Insurance companies that sell directly to the consumer have aggressively promoted the "go direct" concept through heavy advertising in recent years.  In fact, GEICO spends just shy of ONE BILLION dollars per year on advertising to convince consumers that cheap insurance is good insurance. 

There are several flaws with the "go direct" concept, in our opinion.  Here are some of them:

1. A customer who buys directly from the insurance company basically becomes his own insurance advisor.  This is problematic because insurance policies are complex legal documents that need to be understood and explained by trained professionals in order to avoid gaping holes in coverage.  There are many options available to cover individual needs, and there are potholes that need to be avoided in order for coverage to apply at the time of a claim.  Most people don't act as their own attorneys, accountants, dentists, or even electricians, so it doesn't make sense that they would feel confident acting as their own advisor when it comes to buying insurance to protect their assets and future.  In addition, as insurance policies, legal requirements, and your life change, you won't have an advisor to help you adjust your insurance to stay up to date.

2. When a claim is filed the policy holder will deal directly with the insurance company's claims staff.  If there is a problem with communication, or the claim is delayed or denied, or the claim settlement offer is unfair, the policy holder has nobody on his side to intervene.  Of course, direct selling insurance companies know their customers don't have a knowledgeable advocate that will go to bat for them if things go wrong, so they may be tempted to settle claims more aggressively.

3. Direct selling insurance companies promote the idea that consumers save money because they eliminate the agent.  Although direct sellers do reduce their operating expenses by not paying agents to advise customers, they still have to employ customer service and sales staff at the company in order to replace the services that agents provide, which adds some, if not all, of that expense back in.  In addition, because they don't have agents to promote and sell their policies, they spend hundreds of millions of dollars per year on advertising.  This adds no value to the insurance and adds tremendously to the company expenses.  Is it possible that the real premium savings, if there are any, come from stingy claim settlements and/or policies full of exclusions and limitations? 

4. Typically these direct selling companies don't sell home insurance, which means you'll have to find that elsewhere and you'll pay about 25% more for a homeowners policy because you won't qualify for the multi-policy discount. 

5. Direct selling insurance companies drain financial resources from our community.  Local agents invest and spend money in our community, as do the people they employ.  When you do business with a direct insurance company your premium dollars are spent in someone else's town, not yours. 

As an Independent Agency, we represent several high quality insurance companies that believe their customers need and deserve the advice and services of knowledgeable agents.  Our companies tend to have small advertising budgets, especially compared to the direct selling behemoths.  They believe that using more of the premium to pay claims is the appropriate and fair way to treat their policy holders.

Posted 11:36 AM  View Comments

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