Amidst the backdrop of a pandemic and a global economic downturn, the insurance industry has been rocked by a digitized customer experience, product innovation, and new players jockeying with time-tested organizations.
For people looking to purchase insurance, therefore, the process isn’t as simple or straightforward as it once was. There are more carriers to choose from, more authorized entities to work with, more options to consider, and multiple ways to purchase..
With so many ways to buy insurance, it can be difficult to truly know what your options are and make the right decision. To help you make an informed choice, this article explains the difference between an insurance company and an insurance agency, and examines the pros and cons of working with each.
What Is an Insurance Company?
An insurance company — also called an insurance carrier — is a single entity that sells an insurance policy to a customer. An insurance company creates the insurance policies and pays for the claims that it carries. In 2020, there were nearly 6,000 insurance companies operating within the U.S.
Types of Insurance Companies
Insurance companies can be classified in two ways:
- Mutual companies. This type of insurance company is wholly owned by its policyholders.
- Stock companies. Unlike mutual companies, stock companies (also known as proprietary insurance companies) are owned by shareholders.
Direct writers and captive agents are also considered a part of these direct insurance companies. While the two are quite similar, and the terms are sometimes used interchangeably, the difference between direct writers and captive agents is that direct writers have local offices, whereas captive agents do not.
Some of the more familiar examples of insurance companies include:
- Travelers (The Travelers Companies, Inc.)
- Progressive (The Progressive Corporation)
- Nationwide (Nationwide Mutual Insurance Company)
- Allstate (The Allstate Corporation)
- State Farm Insurance
- AmFam (American Family Insurance)
Of these, Allstate, State Farm, and American Family Insurance are also examples of captive agents or direct writers that have local offices staffed with local people. They only offer access to the carrier for whom they work.
What Is an Insurance Agency?
An insurance agency — also called an insurance agent or insurance brokerage — is a company or individual that is authorized by a carrier to sell the insurer’s products and policies. Insurance agencies don’t underwrite the policies, but rather they work to connect customers to the right insurance company. In exchange for this service, agencies are compensated for the sales they make. Agents are regulated by the laws of the states in which they are licensed.
Types of Insurance Agencies
There are two primary types of insurance agencies:
- Independent agents. This type of agency sells insurance policies and products from a range of insurance companies or carriers.
- Exclusive agents. Also referred to as “direct writers” or “captive agents,” exclusive agents are authorized to sell insurance policies of a single insurance coverage.
Out of these two options, independent agents tend to offer customers the best value since they have a larger pool of coverage options than exclusive agents.
According to the U.S. Department of Labor, the insurance industry employed 2.9 million people in 2020. Of those, 1.2 million Americans worked for insurance agencies and 1.7 million were employed by insurance companies.
How Do They Differ?
While they both operate within the same space, the difference between an insurance company and an insurance agency is simple. An insurance company provides the product, whereas an insurance agency creates a service in which they connect customers with the product.
To determine whether you should work directly with an insurance company or enlist the help of an agency, it’s important to look at the benefits and drawbacks of each.
Working With an Insurance Company
Insurance companies are likely the entities you’ve seen advertised — their brands are highly recognizable. If you choose to go with an insurance company for your insurance needs, you also need to decide which route to take. When dealing with a direct-to-consumer insurance company there are different ways to work with them.
Once you’ve decided to use an insurance company, you have the option to:
- Work with a direct-to-consumer company
- Get assistance from a captive agent
All three options fall under the category of an insurance company, but their processes vary. A direct-to-consumer company, as its name suggests, cuts out the middleman and offers you a policy without involving other entities. Progressive and Geico are two examples of insurance companies that offer a direct-to-consumer model.
A captive agent, on the other hand, works for an insurance company and has a local presence. Outside of that, there won’t be much in the way of differences between a captive agent and a direct-to-consumer company.
Insurance Company Pros and Cons
While purchasing directly from an insurance company may seem like the easy choice, there are drawbacks to going directly through an insurance company, captive agent, or direct writer.
- They have a good handle on technology. Insurance companies have leaned into the world of digital technology to deliver their product. If you prefer the convenience of websites, mobile apps, and tech-friendly service, insurance companies are your friend.
- Many offer 24/7 support. In many cases, your insurance company will have 24/7 availability. If you have any questions or require assistance outside of traditional, 9-to-5 hours, you’ll be able to speak with an agent right away.
