The two most important decisions you face when buying insurance
With the holidays around the corner, I’ll be purchasing something I know very little about, and relying almost completely on someone else to help me make the right decision: jewelry for my wife.
Standing in front of the display case is my annual reminder of what people must feel like when they are buying insurance. While I can’t help you with buying jewelry, I can give you guidance for making the right decision when it comes to buying insurance.
Whether you are buying personal, business, or health insurance, you have two decisions to make: Which company will be my insurance agency and which will be my insurance carrier? Those decisions can have a dramatic impact on the performance of your insurance program. For instance, if you have an uncovered loss because your agent forgot to include the coverage, how important is it that you saved $1.97 on the premium?
In some cases, these decisions are tied together. For instance, if you’d like to work with your local American Family agent, the insurance carrier will be American Family, because these agents are captive, meaning they only represent one carrier.
Aside from these captive situations, insurance is typically purchased through the independent agent model, where you can decide separately on your agent and your carrier. If you don’t proactively decide on these choices, you may not end up with the optimal combination, as each carrier will only provide a quote to the first agent who requests a quote on your behalf.
Your agency is responsible for advising on available coverage types, negotiating premium models with the insurance carrier for you, and providing day-to-day service after the insurance policy is purchased.
Depending on your industry, you may want to verify that your agent is well versed in the unique characteristics inherent in your business. Another consideration is the agent’s continuing education, which can be displayed through his or her professional credentials.
Agencies can vary greatly in terms of their service offerings. You should be aware of your agency’s capabilities when it comes to: internal claims counseling/advocacy, loss control or risk-management services, and human resource consulting. You should also keep in mind their service standards, educational/training opportunities offered, and volume of business with carriers represented. Some agencies make these services available to all clients, some restrict them to certain clients, and others will charge for these services.
Most agencies are compensated by carriers through commissions that don’t vary from agency to agency. As a result, agency selection has little impact on the premiums paid but can greatly affect the value received for the premium dollars.
Your insurance carrier is legally responsible to pay claims for which coverage was purchased.
We’re fortunate in Wisconsin in that we have hundreds of insurance companies licensed to do business in the state, but not all are created equal. The most important consideration when selecting an insurance carrier is its financial strength. This can be determined by any number of rating agencies, such as A.M. Best. These ratings evaluate an insurance carrier’s ability to pay future claims. Beyond that, it’s important to understand whether the carrier has a familiarity with your industry, so that you can benefit from its specialized insurance products and claims-handling experience. Then your concern should shift to its local presence of staff, such as underwriters and claims adjusters.
The bottom line
Just like you want to be able to trust the jeweler to help you make the best decision when buying an unfamiliar product, you want that same guidance when buying insurance. In the end, you should look for the best combination of agency and carrier possible.
Steve Squires is the president of Hausmann-Johnson Insurance. He has spent a lifetime counseling businesses and individuals about minimizing risk and maximizing peace of mind.