When Customers Move to Direct Writing Insurers

 

Question 1

“A local publication ran an article about Walmart selling insurance. The author did not consult with any agent or other insurance professional I’m aware of. It included this claim:

‘Customers can enter their name, address and birthdate, and the AutoInsurance.com system will pull up their current policy, even if it’s through a different insurance provider. From there, customers can compare and contrast their current policy with those offered.’

“Is this even possible? And I don’t see any method of reviewing a prospect’s exposures to loss. Is buying insurance from Walmart or online a good idea?”

Response 1

Here is a claim a Florida member’s former customer had when he left the agency and went with an online insurer, one of the Walmart auto insurers in the article, in order to save a few dollars. He had her insured with an independent agency company with 100/300/100 in liability and UM coverage and physical damage coverage. After she left to go with the online insurer she had a denied claim so, of course, she now turns to her local former insurance agent for help, the agent she dumped to save a few dollars while buying a significantly inferior product with lower limits of 25/50/25.

As I understand it, she bought a replacement vehicle and the new policy did not give her the same amount of time to notify the carrier as her former policy. She had an accident and the insurer denied the claim. Its policy had all kinds of exclusions and limitations not in her former policy. For example, when she acquires a new auto it’s covered (with proper notice) only if “it meets ‘our’ underwriting guidelines.” What does that mean? There is a physical damage coverage limit on nonowned autos, including rental cars. There is no coverage for business use of an auto except for a declared auto when the insured has DISCLOSED such business use and paid an additional premium for it…think anyone might run to Staples for their employer and have an accident?

As another example, an Iowa insured went with a carrier that advertises very heavily. VERY heavily. His current auto did not not have physical damage coverage. After work one day, he went auto shopping for a new car and ended up driving it off the lot that evening. The next morning, he was on his way to work (and allegedly to report the new auto to this insurer) when he had an at-fault damage causing significant damage to the auto. This insurer’s policy did not provide ANY physical damage coverage for a newly acquired auto unless an existing auto has physical damage coverage. Contrast that to the plain vanilla ISO PAP which provides 4-days of coverage (with a $500 deductible) for a newly acquired auto even when there is no coverage currently on the policy.

To quote legendary salesman Morty Seinfeld:

“Cheap fabric and dim lighting. That’s how you move merchandise.”

If you buy on the internet or otherwise from a direct insurer, you have no idea what you’re buying because you have not availed yourself of the counsel of a knowledgeable independent insurance agent. You’ve had no one spend appreciable time with you, helping you identify YOUR unique exposures to loss (frequent rental car use, pizza delivery, hauling Cub Scouts, Uber driving, etc.) and properly insuring them.

Most of all, you have NOBODY to advocate on your behalf if you have a claim that is improperly denied. I wrote about another claim from a different insurer that also advertises heavily, VERY heavily. The insured was forced to sue the carrier and take the case all the way to the state Supreme Court in order to recover and the claim still was not fully covered. The loss, on our opinion, would have clearly been covered by an ISO PAP.

We have devoted an entire section of the VU to this attempt to commoditize personal lines, especially auto insurance:

“Is Personal Lines a Commodity?”

Take some time to review the material to better understand the problem. Feel free to reprint any of the VU material, maybe as a recurring agency newsletter column about “Is Insurance a Commodity?”

I’ll close with another quote, from John Ruskin:

“There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.”

Last Updated: February 6, 2026