DIRECT WRITERS
As our economy and markets have changed, other insurance marketing channels have developed. While these alternate marketing channels for insurance initially focused on motor vehicle insurance, more recently they have expanded to include homeowners insurance as well.
The problem with these direct marketers is that there is no practical ability for the average insurance buyer to compare the terms and conditions of the policies offered in order to determine whether or not the coverages offered meet the needs of the insurance buyer. And there is no one to provide any counseling with respect to decisions involved in the purchase.
You do not have the ability to call on the services of an agent to help you choose the policy limits appropriate to guarantee that you have sufficient coverage to repair or replace your residence and possessions in the event of a major loss.
Many of the 800-number or Internet sellers of insurance have engaged in widespread television advertising of their policies. These TV commercials frequently emphasize potential premium savings as the inducement to buy that company's policies. Premium savings does not mean much without advice about variations in optional coverages or how much in limits the average person needs to purchase for adequate protection.
These direct sales operations present a potential trap for the unwary by creating a serious risk of uninsured or underinsured loss exposures. A particular disadvantage of many such direct marketing insurers is that there is often little or no opportunity to review the policy forms utilized to determine whether they contain unanticipated restrictive terms. Certainly, in order to be licensed to sell policies in any particular state, the policies' terms necessarily will be in compliance with that state's minimum requirements. However, that does not ensure that such policies will necessarily provide best coverage for your particular needs.
Compounding this problem is that most insurers charge a penalty if a policy is issued and then cancelled at the insured's request midterm.
EXAMPLE: You purchased a one-year policy and cancelled it after two weeks because you discovered it contained restrictive terms that did not provide coverage for a particular loss exposure. In this situation.
you will receive a refund that is less than fifty-weeks worth of the premium. Unless a direct marketing insurer offers the opportunity to examine the policy in advance or offers a no-charge return policy, you might want to pass. Instead, avail yourself of the services of'a local agent you can meet in person and discuss your insuran¢ needs with to obtain the best compromise between cost and extent of coverage provided.
RETAIL VERSUS WHOLESALE BROKERS
Many insurance consumers will never need to deal with the concept of retail brokers versus wholesale brokers. An insurance broker is the agent of insured and can submit applications for coverage to insurers for which the broker does not have an agency appointment.
Some insurers will only accept applications from a broker with which they have an agency relationship. In addition, coverages can be placed with nonadmitted insurers only through an excess or surplus lines broker.
A wholesale broker is a broker involved in the procurement of a policy that does not have a direct relationship with the insured. For example, an applicant for a personal auto policy might not be an acceptable risk to standard carriers due to a variety of underwriting factors, such as age or poor loss history (i.e. excessive number of citations or accidents). The problem is, in many states, surplus lines regulations and statutes are not scrupulously observed. And, when they are not, it is usually to the average consumer's disadvantage.
If an insurance agent you may have turned to suggests that he or she is going to provide you with a quote or recommends that you purchase a policy through a nonadmitted insurer (a surplus lines broker), you should start asking some pointed questions as to why.
A policy issued by a nonadmitted insurer in your jurisdiction is not protected by your state's insurance guaranty fund. In the event that insurer becomes insolvent, your policy is worthless. For the sake of some premium savings, you are completely unprotected in the event of insolvency of a nonadmitted insurer.
When you place insurance with an admitted insurer, you are protected up to the limits established by your state's insurance guaranty fund in the event your insurer becomes insolvent. In general, that means you get a lawyer appointed to defend you if you get sued and a covered judgment or settlement will be paid up to the covered statutory limits of your state's guaranty fund.
It also means that your covered automobile physical damage claim or claim for damage to your house or possessions will be paid, subject to the statutory limits.
For example, in California, under Insurance Code section 1063, the maximum amount of a claim payable by the California Insurance Guaranty Fund is $500,000. That is an amount sufficient to cover most serious liability claims that the average homeowner is likely to face. It also is an amount sufficient to cover many partial losses to a residence and contents, even though, in the face of escalating construction costs, it may not, in some cases, be sufficient to cover total losses.
To find out more about Insurance Direct Writers, you can read my next post on Insurance Direct Writers (Part 2). At mean time, you can get all insurance information at Secrets Of Insurance.
