In the past, the direct writer had an advantage in personal insurance due to the marketing and branding of the big direct writers, State Farm, Allstate, Farmers, Nationwide, etc. Currently, the personal insurance advantage is with the well represented independent agent. The primary reasons are:
- Renewals: Currently, there is a trend that is growing in popularity with insurance companies. The companies’ new client rate will be very competitive. That is the good news. The problem occurs on the policy renewal. The renewal rate increases at a high percentage rate. After a few renewals, even the clients without any claims will be billed more than a new client. I refer to this as “the cable game”. This cable TV business practice is very prevalent in the personal auto insurance area. The practice may be profitable to the insurance companies, but it is unfair to the client. If the client is with an independent agent that represents five personal auto insurance companies, there is a simple solution. The independent agent moves the auto policy to one of the other four companies. If you are insured with a direct writer, the policy cannot be moved by your agent. As a result, consumers should contact an independent agent that represents at least five auto insurance companies.
- Premium: Since the early 1980’s, a lot of changes have occurred regarding insurance. The biggest change is the introduction of computers and automation. In the 80’s, there were about twenty different classes of personal auto drivers. The driver class was determined by the driver’s age, usage of the vehicle, driver’s marital status and the driver’s gender. It was much easier for an insurance company to be competitive with all of the driver classes. Then Flo’s company became very successful in underwriting the lifestyle of their clients. The other insurance companies followed. Underwriting lifestyle is the reason a company asks questions like employment, number of miles to work, and social security number. By underwriting lifestyles, the insurance companies generate about fifty driver classes with a thousand cells in each class. Going from twenty to fifty thousand different driver classes has created a shift in the insurance companies’ strategy. Now, companies choose a selection of the fifty thousand that they want to insure. The preferred classes will get lower premium rates. Since none of the companies’ rating criteria are identical, every insurance company’s preferred classes are different. Multiple insurance sources is very smart. An independent agent will contract with several insurance companies to create an overall larger preferred risk selection. Once again the advantage is an independent agent.
- Protection: Currently, there are fewer standardized forms being sold. Standardized forms are policy forms that have been adopted by the state insurance department. The workers’ compensation policy is a great example. Every company that sells the standardized workers’ comp policy will have the identical wording. The insurance companies have gradually shifted to customizing (altering) the policies. Thirty years ago, there was primarily one personal auto policy form sold. Currently, there are over twenty personal auto policy forms and even more homeowners forms.
Different Forms = Different Coverages = Different Protection
The different forms can have coverage enhancements, coverage limitations, or enhancements and limitations. The Texas Department of Insurance website has a brief homeowners coverage comparison chart. The access to more forms and protection are an advantage to the independent agent.
- Company Decisions: What happens when an insurance company decides to leave a geographical area? After Hurricane Ike, some insurance companies chose to quit insuring coastal properties. State Farm did not renew thousands of homeowners’ policies. A few years ago, Farmers threatened to withdraw from Texas. The companies can alter their underwriting decisions, premium rating, policy forms, etc. Generally, for an independent agent with multiple companies, it is a minor inconvenience for the consumer. There are positive scenarios. What happens when an insurance company chooses to insure coastal properties with windstorm coverage? The independent agent can attempt to acquire the insurance company. The advantage belongs to the independent agent.
- Claims: The vast majority of claims will be handled well with direct writers and independent agencies. For the problem claim, which agent has an advantage? The agent who can only report the claim to their only insurance company or the independent agent that represents the client and the insurance company. There are times that the insurance company is wrong and times when the client is wrong, but there is always a fair solution. Once again, the independent agent has the advantage.
It is logical to check out a professional independent insurance agent for protection, premium, and service. You should look for an independent agency that has the following criteria:
- Been in business for over twenty years,
- Has an experienced licensed staff,
- Has access to at least five companies regarding your insurance need.
At Independent Insurance Counselors, we are very fortunate. Our agency was established in 1964, has employees with over 30 years of insurance experience, and has access to 12 personal auto companies and 16 homeowners companies.