What are the different kinds of insurance agents?
Before we jump into what different kinds of insurance agents can do for you, let's talk about the three types of agencies you're likely to come across if you want to buy car insurance or home insurance.
- Direct agents - When you call a big insurance company call center to get an insurance quote, the person you are talking to is a licensed insurance agent who is an employee of the insurance company. Because they work for an insurance company, they are only able to quote that company's products for you.
Fun fact: when you fill out an online quote form with these companies, there is still a person with an insurance agent license who is responsible for making sure any advice you get through the website is correct and appropriate for your life!
- Captive agents - Some of the big insurance brands, like Allstate and State Farm, use captive agents. These agents typically have local offices full of their company's branding. While they own their own businesses, they are usually only allowed to sell their company's products.
- Independent agents - Independent agents own their own businesses and represent multiple insurance companies. They often have offices if you want to visit in person, but increasingly they are serving customers online.
If you don't know what kind of agent you're talking to, just ask! Definitely not an awkward question.
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Why shop with an independent agent vs a direct agent?
The main reason to shop with an independent insurance agent instead of direct is that independent agents will get you quotes from multiple insurance companies. Looking at options from multiple carriers lets you choose the right combination of coverage and price.
Independent agencies will make sure you have enough insurance to protect yourself, your family, and your assets, and can help you make changes that will save you money on insurance in the future. And if you have a claim, an independent agent will be your advocate during the claims process to make you get speedy service and complete and timely information.
There are reasons why you might choose a direct agent instead. The most important is that some insurance companies only sell through their own employees. If you prefer to insure your car or home with one of these companies, you will need to go through their direct process.
The other common reason for shopping directly is the perception that direct insurance companies are easier to deal with because they have better online quoting or call center support, vs going to an agent's office. However, this is less true than it used to be. Not to toot our own horn, but we're a new breed of digital insurance agencies. Same choice and service the independent channel has provided forever, but you can text, email, fill out an online form, or video conference with us!
Why shop with an independent agent vs a captive agent?
Independent and captive agents provide similar levels of service in the sense that they can both help you assess what kind of insurance you need and how much, and can help you find insurance savings you might now expect.
However, independent agents provide a choice of insurance companies, while captive agents only represent one company. Different insurance companies can have really different prices for the same car or home, and the coverage provided can vary as well. There's a good chance an independent agent can save you money and better tailor your coverage vs a captive agent.
There are situations in which you might prefer a captive agent, though. If you strongly prefer a specific insurance company that sells through captive agents, that's likely your only choice. Most of the time, captive insurance brands do not also sell through independent agents.
And of course, if the local captive agent is someone you already know and trust, you may well simply prefer to keep your business with them. Makes total sense!
Is it more expensive to shop with an independent agent vs direct?
No, turns out that on average the prices are about the same.
Independent agents get paid a commission by the insurance companies they work with. This is a percentage of the insurance premium they sell. In return for that premium agents do their own marketing and sales in their communities. Independent agent marketing is often based on building relationships, referrals from customers, and creating content (like this article!) for prospective customers.
Direct companies, by contrast, don't pay commission to outside agents, which seems like it would be a savings. However, to attract customers, direct-to-consumer companies do their own large-scale marketing. Several spend more than $2 billion a year on television, radio, internet, and billboard advertising.
The market share between independent agencies and direct companies has long been pretty stable. (Captive agents have long been a much smaller share of the market than independent or direct agents.) The reason is that on average, the cost of commission paid to independent agents and the average cost of direct advertising, on a per-policy basis, is just about equal. And in some ways, that makes sense - if one channel were significantly cheaper than the other, the more expensive one would shrink dramatically.
So, we're strong believers in the independent insurance agency channel, but we also think you're entitled to lots of choices in a vibrant insurance industry. Happy shopping!
If you're looking for more insurance advice, check out our guide for insuring your first car, our myth-busting article on non owner auto coverage, or our growing collection of information about insurance for car subscriptions and long term car rentals.