Auto and homeowners’ insurance have gotten a lot more expensive in recent years. Many people experienced premium increases of 20%, 30%, or more on their renewals, despite having no claims. Inflation in materials and labor, technological advances in vehicles, weather events, and natural disasters are all causes to blame.
A friend asked me which insurance company I used for my homeowners insurance when AAA insurance wanted over $3,000 a year to insure his home. I sent him to the independent insurance agent I use. The agent placed him with the same company I’m with. The premium was a little over $1,000, saving him $2,000 a year.
Sales and Service Channel
Home and auto insurance companies sell and service policies through different channels. Some insurance companies market directly to consumers by heavily advertising on TV and streaming platforms. I’m sure you’ve seen ads from GEICO. You buy their policies online, use their website to renew or make changes, and call a toll-free number for customer service.
Some companies sell policies through a group of captive agents. Both the company and the agents are exclusive to each other. You go through a State Farm agent if you want insurance from State Farm. The State Farm agent only sells policies from State Farm. Allstate and Farmers also operate under this model.
Some other companies sell through independent agents. These agents are small businesses that sell policies from many insurance providers. They serve as a shared outsourced sales and customer service department for the insurance companies they represent.
It doesn’t cost anything to use an independent agent. Insurance companies pay commissions to independent agents, saving money on advertising and staffing their own sales and customer service call centers. The independent agents handle all consumer interaction, including new policy sales, coverage changes, and claims.
Using an independent agent doesn’t guarantee you’ll have the lowest premiums. The agent can shop for you among all the companies they sell for, but they can’t quote policies from companies that don’t sell through them. You can only find out whether GEICO or State Farm offers a better deal by going to GEICO or State Farm. Getting quotes from an independent agent only taps into a pool of insurance carriers that you otherwise don’t think of.
Finding an Independent Agent
I found my independent agent when I first moved to a new state. I read the comparison report published by the state insurance department (see State Government Helps You Find Lower Auto & Home Insurance). One company jumped out as offering substantially lower premiums, especially in homeowners insurance.
This insurance company is over 100 years old, but I had never heard of it because it only operates in one state. I saw on their website that they only sold through independent agents. I used the “find an agent” feature on the website to find this local independent agency.
Safeco (owned by Liberty Mutual) is a large national insurer that sells exclusively through independent agents. Using Safeco’s website is an easy way to find an independent agent near you. You are not trying to get insurance from Safeco; you’re only using its website to find an agent. An agent that sells for Safeco also sells for other companies.
Or you can Google “independent insurance agent” plus the name of your city.
Some agents sell both business insurance and personal insurance. I would want an agent who focuses on personal insurance. Some agents represent companies that specialize in insuring expensive cars and high-value homes (structure value, not including the land). If you have only “normal” cars and homes, you may prefer to avoid agents who represent those specialty insurers, such as Chubb and Cincinnati Insurance.
One-Stop Shop with Better Service
I started working with my agent on a renter’s policy when I was renting. The landlord wanted us to show proof of renter’s insurance that covered sewer backup. Most renter’s policies don’t cover sewer backup because it’s typically covered in a landlord’s policy. The agent put in extra effort to find a renter’s policy that met the landlord’s demand. The premium for the renter’s policy was only $150 a year. The agent’s commission on it couldn’t be that much.
An independent agent is separate from the insurance company. You can tell the agent things that you don’t necessarily want to tell the insurance company yet. When I had a broken windshield, I asked the agent whether it was worth filing a claim and risking raising my premium. The agent told me how that specific insurance company typically treated glass claims on renewals. When I was considering buying a home, I asked the agent for a quote to factor it into the budget, even though I don’t own the property yet. When I needed a home inspector, I asked the agent for a recommendation, which worked out great.
The agent re-shops my auto, home, and umbrella policies among the companies in their universe each year. If another company offers a better deal, the agent asks me if I want to move my policies. This creates competition among insurance companies that sell through independent agents. The business moves away quickly if an insurance company isn’t competitive.
Your insurance policies may move from one company to another but you still interact with the same independent agent with continuity. Consulting an experienced agent for your insurance needs is much better than calling a remote call center. I also feel good about supporting a local small business and smaller insurance companies as opposed to national and international giants. If the bottom-line price to me is the same, I’d much rather see money going to local small businesses than ad spending going to media conglomerates.
