You’ve probably seen all the commercials on television for direct auto insurance ranging from talking lizards to being in good hands. They make it sound like the best thing since sliced bread. It may be a no-brainer for the DIY crowd, since, you’ll be negotiating the insurance path without an personal agent. But rest assured, as they say, even a caveman can do it!
The business model is called ‘direct’ because the customer deals directly with the company without the intervention of an agent. The customer gives up the security of personal, on-going contact with the same human in exchange for lower rates. Like all insurance, the trade-off is a gamble. If your claims are straight forward, you may well be happy to deal with a direct auto insurance firm.
Many direct auto insurance companies confine their reach to states or localities that mandate some variation on a no-fault insurance system for all drivers. Under no fault programs, the need for insurance agents is greatly reduced. Under no-fault legislation, insurance companies compensate their insured drivers (and the driver’s passengers) for their losses in an accident without the need for an assignment of blame.
In no-fault localities, the cost of damages and losses is covered for every driver and the driver’s passengers by the driver’s insurer. If an insurance company wants to claim negligence on the part of the other driver, a civil case must be initiated after the compensation has been dispersed. Insurers know their bottom well and rarely go to court, absent evidence of fraud or other mitigating factors against claim settlement, so civil cases are reduced.
The purpose of going no-fault is to reduce wait times for accident victims. The only kink in the pipeline is at the insurance appraiser stage. No-fault states typically avoid creating a bottleneck in the claims settlement pipeline at the appraiser by instituting state-run or licensed collision centers. For these reasons, insurance companies are willing to run in no fault states exclusively and offer no agents but provide attractive discount rates.
But for consumers, the real weakness in the direct insurance business model is the position it puts the consumer in when at his/her most vulnerable. The human body is not a machine and evaluations of what it will take to recover from injury are not always reliable, primarily because full recovery, while always the goal, is not always possible. These types of claims are where a good agent is worth their weight in gold. The agent stays up to speed on your condition and navigates you through the claims process.
Caution and thinking things out thoroughly must be advised when making the decision to forego the insurance agent in favor of the discounts direct auto insurance companies offer. But if you’re willing to handle some of your own paperwork, then dealing with a direct insurer may be the way to go. Keep in mind that as the industry evolves, the more consumer friendly companies will be the ones to outlast even the best insurance agency in the neighborhood.
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