Shopping for car insurance online gains steam

The model for shopping for car insurance has largely remained unchanged for decades. In fact, it may not have changed much since the advent of auto insurance itself. Companies that offer protection for vehicle owners offer their products through a network of offices, each staffed by a number of agents. The agents provide a contact point for the consumer and act as both salesperson and cashier. If the consumer has a claim, they go through the agent to handle it. The agent receives compensation in the form of salary, commission, or both, depending on the company.  This system has worked well for decades, and particularly works well in small towns, where consumers were accustomed to knowing everyone with whom they do business personally.

This process is changing with the increased popularity of the Internet. Instead of making phone calls or driving around town to compare prices or instead of simply using the same agent your parents used, consumers can now surf the World Wide Web to find their car insurance policy.

Consumers like using the Internet to shop, as the results can be obtained quickly and policies from several companies can be compared in a matter of minutes. In many cases, consumers can complete a form and obtain a policy online, without talking to an agent at all. Claims are handled by calling a toll free number and a claim adjuster is then assigned to help the consumer with his or her problem.

Sales are up; a recent study showed that the number of online car insurance purchases increased nearly 30% last year over 2004. Some companies, such as Geico, have long pursued selling directly to consumers rather than going through a network of agents. The results seem to be working for the company, owned by Berkshire Hathaway.

Some other companies are a bit more skeptical. One major insurance company will allow consumers to obtain online quotes for their policy, but will not sell them the policy over the Internet. If the customer wishes to buy, he or she must contact an agent directly to make the purchase. This hybrid model probably won’t last too long, as consumers are becoming more accustomed to being able to transact over the Internet. Still, if the savings are substantial, many buyers will probably still be willing to contact an agent directly.

Over time, the traditional agent-as-salesperson model will probably go away. While it is nice to do business with the same person over and over, the direct to consumer model used by Geico is far more cost efficient. In time, the competitive nature of the business will probably force most insurers to follow suit. It is a simple matter of keeping costs down

Do consumers suffer this way? Probably not. We are not aware of any studies that show that knowing an agent personally enables consumers to receive better service than by doing business with whomever answers the phone.

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