Auto Insurers Move to Direct Sales

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A trend has been emerging over the past decade that could spell a massive change in the way insurance companies reach customers, and the way customers buy insurance. In 2000, most auto insurance policies were bought through an insurance agent – a third party company that was able to offer discounts, and still collect a commission on insurance policies that were provided by large insurers. At that time, fewer than 10% of policies were bought directly from large insurers.

In 2005, however, Progressive Insurance noticed that as many as 34% of their policies were being bought directly from them. A concerted Marketing effort to drive personal auto policy sales to direct customers has seen this figure rise by over 2% a year, until in 2010 the company reported that as many as 45% of their policies were bought directly from the insurer.

Over those last five years Progressive has grown to become the fourth-largest insurance company in America, and it doesn’t show any sign of slowing down or cutting back on its direct sales efforts. This trend is not unique to Progressive, either. “Some of the larger auto insurance companies are approaching the point where they’ll be selling more policies to drivers directly than through agents,” says Cesar Diaz, CEO of quote-comparison site “Others, though, are behind the curve and are just now focusing on direct channels.”

Old Tactics No Longer Effective

With the rise of insurance quote comparison websites, insurance companies have to be increasingly creative in their marketing efforts in order to continue to appear to offer a good deal. With greater volumes comes less personal attention to each policy on the part of agents, and this means that companies need to deliver products that compete on a nationwide scale, and are attractive by virtue of being good value, not well-sold.

The reasons for this are simple. I have a foggy memory from my early youth, of an insurance agent sitting in my living room, talking to my parents over a glass of wine in the evening, and showing them different policies. It was easy for that one man to make a single policy look attractive, even though there might be better policies out there. It was impossible for my parents to compare the products easily, and even more difficult to persuade the agent that they wanted to shop around.

These kinds of high pressure sales tactics, combined with a reliance on customer ignorance, are no longer effective. Insurance comparison is now so easy that even those people who do not consider themselves to be comfortable with using the internet are able to compare auto insurance quotes online.

GEICO Insurance is another company that has scored big on the direct marketing front. They have grown to be the third largest insurer, and are rated as the No. 1 direct insurance company by Standard and Poor’s. They owe their success to a marketing strategy and business model that is entirely focused on direct-to-customer channels, and they maintain only a small handful of agents.

They say that gearing their entire business towards selling direct to customers has enabled them to remain extremely competitive, and keep the cost of providing cover down. Previously, many insurance companies could sell direct to the public, but the resulting overhead meant that they couldn’t compete with smaller insurance agencies, who made dealing with such overheads their business.

In May this year, comScore released a report based on a survey of 4,000 American internet users, which showed that the number of policies they bought through an agent, in person or over the phone, declined by 6% since 2009. Meanwhile, the number of people who bought insurance through online channels increased by 5%.

Why the Change?

A survey in early 2000 showed that most people felt that the process of buying insurance directly from a provider was too complicated, and seldom resulted in getting a better deal than if you bought it through an agent. Insurance agents were able to take care of all of the red tape, play the role of educating consumers on behalf of the insurance providers, and still manage to offer good deals because they bought policies “wholesale”.

Lately, however, insurance providers have begun filling their websites with useful information to help consumers, and partnering with insurance quote websites to enable consumers to compare their products directly. Consistent efforts to make policies simpler to understand and more uniform in their structures means that people now know what to expect, what to look for in the fine print, and what a good rate is.

If insurance providers continue to address the issues that prevented people from buying insurance from them directly, the need to use an agent will most likely decline to the point where the practice constitutes only a small proportion of those insurance policy sales made each year, rather than the majority.