Insurance agent, take my money, please!
April 16, 2012 8:17 AM   Subscribe

Why do insurance companies (non-medical) make it so rough to switch agents?

I used to get my auto and renter's insurance through AAA, but when I wanted to switch agents, because I didn't feel like driving 40 minutes to the office I had my policies through, they made it so rough.
1) They said I couldn't change the agent on my policy outside of some 45 day window that existed around the end-date on my policy
2) the new office I went to said they couldn't take ownership of the policy without me first driving to the other office to have them cancel it.

This confused me. I wanted to give the new agent my money but they made it so flippin' difficult that I jumped ship to State Farm. Now if seems State Farm is doing something similar. I called the office I wanted to switch to and they stated "State Farm won't let us move policies around when the two agents are within the same city". I've never had to actually file a claim with State Farm, but I want to at least be walking distance to my agent's office since I like face-to-face talking rather than email and phone, and since I moved I am no longer walking distance to my agent.

Is there some reason that would make sense to me (the customer) that they don't do this unless you threaten to cancel the policy? Is it because they don't want to create animosity between agents in close proximity to each other?
posted by zombieApoc to Grab Bag (6 answers total) 1 user marked this as a favorite
I think it's a territory thing; when we were with Nationwide, our policy was moved to a new agent when the old agent went out of business. We had no say in this, it was just "this new guy got the old guy's accounts."

Have you considered finding an agent that is well-established, is within your geographical parameters, and then going with an insurance policy that they offer? I mean, if it's important for you to have the human connection then shouldn't you choose the human first? It means switching again, of course.
posted by cabingirl at 8:29 AM on April 16, 2012

They don't want predator agents coming in and stealing business from other agents so they make it difficult to change agents, thereby nearly eliminating the practice.

Look at it like this, it's easy to continue an existing policy, regardless of the agent. The difficulty is selling the policy to begin with. A good agent has no incentive to sell a new policy if it can be easily assumed by a different agent.
posted by HuronBob at 8:31 AM on April 16, 2012

Makes sense. So in order to switch I literally do need to cancel my current one and create a new policy with the agent I want.

cabingirl, It's funny that you mention the old agent going out of business because we actually had that happen with AAA and for a while we had no agent. I guess they didn't see us as profitable enough or fussy enough to set us with one for a while. Whatever.
posted by zombieApoc at 8:39 AM on April 16, 2012

A few things.

First, if there's a state line involved, it's not just a matter of switching agents. Insurance policies are written in a particular state, and moving across state lines means canceling your policy in one state and writing a new one in the other. So it may not just be an issue with switching agents.

Second, what you're seeing here is likely an artifact of the way insurance policies are sold. Some percentage of your premium--as high as 20% in some cases, at least for the first year--is actually commission paid to the agent. There are pretty tight regulations as to how this gets paid and by whom, and agents are categorically prohibited from sharing that commission with insureds for reasons to complicated to get into here.* Regardless, the fact is that insurance agents make their money from their book of business, and their compensation is directly related to the policies they sell.

Thing of it is, the market for insurance is basically saturated. Almost everyone who needs a policy has one. As a result, there's a strong temptation to steal from other agents. Some of this is actually encouraged by insurance companies, i.e. stealing from other insurance companies. But agents books of business aren't the same as the company's, so while agents have no real incentive not to steal business from other agents working for the same company, insurance companies really don't like this, because they generally pay more commission for the first year of a policy. This is intended to recognize the work put in acquiring the customer in the first place, something that doesn't happen on renewal business. But if the insured is just switching agents but staying in the same company, the company would really rather not pay the extra commission for that. So they make it hard to do.

More than that, most insurance companies prefer to have a somewhat cooperative and collaborative agent force, as agents work together on lots of things. If nothing else, they want their agents to have a cordial relationship so that insureds aren't fought over. They want a uniform customer experience across agencies and don't want agents bad mouthing each other. So they create barriers to make this sort of poaching difficult.

Third, and this is just more general, there's a difference between "captive" and "independent" agents. State Farm uses mostly the former, but insurance agents at places like banks tend to be the latter. A captive agent sells business for just one company. State Farm is the biggest property and casualty insurer in the country, so it makes sense that they'd use mostly captives. But independent agents sell for a variety of companies, matching individual exposures with individual carriers to achieve the best results for both. This doesn't make a ton of sense in the mainstream personal auto and homeowner's markets, as these sorts of personal risks aren't all that different. But it makes more sense in the higher-end personal market and for business insurance, as those insureds tend to have both larger exposures--and thus larger premiums--as well as much more individualized exposures. Commercial and personal policies are actually divided into separate lines of business both on an operational and a legal level--personal lines are more regulated--largely because commercial risks 1) generally involve more savvy customers, and 2) are so idiosyncratic that a lot of flexibility is required.

Which is a lengthy way of saying that not all agents are created equal, and it isn't always easy to tell which is which unless you know what you're looking for. Moving from a captive to an independent agent can involve some changes in the way your policy is handled, and some carriers may actually have different ways of handling the two types of policies.

Fourth, you don't technically have to have an agent. Carriers are entirely capable of selling direct, and many do. The agency model is, some thing, an artifact of the time before mass marketing and the internet, and there's some question as to whether it has a future, particularly in personal lines. The fact that you didn't have an agent for a while doesn't mean all that much. Indeed, not having an agent means the company gets to keep your commission. Some insurers who sell direct pass these savings on to the consumer attempting to compete on price. You do get what you pay for though, so customer services tends to suffer, but a lot of people don't really want to pay for customer service on a product they only have to think about two or three times a year.

*Suffice it to say that insurance rates are actually regulated, and messing about with commissions is an obvious way of avoiding said regulations. State departments of insurance know this, hence the regulations.
posted by valkyryn at 8:54 AM on April 16, 2012 [3 favorites]

Wow! That is a wealth of information. Thanks!
posted by zombieApoc at 9:00 AM on April 16, 2012

I don't know why we got another agent unless that's just how Nationwide works. One factor in deciding to go elsewhere for car insurance was when the new agent started addressing all mail to my boyfriend even though it was my policy and he was just an additional insured. I think there may have also been mail to "Mrs. boyfriendname." I've never really seen the benefit of an agent, and especially a crappy one, so we switched to Metlife and don't have an agent at all. But, I don't mind dealing with them over the phone.
posted by cabingirl at 9:12 AM on April 16, 2012

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