For several years, I’ve been creating YouTube videos and article discussing various aspects of business insurance. These have generated numerous phone calls and connections with business owners across the United States. As a result, I’ve reviewed hundreds of policies and gained insights into pricing from direct sellers and agents like myself. In this article, I’ll tackle the question: is it cheaper to buy business insurance online versus using an agent or broker?
Understanding the Three Main Distribution Systems in Business Insurance
To dig into this question, it’s essential to understand the three main distribution systems in the insurance industry.
- Online Direct Sellers: These are big-name insurance companies like Geico, Hartford, and Allstate, as well as digital insurance brokers and InsureTech firms that use technology to sell directly online. Examples include Next, Hiscox, BiBerk, and Insureon.
- Captive Insurers: In this system, agents are employees of the insurance company and only sell their company’s policies. Companies like State Farm, Allstate, and Farmers fall into this category.
- Independent Agents and Brokers: This is the oldest distribution system in the industry. These firms are owned by entrepreneurs who represent multiple insurance companies like Travelers, Chubb, Hartford, and Hanover.
Which Business Insurance System is Cheapest? Which is Best?
Advertising often claims that going direct is always cheaper by “cutting out the middleman.” However, this is a myth. Direct sellers still have overhead costs, including sales and marketing, servicing policies, paying claims, and general overhead.
Some digital brokers and InsureTech firms claim to reduce general overhead and pass the savings to customers, but they still incur costs for all four components.
When insurers sell policies through agents or brokers, they incur lower costs for sales, marketing, and policy servicing, as these tasks are handled by the broker or agent, who is paid a commission. The same is mostly true for captive insurers, although these companies spend more on marketing and branding than the other two systems.
Comparing Costs and Service Quality
I have reviewed hundreds of insurance policies from direct insurers, InsureTech companies, captive insurers, and independent agents. Companies like Next will often be cheaper than what an independent or captive agent will sell.
On the other hand, companies like Hartford, which sell direct and through agents, will have the same price through either channel.
When considering service quality, it’s important to understand the differences between the distribution systems:
- Direct Sellers: Often, you’re not dealing with a person. You’re filling in forms online, and you are the insurance expert to determine your coverages, limits, endorsements, and options.
If you do speak with a person, it’s likely going to be someone in a call center that may have enough knowledge to get their insurance license, and they’re an employee in a big company that works from 9 to 5. - Independent Agents and Brokers: Typically, you’re speaking to an expert. These agents are entrepreneurs and small business owners with a team of experienced professionals to help you at the point of sale and down the road.
They build value-based relationships because they get paid a commission each year to handle your business, so keeping your business and your relationship is very important to them. - Captive Agents: These agents usually have experience with home and auto insurance but less with business insurance. Their service quality lies somewhere between independent brokers and direct sellers.
The Importance of Peace of Mind in Business Insurance
The primary reason for buying insurance is to protect your business from the unknown and provide peace of mind. If you experience unresolved issues or unanswered questions, that peace of mind diminishes.
Common complaints include poor customer service and unresolved problems, particularly with direct insurers and digital brokers like Next, Simply Business, Insureon, Tivly, and Progressive.
Conclusion: Cheapest vs. Best
When it comes to cost, no single provider is always the cheapest. Factors like the line of business, location, and company size affect pricing. While companies like Hiscox may offer exceptionally low rates for specific policies, independent agents often provide better products at competitive prices.
Ultimately, the decision depends on what you value most. If you prioritize the lowest cost without regard to quality, online sellers with minimal human interaction may be your best option. However, if you seek value, expertise, and a good deal, The Coyle Group and other independent agents and brokers are likely the better choice.
Thank you for reading. If you’re looking for business insurance or have questions, let’s connect. I’d love to hear from you.
