It’s common for someone outside of the insurance industry not to know the different entities that may be involved in insuring your properties. When most people talk about buying insurance, it tends to be insurance companies that get the most attention, which makes sense considering the number of commercials we’ve all seen. But insurance companies are not the only avenue for purchasing insurance. Today, Casey Carter, VP of Business Operations, is going to discuss with us the different insurance purchasing avenues and how these entities may work together.
Casey started in the insurance industry eight years ago in sales and service. In his current role, he focuses on business development, building partnerships, and providing training and resources. He also works closely with the programs team in the development, implementation, and rollout of new offerings.
So tell us, who can people purchase insurance through?
So really, there’s going to be three different avenues that you can kind of, let’s say, purchase your insurance through, right? It’s going to be your agencies, your brokers, and through the insurance companies directly.
What is an insurance agency?
So, an insurance agency employs agents who are going to be authorized directly by a carrier to sell a product. You have two different subcategories of agents. Those are captive and independent. Your captive agencies will be directly appointed with one carrier or insurance company. They’re only going to be able to sell that product.
On the opposite side, you have independent agents. They could be appointed with 2-3 different carriers. They’re going to be able to shop coverage for you in a much more wide array of fashion.
Do you have any examples of a captive versus an independent agent?
Your Ma and Pa Shop down the street could be your independent agent, where it’s, you know, Ma and Pa Insurance Agency. Versus, you go to a Travelers agent in a strip mall and you see the Travelers logo right outside. They’re going to be authorized to sell the Travelers products directly to you.
What is an insurance broker?
Unlike agencies or captive agents, brokers are going to have a much wider array of carriers to choose from. Unfortunately, many of them don’t have the authority to bind coverage on the insurance carrier’s behalf. They’re still going to have to work with the insurance company directly or through an agent. But that’s going to allow them to shop that coverage at a much more competitive pricing option for you, if that’s something that you’re extremely concerned about right now. They’re like the middleman helping you to find the best deals, but not necessarily providing the actual insurance.
What are insurance companies?
The insurance company is also known as the carrier or the insurer. When you think of who’s going to pay the claim when that tornado hits your house, that’s really who you’re going to be thinking of in that aspect. They are on the hook for the financial risk that’s associated with insuring the location and they’re going to be the ones that are setting the underwriting guidelines, appetite, and expectations of the policy.
Let’s talk about how carriers (insurance companies) and agencies work together and their different roles when it comes to insuring properties… Who sets rates and bills the insured?
The carriers are going to be establishing the rates. They’re going to be the ones that are communicating any type of changes like deductibles, rate structures, and coverages to the agencies. They’re the ones that are determining geographic locations, underwriting considerations, the whole shebang on that aspect. Then they communicate those changes back to the agent or agencies.
Then you take the agent or the agency, and they’re going to be communicating those changes to the client or the insured. They’re processing and collecting the payments, but that money doesn’t stay with them. When they are collecting it, for agency-billed, they’re paying it back to the carrier. If it’s direct-billed, then it goes directly to the carrier. The agent is the one that’s setting payments up with the insurer. They’re keeping it all organized, talking to you about the coverages you might have, etc., but they’re not necessarily the ones who are determining the claims. Their job is to represent you, the insured, and get that information directed over to the carrier.
Who sets the guidelines and exclusions on insurance policies?
This is really the carrier. You have your average Joe on the street and they’re working with an agent because that’s who their parents work with so they’re working with them now. A lot of people think that that agent is the one that’s raising their rates. That they’re responsible for their wind deductible going up. That’s not the case. It’s the carrier who’s determining all of that. They’re the ones that set the risk appetite for their entire company. Whether it’s writing habitational risk or workers comp, they determine where they want to place coverage, what rate they want to charge, and what deductible structure they want to charge.
The agency, in this aspect, is taking the risk that they’re being provided by the insured. Let’s say that they had a habitational dwelling policy that they needed written. They take the underwriting information and submit it to the carrier. Now, it’s also in their best interest to know what particular risks carriers are willing to take. That’s where the agent is really providing value to the insured – giving them the best opportunity to place coverage for a particular risk they have.
Why do carriers have different appetites for risk?
If a carrier has had quite a few losses, especially in a particular area, they might shift their appetite at that point to stay in business. Everybody knows insurance isn’t a charity, right? These carriers are in it to make money. When losses happen in different areas of the country, we’re going to see rate increases moving forward. These big losses are typically in relation to different weather phenomena, like hurricanes and earthquakes.
The Texas freeze is a great example. A couple of years ago, something large, unexpected, and sudden happened that drove rate increases and the want or ability for carriers to offer coverage. That freeze was something that had a major financial impact that no one was planning for.
What are the duties of agencies and carriers when a claim is filed?
The agent or agency is data collection upfront. They’re going to get with you, determine what happened, and file the claim to the actual carrier themselves. So, “Hey, John, I’m sorry for all that that wind damage that happened last night. Can you give me a little bit of information so we can get that submitted over to the carrier?”
From there, once submitted to the carrier, the carrier is going to process the claim. They’re going to assign an independent adjuster. And that independent adjuster is going to handle inspections, analyze the policy documentation, and whatever they need to determine whether this is going to be a covered claim or not. After the inspection, they determine if the carrier should pay the claim or decline it. If the carrier pays the claim, then the adjuster is going to write an estimate and settlement recommendations and send that over to the client.
What are the main benefits of working with an insurance agency versus a broker versus a company?
A lot of the benefits of working with an agency is the personal touch that you’re going to have with them from a relationship perspective. They are going to shop for coverage and advocate on your behalf. They’re not deciding to raise your rates. They’re not doing any of that. They really do have your best interest at heart.
Working with a broker, you’re going to have a lot more options, but they’re not going to be able to bind that on your behalf. They’re going to have to have somebody bind it for you.
And from a carrier perspective, you’re writing directly with them so it’s going to be fast. But they’re also not going to take the time to explain a lot of the coverages you have. Most likely, you’re going to see a price, and it’s that or nothing, it’s very black and white.
— Game Segment: States with the Most Expensive Home Insurance —
These are the five states with the most expensive home insurance in the U.S. According to Insider Monkey, they identified these locations based on the average annual premium cost.
5. Arkansas – avg. annual premium: $2,123
4. Colorado – avg. annual premium: $2,152
3. Nebraska – avg. annual premium: $ 2,951
2. Kansas – avg. annual premium: $3,083
1. Oklahoma – avg. annual premium: $3,659
Watch or listen to the full interview here!
