Why Buying Direct Business Insurance Means You'll Probably Have Gaps in Coverage

Running your own business is rewarding, but it also comes with challenges. One of those challenges is making sure your business (and your personal assets) are protected from the various risks that come from owning a business.

Insurance can help protect you and all of the hard work you have put into your business in the event a customer has an accident on your property, an employee injuries themselves, or an error on your part causes your client a loss. 

In the past, insurance was almost always sold by agents, but technology has made buying direct insurance quick and easy. While this model works well for personal lines of coverage, direct business insurance is not as common, mainly due to the complex risks that businesses face every day. 

Keep reading to find out if buying business insurance direct is the right move for your company. 

What Does Direct Business Insurance Even Mean?

Insurance can sold in a variety of ways, but there are three main options:

• Captive Agents: These agents represent only one company and sell their products exclusively. State Farm, Farmers and Allstate are great examples of insurers that have large networks of captive agents. Buying from a captive agent ensures that you are dealing with a person who is very familiar with that company's products and is an expert in their claims process.
   
• Independent Agents: These agents work with a number of insurance companies and are not beholden to any of them. They can pull quotes and write policies from a variety of insurers, which makes it easy for them to comparison shop and find the exact coverage you need. 
  Independent agents may specialize in a certain types of insurance and dealing with one who is familiar with your industry and your home town is always an advantage. 
  

• Direct Business Insurance: This is where you buy coverage direct from the insurance company writing the policy. GEICO is an excellent example of an insurer that sells direct. The main advantage of buying direct is cost savings. These companies don’t have to maintain thousands of agents or pay commissions to independent agencies, which allows them to pass that savings on to their customers. 

Study Shows Business Owners Willing to Take the Leap

While business owners are more willing than ever to consider buying direct commercial insurance, there are still significant doubts, and most still end up using an agent. 

According to a study by Deloitte, "Voice of the Small Business Consumer," 51% of those surveyed said they would either be very likely or somewhat likely to purchase insurance directly from carriers. 

The majority of entrepreneurs were mainly interested in general liability and property coverage. When it came to more complicated products like workers' compensation and professional liability, interest in buying direct dropped dramatically. 

Even if small business owners want to purchase direct business insurance, it’s not always a possibility. The Deloitte study shopped for business coverage at 14 small business carrier sites as well as six aggregators. Only one from each category allowed them to complete the transaction online. 

Independent Agents vs. Buying Direct

Businesses still recognize the benefits of using independent agents: about 85% of commercial policies are still written by independent agents.

Despite these impressive numbers, buying commerical insurance direct (at least some types) is definitely gaining ground. 

So what are the various advantages and disadvantages of each?

1. Choice: There are dozens, if not hundreds, of insurance companies writing policies in the marketplace, and independent agents are the only ones that can shop all of your options. In addition, independent agents can do all of the shopping for you and present you with the best options for your needs. 
   
   If you are buying commercial insurance direct, your choices are much more limited. You will have to spend time shopping multiple companies, and many direct insurers will not offer all of the coverage you may need.
   
   While general liability, property damage and commercial auto insurance policies can be purchased directly, for more specialized commercial products, your direct options will be much more limited. The reason for this is complexity. Business is full of risk, and making sure that all of your exposures are covered requires someone with deep insurance experience and knowledge of how to recognize the special risks that businesses face.
     
2. Expertise: Business insurance is complicated, even more so if you are in a specialized industry. An independent agent who has expertise in your particular industry will be well aware of the coverages you need and the risks that your business may face. When it comes time to make a claim, they will be able to speak the language of your business, make sure the claim goes smoothly, and ensure you are compensated fairly.
   
   Buying direct, on the other hand, often means you give up expertise to save money. Commercial insurance can be highly specialized by industry, and while direct insurers have call centers full of people ready to answer your questions, it is unlikely that those customer service reps are familiar with your location or industry. They may not be aware of specific risk factors that your business faces, which can lead to expensive coverage gaps. A non-local agent can also be a major disadvantage when it comes time to make a claim.
   
   
3. The Personal Touch: This is a big one. Independent agents live in your community, and they know when risks change or when you should consider new coverages. They are often an advocate for your business and make it their job to ensure your business is fully protected.
   
   Compare this to a customer service agent located in a call center in the middle of nowhere, which is usually what you get with a direct seller.  A call center employee is paid to answer phones, sell insurance, and resolve issues, not worry about whether your business is properly protected.
   
   
4. Price: There is no doubt that you can find cheaper coverage by shopping online. Selling direct allows insurers to cut out the middleman and go directly to consumers, which lowers their costs, and some of the savings are passed on to their customers.
   
   On the other hand, Independent agents make their living by serving their customers. There is a cost for that, and you will pay some of that cost via fees. In most cases, the fees tacked on by independent agents are fairly minimal  (insurance companies pay them a commission, which makes up the bulk of their income) and won’t have a major impact on your premium. 
   
   
5. Convenience: Shopping online is convenient and easy. While you may not get the personal touch, using a direct insurer's website allows you to shop for coverage any time of the day or night.
   
   This is not always the case with independent agents, who have regular office hours and will probably not be able to send you a coverage quote at two in the morning. 
   
   While independent agents have many advantages over direct sellers, it’s important to remember that not all independent agents are created equal. As in any industry, there are bound to be some bad apples. If you feel your fees are excessive, your agent doesn’t handle claims and questions promptly, or they always seem to be trying to sell you something, it may be time to shop for a new broker. 
   
   Ask friends, family members, and business colleagues for recommendations; any names that come up frequently are probably solid agents to consider. 

The Bottom Line

Direct business insurance often works well for personal lines of insurance and even some basic business coverages, but when it comes to more complicated insurance such as errors and omission or workers compensation, having a local agent in your corner is still a distinct advantage. 

Protecting your business with the proper insurance is a necessity and a Trusted Choice® agent can help you identify risk factors for your business and make sure you are fully covered. 

Start protecting your business today, contact a Trusted Choice agent now.