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Changing Channels

May 21, 2010

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

What is common knowledge among most insurance professionals appears to be an unknown to most of the insurance buying public. Insurance is sold through different channels of distribution. Your response to this fact may be one of indifference. What lies ahead in today’s posting are the reasons why this should be of major importance to you, the consumer. For the sake of this posting, I am going to direct the information mainly around personal property and casualty insurance, meaning your auto and home insurance.

Speaking in general terms, personal insurance is sold through three distinct channels. The first channel would be what is often referred to as the “direct channel.” The direct channel is insurance sold through “800” number and internet companies like GEICO, Esurance, 21st Century and Amica just to name a few. Generally these are companies with large call centers. In the direct world it’s a numbers game. Get enough people to call in and convert as many as possible to new sales. Although employees are licensed as agents, their insurance knowledge is generally confined to the carrier they represent and the calls tend to be very scripted. They also tend to answer calls for multiple states.

The second channel is the “captive” channel. The captive companies have agents in local offices but they are generally employees or contractors of a specific company and are often limited to selling for that carrier. The commonly known captive companies would be State Farm, Allstate and Nationwide.

The third distribution system is the “independent agent” system. These are agents that are generally wellversed in all forms of insurance and policy knowledge. Independent agents will generally offer insurance products from many different companies and are not employed by any company. The Founders Insurance Group is an independent agency. Companies that sell through independent agents generally spend fewer marketing dollars on advertising and are national companies such as The Travelers, Chubb and The Harford. Independent agents will also offer regional companies like General Casualty and National Grange as well as small mutual companies with names like Andover and MiddleOak Mutual. Personally, I have worked in both the captive system as well as the independent agency system.

It is important to point out that some companies sell through multiple distribution channels. A couple of examples would be the Travelers Insurance Company that has a small direct distribution arm and Allstate that can be found in some independent agencies. As companies try to reach more and more customers, this is becoming more of a common practice.

Why should this matter to the consumer? Knowing how the products are being distributed can offer insight to you in helping make a product and company choice. It’s no surprise that direct and captive companies spend a large amount of marketing dollars focused on price. Sadly, forgoing their value proposition, some independent agents have also gone down that path as well. Price is an important component in the buying decision, especially in a tough economy. However, a well priced product that doesn’t deliver on consultation, claim service, advocacy or personal relationship is hardly worth the savings. You, the consumer, should stop and ask yourself why you are buying from a particular company? Is it only the price? Is it a company that only has itself as the only buying option? Is it important to you to be able to buy insurance at 3am? Are you a square peg being forced into a round hole? How about personal relationships? Are they important to you? Do you want fast or thoughtful, understanding that unlike other industries, buying direct doesn’t always mean a better price?

The point is that there are options for everyone’s needs. Obviously, we feel that our value proposition brings more to the consumer than that of other distribution systems. With that said, hopefully this will shed some important light on how insurance is sold and the end result will be a more informed consumer. Like watching an old television rerun, it could be time to change the channel.

Have a great day!

Chris Garlasco

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