As direct sales, online comparative raters and insurance aggregators gain visibility in the U.S. market, independent agents continue to offer value to both consumers and insurers, says Bill Wilson, CPCU and associate VP of education and research for Independent Insurance Agents & Brokers of America. In the first part of this exclusive interview, Wilson discusses trends in insurance distribution, the differences in claims experiences and the fact that not all policies are created equally.
INN: What do you think are the most important trends in insurance distribution right now?
Bill Wilson: There's been a bigger decline in the direct writer agency force than in independent agents. The message just isn't getting out to the average consumer that there's more to an insurance policy than a name and a price. That's a big issue. The fortunate thing for people who buy auto insurance is, on average, they have a claim about once every seven years.
INN: Do you think they are more likely to buy inferior coverage through an aggregation site than through an independent agent?
BW: For sure. When you look at the companies that come up in the listings that I've looked at, they are predominantly non-standard auto carriers. You'll see the occasional MetLife or a more mainstream insurer, but a lot of them got their starts selling non-standard auto to people who were relatively high-risk. One way to control the price when you're dealing with a higher risk is to provide lesser coverage. And, having looked at policy forms over the years, you often find that the types of companies that are looking for customers through these comparison websites often provide coverage that's inferior to the ISO standard auto policy. A lot of the people who are buying these policies directly don't really see a problem until they actually see a claim and they find out they may have inferior coverage.
INN: So you’re saying the insurers compete on price, and the customer is not educated enough to discern the differences and can go long periods without having a claim?
BW: Exactly. I cringe every time I get another reporter or writer who's doing an article on how to save money on car insurance. I keep telling them the importance of understanding what you're buying, and they're just not interested. All they want to talk about is price. The problem is the wrong information is getting to the consumer. Even when you see a consumer article that says: “Make sure you're comparing apples to apples,” what they mean by that is make sure that you're comparing the same limits of liability: uninsured motorists, medical payments, deductibles for physical damage. It's one-in-a-thousand articles that even mentions the coverage implications or the claims practices of the carriers that are involved.
INN: What are the implications? What do you mean?
BW: Two adjusters or two insurance companies can look at exactly the same wording in a policy and interpret it differently. It's very common. We have an “Ask an Expert” service, and I see it every day. Companies are using ISO standard forms and they can't agree over what something means. It's anecdotal, but there are companies that are well-known for taking pretty good care of their own customers if they have a first-party claim: hit a telephone pole or something like that. But if their insured hits somebody else, it's a third-party claim. And it can be very difficult to recover under their policies.
The practices that companies have can vary, even if they're using the same product. If the state mandated an auto policy if every company had to sell the same policy -- you would still have differences from company to company about how they interpret that.
INN: Have you been following the rise of Google Compare?
BW: Yeah. They made it sound like it was this innovative new thing. The guy from Google was talking about how consumers can now make an informed decision, and he's not really providing any information other than what all of these other websites are providing. You type in some information; you get a list of insurance companies and a premium; and, at that point, that's all you know.
In the past, when I've done research on this, I've gone to these websites and gotten quotes. Then they will, invariably, follow up with me via email. When they've done that, I've asked them for a copy of their policy so that I can look at it before I buy it. Not a single one of them will let me look at their insurance policy. Probably the nicest people were with GEICO. The lady was very nice, but said when I bought it, then I could look at it. That policy is a binding legal contract. It's a quite complex contract; more complex than a lot of the contracts we enter into, like leases and so forth. What other legal contract can you think of where the other party won't let you read the contract until you sign it? It makes no sense.
If I could be an insurance commissioner for a day, my first order would be a regulation or directive that every insurance company must provide a copy of their policy upon request.
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INN: That seems glaringly obvious; how can that persist?
BW: I don't think people really know any better. It's really sad. I see the claims that come in that aren't covered that would have been covered if the insured would have paid a little more. In fact, there are cases where you can get better coverage for even less money. A lot of these online quote things make it sound like you're getting a great deal, but they're quoting minimum limits or stripped down coverages and not a better deal. Personally, I have changed carriers on a couple of occasions where the premium was less -- even though that wasn't my motivation for changing -- and the coverage was better.
That's the role of a good agent: an agent who knows the products they're selling, is familiar with the competitor's products, who can help somebody identify what their exposures are: “Do you have a company car?” “Do you rent cars fairly often?” “Do you borrow a neighbor's car every now and then?” “Do you have family members in the house who have automobiles?” Those are all things that need special attention that you're just not going to get from [a captive agent].
It all depends on the questions they ask. A good agent will ask the right questions. Even if it's an auto account, they'll ask about exposures. There are probably only a couple of dozen different kinds of endorsements, at least from an ISO standards standpoint, that address coverage issues. So it's not difficult to ask the questions that need to be asked, other than “what limit do you want” and that kind of thing. People have different exposures, particularly with family members. There are all kinds of tricky things when you have teenagers who may have their own cars, or the parents are advised -- by a financial advisor or whomever -- to put the kid on their own policy, those kinds of things. You can't talk to somebody on a telephone at GEICO or a place like that and get the right kind of advice compared to an agent who really understands the product that they're selling.
INN: So you’re saying that direct agents and insurance aggregators are taking these shortcuts?
BW: Yeah, it's anybody who's not properly experienced and educated, but it's a bigger exposure online, where you never actually communicate directly with anyone. You just go in and place coverage that may be bound online. I've gone through some of their forms and look at the questions they ask. They ask very few questions that may be material to the exposures I may have. Years ago, when I had a company car, my company had commercial auto insurance, but I had no idea how much they had or whether it had exclusions that my own policy didn't have. So I added that vehicle liability coverage to my own policy and my own umbrella policy.
It costs me something like $20 a year to get over a million dollars’ worth of coverage on that car. A typical policy wouldn't provide any coverage on a car that's furnished for your regular use, but I've not seen any of these online pricing websites that ask that kind of question: “Do you have access to a company car and, if so, would you like to cover it on your own policy?” They don't ask the questions. They tell you they can give you a quote in 15 minutes or seven-and-a-half minutes. The new record is Metro Mile says they can give you a quote in 10 seconds.
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INN: They seem to be doing a lot of different things in this space and really driving down costs.
BW: There's nothing wrong with trying to reduce acquisition costs; that obviously can benefit the customer. But there's a point of diminishing returns. If you're operating exclusively online and doing things as efficiently as you can and you're still only competing on price, at some point you have to look for a way to reduce premiums. The only other place is under the loss component, which is about 75-to-80% of the premium dollar. You typically reduce that component by cutting coverages, and that's a topic that nobody ever talks about.
