices with just one call or email.  If the price goes up or service is not up to your standards, we can switch you to another company with no hassle.

Independent agents are appointed to write business through many companies and if we don’t have a direct appointment with a company that we need, we can go out and get access to them through other means.  This is important for clients because it means we can shop a broad range of the the market to find the correct coverage at the best price with companies that have the proper expertise and service.

  • Objective Advice On The Broader Market - Since we are not beholden to any particular company or limited by their product offerings, we are in a better position to give an unbiased, broad assessment for our clients.  Don’t get me wrong.  Our Captive brethren are generally good people and do not intentionally steer people wrong just to make a sale.  That is not what I am saying.  What I am saying is that having only one company or policy to sell can lead to trying to fit clients into that policy, with nothing but the best of intentions to help the client, instead of being able to survey the broader market to find the best natural fit.  Independent Agents have a big advantage here.
  • Commercial Insurance - Over 80% of the commercial insurance market is written through Independent Agencies.  Being able to shop amongst national and regional carriers for business insurance is a big reason for this.  Having a deeper understanding of commercial policies and underwriting is another.

Commercial insurance is not at all “cookie cutter”.  The various forms and endorsements required for a business policy can be as varied as all the businesses in your town.  Most Captives and Direct Writers just don’t have the policy offerings needed to serve the diverse needs of different businesses.  Therefore, they don’t invest in the training needed for it.  To do a really good job in the commercial insurance space, an agent needs to embark on specialized continuing education to keep up with all of the changes in the market.  Independent Agents are able to access various training programs through trade organizations and other sources to gain the needed knowledge.

  • Relationship - Much like Captive Agents, we are in your community.  We see you at local restaurants, ball games, and festivals.  When you tell us where you work, attend church, etc. we know exactly where you are talking about.  This deep understanding gives Independent and Captive Agents an advantage when assessing your insurance needs based on your life.  Additionally, when our businesses grow, your local community sees the benefit in employment and community support instead of sending your dollars out of town.  #buylocal
  • Claims Service - The biggest advantage to having a real relationship with your agent comes at claim time.  We will be there.  Literally, we will be THERE.  If you have a major loss or issues during a routine claim, you will be able to talk to the same person in our office to get assistance rather than playing call center roulette and getting whichever representative answers after you navigate the automated call menu.  Additionally, our staff have seen how specific claims scenarios are handled by numerous companies and can use that knowledge to guide you through the process.

I could keep going here, but I had better get to the Cons and wrap this thing up.

Cons

Ha!Ha!  Seriously, though..

  • Limited Reach - If you have properties in multiple states, many Independent Agencies are at a disadvantage to Captive Agents since we don’t have locations throughout the country.  This is getting a little better as obtaining non-resident licenses in most states is not a big problem, but some of the companies that we work with only operate in certain regions of the country.  So, if my client in Virginia buys a property in Texas, some of my companies can’t write that property because they do not do business there.
  • Lack of Awareness - As stated earlier, the Direct Writers and Captive Agents spend TONS of money to tell you who they are and establish their brands.  We don’t have the budget for that.  Also, though some of our companies like Travelers, Safeco, and Mercury do some national advertising, many of our best options like Erie Insurance, National General, or any of the various commercial carriers that we access do not.  So, there is sometimes a resistance from clients to doing business with a company that they may not be familiar with.

Really, beyond this, I got nothing.

Where To Buy

So, back to the original question.  What is the best way to purchase insurance?  I will break it down by distribution channel.

Should you consider a Direct Writer?

In my opinion, they are never the best option and this is my blog, so there.  The lack of relationship, expertise, and help from an agent in the event of a claim totally outweigh the convenience of being able to buy a policy at midnight while sitting in your underwear.  Just don’t do it.

(One caveat - USAA does an excellent job with active duty military.  They truly understand the challenges associated with our military personnel when they are deployed and moving around.)

Need more proof that "going direct" is a bad idea?  According to a study published in Insurance Journal, 60% of customers who left Independent Agents to go with a Direct Writer eventually came back.  Most cited expertise and convenience for their decision.

Should you consider a Captive Agent?  If brand recognition and relationship are important to you and your needs are limited to personal insurance, a Captive Agent might be a good choice for you.

Captive Agents do a good job for personal insurance needs in general.  They know their products and can be very helpful.  However, if you want to compare cost and coverage, you will need to be prepared to contact multiple Captive Agents or an Independent Agent, as well.

Should you consider an Independent Agent?

If you value relationship, broad expertise, low cost, and choice, an Independent agent may be perfect for you.  Further, I would advise any business to shop with an Independent Agent as we are just better equipped to handle most commercial insurance needs.  If you are shopping for personal insurance, one call to an Independent Agent can get you pricing and coverage options from multiple companies, which is an advantage over the others.

When it is time to shop for insurance, shop with an Independent Agent.  It is just better.  Really... Do yourself a favor.

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