Most people don’t know what is in their insurance policy, let alone understand the different distribution channels for the product itself. We don’t have warehouses or delivery trucks or a shelf life. Our companies and policies are heavily regulated and they are quite complicated for most consumers. This brief article intends to explain the differences and advantages of the three main distribution channels for insurance: Direct, Independent and Online. Each has an advantage and disadvantage, and while reading I would advise that in the back of your mind it’s a good idea to remember that “you get what you pay for”.
The Direct Writer, or Captive
The direct writer (captive) agents bear the familiar names that your parents knew well – State Farm, Allstate and Farmers (there are others). Let’s just call them AllStateFarmers (see what I did there?). These agents buy a franchise with AllStateFarmers, use their systems and sell ONLY that company’s products. Call a captive agent for a life insurance quote; you’ll get an AllStateFarmers life insurance quote. They are only allowed to sell the products that their insurance company sells, regardless of how competitively priced they happen to be in that area at that time.
The advantages for captive agents are brand recognition (to the public) and back-office capacity and simplicity (for the agent). AllStateFarmers sponsors Super Bowl ads, the local agent sells their policies. And since the agent only has a single carrier to work with, they can streamline their processes and underwriting knowledge. The disadvantage is that if the agent’s chosen captive parent is not competitive, or in some cases in CA – chooses to leave the state, then the agent is subject to the decisions of the insurance company. Rule of thumb: when you see AllStateFarmers advertising their great CD rates, their insurance rates are lousy.
Online
A waitress at a diner, a lizard and a caveman are walking down the street… Sounds like the beginning of a joke, but it’s just the well-known mascots for the big online insurance companies. They are similar to a captive agency in that they are a single insurance carrier, but instead of a local agent they sell online and over the phone from a service center in, well, who really knows where. They are the real pioneers in streamlining the insurance policy delivery method (you gotta give credit where it is due).
The advantage – cheap. Most of the time, anyway. The disadvantages (remember the “you get what you pay for” admonition above) are that you’re now dealing with an online self-service model or a service center mentality. You are one of a gazillion policyholders, so if you don’t like it, you can go away. Service levels tend to be less than either a local independent or captive agent, because they don’t know you. The other disadvantage is the one that really bothers insurance professionals: they tend to sell cheaper policies because they tend to sell lower limits. That’s great for your budget – until you have a claim. We see this regularly in our office – that the GEICO’s of the world will happily sell a low-limit policy and then tell you how smart you are for saving money. We don’t think that approach is correct, to put it nicely.
Independent Insurance Agent
An independent insurance agency is a privately-owned business that sells policies with many different insurance companies. Independent agents are often referred to as “brokers”. The relationship between the agent and the insurance company is very different than captive agents – the Independent agency has a contract to sell companies’ policies, but they represent the client to the carrier, not the other way around. Independent agencies come in all sizes, from a single agent to Fortune 500 corporations. Most Independent Agents belong to the IIABA and together market themselves as Trusted Choice agents.
The disadvantage of an Independent agent is that they are small businesses with limited resources, trying to master the many different aspects of policies from many companies. But therein lays the advantage, too. When a Captive agent or an Online carrier raises prices, the client has 2 choices: leave that agent/company or stay and pay the increase. Clients of an Independent can keep the same agent but switch carriers at renewal. Independents can shop multiple carriers for clients, whether they are a business or a family.
Summary – Advantage, Independent Insurance Agent
It is our totally unbiased, professional opinion that the Independent Insurance Agency has the advantage when it comes to choosing insurance agents. Independent Agents answer to their clients, not to an insurance company. They can offer multiple quotes for insurance for families and businesses. Because they have access to so many different carriers, they can work to fit the right type of policy to your situation. They are local so they understand the local culture and business environment, and they are invested in their own community. These agents assume that their customers want to save money, but firstly are concerned about their coverage, so they work to bring them the right coverage, at the most competitive price.
Purves Insurance is a proud, Independent Insurance agency located in Davis, CA.