Personal Insurance – Who are the players and how does it work?
People are only interested in insurance when it is time pay for a renewal, find new coverage, or file a claim. Although I never set out to be an insurance agent (who does, really?) I spent ten years as an independent insurance agent, five as a Certified Insurance Counselor (CIC). When folks asked me what kind of insurance I sold I replied with a question “What kind of insurance are you buying?” Selling dominates the time and effort of an agent because their livelihood is driven by commissions, both new and renewal and they have two sales to make for each policy.
You may not believe that as hard as your agent worked to sell you on buying that policy, they had just as big a selling job to sell their underwriter on offering or issuing it at that rate or at all. The big deal about being an independent agent is representing more than one company, or “market” to get competitive prices for their customer. Agents who are employees of their insurance carrier usually don’t have other markets to go to if you don’t pass their underwriting. Independents call them “Captive Agents.” Most captives try to build relationships with other agents to try to take care of their customers for just those situations, and the captives usually have tiers of rates so they can fit most risks.
Agencies usually have Customer Service Representatives (CSR) to handle correspondence between clients and the insurance company and to process renewals. After you buy your coverage, you may only deal with your CSR after that.
Claims processing becomes a specialty handled by claims representatives. As much as the agents try to know coverage inside and out, the nuances of claims settlement leave most of them behind, so while the agent may be glad to deliver a large claim check, he usually isn’t the one who “worked” the claim.
Insurance is based on the law of large numbers. Actuaries figure the average cost of claims for the type of coverage you are buying, and spreading the risk of loss among many policy holders, expecting they won’t all suffer losses. Sometimes that doesn’t work out so well. I used to represent some carriers that had a lot of similar coverage in the same geographic area – something they call a concentration of risk exposure. Back in the early 1990’s we had a series of bad hail storms that covered North Texas a few years in a row. Virtually every homeowner got a new roof from hail damage claims in a short time period, some more than once. The insurance companies were losing money on roof coverage and they tightened their underwriting standards for the region. Agents call that a “hard market.” My lead carrier placed a moratorium on new business in this county – that’s tough on agents, too. I still have a high deductible on my homeowner’s policy due to the problems of over ten years ago. Now my roof is legitimately getting old, which is something my carrier never expected to happen again. Now they will want me to replace the roof in order to maintain the quality of the house they insure at lofty rates. I need a good soft market in order to lower my deductible and get better rates! The premium for the same policy in Tennessee is less than half as much as I pay.
In coming weeks I plan to discuss choices for insuring your income, your life, your health, and your stuff.
Thank you for the information. I am a General Contractor in Houston. Many of my clients ask me about this type of information, I will start steering them to this article so that they may better understand what is going to happen.