What is the Best Insurance Sales Channel, Direct or Agent-Assisted Bill Wilson April 25, 2022
I was reading this article in the latest edition of the Coverager email newsletter: “The Big Bet” This was excerpted from a 2004 Berkshire Hathaway annual report: “But a man named Leo Goodwin had an idea for an even more efficient auto insurer and, with a skimpy $200,000, started GEICO in 1936. Goodwin’s plan was to eliminate the agent entirely and to deal instead directly with the auto owner. Why, he asked himself, should there be any unnecessary and expensive links in the distribution mechanism when the product, auto insurance, was both mandatory and costly. Purchasers of business insurance, he reasoned, might well require professional advice, but most consumers knew what they needed in an auto policy. That was a powerful insight.” Effectively, this expressed GEICO’s philosophy that: (1) most consumers know what they need in an auto policy and (2) agents are “unnecessary and expensive” links in the distribution mechanism.
The first premise is easy to dispel. The typical auto insurance consumer has absolutely no idea what they need when it comes to limits and coverages. The typical auto insurance consumer has no idea about the potentially catastrophic coverage differences between auto policies. I have written and spoken about this extensively. To illustrate, just search my web site for “commodity” and/or “commoditization.” The perception of auto insurance can be attributed largely to the almost exclusively price-focuses advertising of some members of the insurance industry and it’s reinforced by the hundreds or thousands of consumer media articles about “how to save money” on car insurance.
