INSURANCE - COMMENTS FROM OUR AGENT OF RECORD

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During my recent browse of the blog, I noticed a question and comment from Mr. Lanny Howe regarding differentiation between Agents when purchasing insurance coverage from an Agency. I thought it might be helpful if I provided some insight in regards to your potential response.

It is well known that the cost of goods and services purchased vary based on a number of factors in most all business transactions. Insurance is just such a business transaction where the cost of the policies can vary based on several factors other than underwriting information. Meaning, all underwriting information being equal, it is possible for two Agents to be able to negotiate a different price for the same coverage from the same insurer. Having said that, it should be noted that most insures will not amend coverage terms or premiums once a quote ha been released to any of their Agents. Most insurers release only one quote to one Agent for one specific coverage period as to avoid any difference in terms offered between multiple quotes. This is done to ensure some level of objectivity in a process that otherwise includes several subjective factors.
Here are some of those variables:

1- Distribution Factors: Some Insurance Agencies represent a higher business volume for certain Insurance Companies than other Agents. As in other goods and services, the volume of business that is transacted between the supplier (in this case the Insurance Company), and the distributor (which would be the Insurance Agent) can create a difference in policy terms. As we know, the cost of the same brand and model of automobile is not the same for each distributor. Those distributors that represent a larger market share enjoy more favorable acquisition costs. The same is true for Insurance Agents. The occasions where business volume does not impact the Agent's ability to provide better coverage terms are for policies secured through the State, or Federal government (i.e. Citizens, National Flood Insurance Plan, and Worker's Compensation policies).

Also, the Insurance Agent's reputation, profitability for the Insurer (loss ratio compared with total premiums placed with the Insurer), capacity as well as expertise to provide loss prevention and mitigation services are additional reasons for premium difference between Insurance Agents. If an underwriter can become comfortable offering a more competitive quote to an Agent knowing that their decision is still going to be profitable for their company, they will provide better terms to one Agent as opposed to another.

The rates for Admitted Insurers are filed with the State. Of course, along with those rates, each insurer has separately filed for debits and credits available for the discretionary use of the underwriter which are to be utilized as their competitive advantage when they want a specific client to buy their policy. Ability to solicit and secure such credits vary significantly between Agents.

It is important to remember that Non-Admitted Insurers (Excess & Surplus Markets) do not have to file rates or coverage forms with the State. The rates negotiated with these insurers also vary significantly based on the ability of the negotiating party.

2- Competitive Factors: The specific Agent's ability to secure multiple quotes for the same coverage from different Insurers is another way to reduce the cost of premiums for the policy holder. Every Insurance Agency represents a unique number and type of Insurance Companies. The more Insurance Company access an Agent has, the more likely they are able to generate competition between insurers and therefore drive the premium cost down. Usually, the larger an Insurance Agency becomes, the more access they have to additional Insurance Companies. In some cases, these larger Agencies may even have access to out of State insurers which may not be available to Agents with only local offices.

For instance, if an Agent is able to secure an alternative quote for "Coverage X" from "Willing Insurance Company" to be used as a competitive tool against the quote procured for the same coverage by "Able Insurance Company", that Agent would be able to drive the cost of premium down between the two Insurers for the benefit of their client. The other Agent on the other hand who does not have access to "Willing Insurance Company" would lack this competitive quote to be used in their negotiation with "Able Insurance".

3- Agent's Credentials: Let's consider the example of a lawsuit, either criminal or civil. All attorneys are bound to operate within the same legal system, with the same applicable laws, and the same precedents set by prior court cases. Considering this limited area of differentiation, it would be logical not to expect a big variation between the abilities of different Attorneys. However, experience tells us that the Attorney who has a better understanding of the law; one that has access to a better legal library, more research staff, a counsel who enjoys a better relationship with the magistrate, and one has accumulated more experience in a specific area of law is most often able to deliver a better outcome for their client than the Attorney who lacks these advantages. The same is true for most professional services including Insurance Agents.

Buyer beware of the Agent that states the only differentiating factor between Agencies Is the amount of commission they are able to survive on. If that were true, the Agents and Agencies willing to work on the lowest commission rates would be the most successful ones.

Please let me know if I can be of additional assistance. Have a great evening.

Ty Beba, CPCU, CIC, ARM, AIC

Executive Vice President

Brown & Brown of FL, Inc.
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