- They’re available in most states. You’ll be able to find an insurance company, regardless of where you live. Many insurance companies have a large footprint, so they’re able to offer their product to more customers.
- They make for good television. Let’s face it: insurance companies have a reputation for creating funny commercials and injecting humor into your day.
- They’re limited by nature. Since insurance companies can only offer their own products and policies, you may not necessarily be getting the best fit for your needs.
- They aren’t place-based. If you’re dealing with a direct-to-consumer insurance company or a direct writer, your agent won’t have an understanding of local risk. And, if you prefer in-person assistance, they don’t have a local presence.
- You can’t build a relationship. When you choose an insurance company, know that you’ll have to talk to someone different every time you make a service call or claim.
- They have no incentive to fight for you. Agents at insurance companies don’t shop around to find the best deal for you — they only sell their product and aren’t incentivized to hunt down the perfect policy for your needs.
Working With an Insurance Agency
If you opt to work with an independent insurance agency instead of a bank-owned or private equity firm-owned company, expect to have a different experience. Insurance agencies offer several distinct advantages, though they, too, come with their own drawbacks.
Insurance Agency Pros and Cons
- They have more options. Because insurance agencies offer insurance coverage from many different carriers, your insurance agent has the ability to shop around for the best coverage at the lowest price.
- You’re not stuck with one rate. Along the same lines, if you work with an insurance agency that has access to policies from multiple providers, you get more competitive prices.
- They operate using a customer-first approach. The job of an insurance agency is not to work with a specific company, but rather to find the best fit for your needs.
- Most are full-service agencies. Instead of shopping around for different companies and insurance policies to cover various aspects of your life, you can work with an agency that offers a full range of auto, home, life, health, business, and commercial insurance.
- You get a more personalized experience. If relationship-building is important to you — or even if you simply want to avoid having to rehash every pertinent detail of your life to a customer service representative — insurance agencies set you up with an agent that will be your ongoing contact. This means one contact for questions about your policy, coverage, and claims.
- They’re place-based. Your insurance agency will have intimate familiarity with your local area, and they will have a solid understanding of local risk. Not only that, but your agent can respond quickly to claims — in person, when necessary.
- They’re invested in the community. Insurance agencies support local charities, sports leagues, schools, and the surrounding community that they’re operating within.
- You’re creating two relationships instead of one. By working with an insurance agency, you’re building a relationship with the agency itself as well as the company that owns your policy. It’s always a good idea to check with your agent to see how these relationships work and how much communication you’d be responsible for.
- They aren’t available everywhere. Insurance agencies have a smaller footprint, and they are not available in all areas or states.
- They work with smaller technology budgets. Because insurance agencies are selling their service, as opposed to a product, they don’t always offer the same mobile app experiences or web presence as insurance companies.
- They aren’t open 24/7. If you have a question about your policy, you’ll have to wait for regular business hours to speak with a representative.
Things To Look For in a Reputable Insurance Agency
It’s more straightforward to pick an insurance company because you can make your decision based on a product. When finding an insurance agency, on the other hand, you’ll need to compare services instead, and that can seem confusing to first-time purchasers.
To select a reputable agency, judge your options based on their knowledge of the industry and their track record for trustworthiness and customer satisfaction. Search for online reviews, check out their web presence, and compare your list of needs with their offerings.
For example, do you require an agency with online capabilities? How responsive are their team members? Do they carry the policy types that you’re hoping to purchase? Are customer reviews mostly positive, fairly neutral, or overwhelmingly negative? Do customers refer to agents by their names
When you have a shortlist of insurance agencies, check out their websites to see if they highlight client testimonials. A reputable insurance agency will be forthcoming about their credentials, which types of insurance they’re most familiar with, and will have built a positive reputation in your community.
Simplify Your Insurance Selection Process
Deciding between an insurance company and an insurance agency doesn’t just come down to price. Having a one-stop shop has several advantages. You need the proper coverage that fits your needs through an insurance company or an insurance agency that meets the standards you expect.
Sick of calling 1-800 numbers when it comes time to file a claim or ask a question about your insurance? It might be time to make a change. Torian Insurance is an independent insurance agency that makes the entire process of insurance selection simple and easy to understand. We will analyze your current coverage and consult by explaining options clearly so you can make the right decision. All of our contacts are located here in Evansville, Indiana. Contact Torian today if you would like to learn how we can find the right fit for you while saving you the hassle, time, and money.