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Are Agents Expensive?

November 17, 2009

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

In the rapidly changing world of commerce, I will occasionally hear a client raise the question does it costs more to have an agent? I believe that this notion started several years ago when one direct sales insurance company advertised that their rates were cheaper because they “cut out the middleman.” They no longer use that slogan as I believe that they were unable to substantiate that claim. Buying on line has benefited the consumer not only with convenience but with savings on many products. Is that true in the insurance industry as a whole?

The cost of acquiring new clients in every industry is always expensive. Companies that are selling directly through “800” numbers and web sites have a far greater cost in encouraging consumers to pick up the phone or head to their web site. It takes tens of millions of dollars, or more, to move their brand in the marketplace. It can easily be argued that the money a direct insurance company paid in advertising their “800” number or web site actually exceeded the amount of money that another company paid in agent commissions.

Pricing always comes down to an insurance company’s expenses combined with the percentage of claims that they paid. Companies can only predict how many losses that they will incur in a given year. A company’s expenses are much more easily predicted. The amount that an insurance company pays an agent goes into the insurance company’s expense column as does the cost of advertising. The direct companies not only incur a higher advertising expense, but they must also incur the cost of large “call centers” for customer inquiries.

So, are you paying extra because of your desire to utilize an independent agent? The answer is that it’s not likely. Your individual loss history, your credit history, your age, where you live and the kind of car you drive will play a far greater role in your price rather than the insurance distribution system where you choose to buy your policy. When it comes to prices, they go up and down and they frequently change. Today’s low priced insurer may be tomorrow’s high priced insurer. The proper coverage selection, claim service and customer relationship are the most important factors in choosing an insurance provider. Unlike companies that sell direct, the independent agent is not employed by any insurance company, but rather as an advocate for you. Our point of view is that a product that is designed to protect you from some of life’s major disasters should not be a commodity purchase like making a hotel reservation. More and more independent agencies are making pricing available on line, but never at the expense of council. In today’s economy, price is important, but it should never take a back seat to coverage and claim service.

Have a great day!

Chris Garlasco

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6 Comments leave one →
  1. November 17, 2009 5:34 pm

    Nice View Point into the situation. It does seem like there is a HUGE increase in direct online insurance sales…which that thought alone scares me from even going that route. Something just doesnt seem right about it 🙂

    • Chris permalink
      November 18, 2009 3:08 pm

      What I find bothersome is that our state insurance department has the wisdom to require twenty four hours of continuing education every two years in order to maintain an insurance license yet the consumer with little to no insurance knowledge is able to make would could amount to life changing decisions without council.

  2. November 17, 2009 5:45 pm

    Great post as usual Chris. So many people just don’t realize how important an independent agent is for deciding on the correct coverage for them and the assistance they can provide at claim time.

    • Chris permalink
      November 18, 2009 3:20 pm

      Thanks Pat!
      I think that it comes back to our value prop and are we making that known to our clients at the point of sale and thereafter? At Founders, we are working on it, but I think we still have a ways to go.

  3. November 18, 2009 4:39 pm

    Great post! You hit the nail right on the head. It surely is more important to get good advise and choose the right coverage when you are looking to protect your most valuable assets. In addition to that, Independent Agents can shop the market and provide price comparisons for the consumer to help them understand the value they are receiving.
    Keep up the good work!

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