Some insurance agencies also sell health insurance. The agency I work with has a person trained and licensed for ACA health insurance. He helps people with annual enrollment. Using an agent for ACA health insurance doesn’t cost anything extra. The agent earns a commission from the insurance company. The insurance company keeps the commission for itself when you enroll without an agent.
***
If you have only bought auto and home insurance from a national brand, a local independent agent gives you another channel to other insurance companies. You may or may not get lower premiums through that channel, but it’s worth a try. If premiums are comparable, you may like the better personal service from an independent agent and feel good about supporting a local small business.
[Image credit: Pixabay.]
Say No To Management Fees
If you are paying an advisor a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.
Bdon says
This is a good article, I did this last year for my house/auto/umbrella. I originally switch around once a year, ended up with Costco’s home and auto, but an independent broker was just easier. The best thing is, I do not have to deal with auto and home separately and the broker can handle both at once and they can shop around auto/home separately but still give me the same customer service. It helps when they have access to 16-18 insurance companies.
Anonymous says
I appreciate the article and the approach but is cost your only consideration? When I shop for insurance I consider the company’s reputation for customer service and paying out claims. I’d rather pay a higher premium to get that. I don’t see the point in having insurance if the company doesn’t back me up when I need them.
Lori says
Is there a concern like there is with brokers that they might be biased towards the products that will give them the better commission?
Harry Sit says
Agents have incentives to put their best foot forward because they’re competing with national brands. They get a commission every year as long as the customer stays with them. They get nothing if the customer leaves. It’s bad for their long-term business if they present something that pays them a higher commission now but increases the risk of losing a customer.
Harry Sit says
Cost isn’t my only consideration. It’s difficult for a consumer to predict how a claim will be handled though. An agent who sees many more claims than an average consumer can provide some information.
EOG says
To @Anonymous point about claims, our independent broker was able to help guide on this too because they know what companies are better at paying out claims and which are a lot tougher to deal with in the event you have to file.
I also think it is worth noting that not all homeowners’ policies are built the same and offer different HO level of coverage (?) for perils, a 3rd party agent can help compare one versus another. For instance one carrier might be slightly more expensive because it is covering all (open) perils vs another policy elsewhere that is cheaper in premiums but more limited due to only covering named perils. I am a client not an expert but worth having your agent advise on this important component.
Jacquie Traub says
With insurers leaving the state (California) in masses, is it wise to switch out? What if your new insurer decides to bail too?
TJ says
Harry already left the state. 🙂
Indra says
I have always wondered about agents. Nice to see the explanation and reader’s comments. I might look into them for personal liability insurance since State Farm doesn’t seem interested in selling it to us inspite of them providing our home insurance.
ch says
Thank you Harry for another helpfully informative article!
It’s nice how you weave your personal experience with facts and practical action steps : )
What a great idea to ask the insurance agent for home inspectors, I will try contractors, too!
I want to choose an independent insurance agent for the long-term.
Are there any “interview” questions you would recommend to see if it’s a good fit?
I personally would like someone who wants to be an advocate during the claims process, who likes to take the time to educate and answer questions, and who can be consulted for risk management. How can I know how to evaluate their answers, anything to look for?
I’m more of an email person vs. talking over the phone, so I’m even thinking of asking about that, communication style. TIA!
Harry Sit says
If you ask agents whether they’ll advocate for you during the claims process, they’ll probably all say yes. You’ll only find out how well they do it when you have an actual claim. I would just email the questions you have now and ask them to evaluate your coverage. You can tell who’s willing to spend extra time to help and who only wants to make a quick sale.
TJ says
“They serve as a shared outsourced sales and customer service department for the insurance companies they represent.”
This is going to vary highly. There are plenty of insurance companies that have a 1-800 call center claims department.
I bought a Farmers (formerly Metlife) policy through an independent agent. The independent agent had nothing to do with my claim. I was dealing with all the adjusters myself until I lawyered up.
Harry Sit says
Did the agent say it wasn’t their job when you tried to involve them? Insurance companies have a toll-free number to report claims because accidents happen 24/7, but your agent is still supposed to assist you after the initial report.