What’s the Best Way to Buy Business Insurance?

Nov 22, 2017 | Greg Jackson

Earlier we talked about a 50-seat, newly opened restaurant in Mar Vista, California, a small community near Santa Monica, that had to close for four months because of a fire.

John Fanaris, who owns and operates Rustic Kitchen with his wife, knows the experience could have been much worse and credits his insurance — specifically, his Business Owner’s Policy (BOP) — for softening the blow. In fact, there were benefits in his BOP he didn’t even know he had until he needed them. We’ll talk about where to buy your insurance and from whom; but first, a primer on how the insurance industry works.

Avoiding the Inevitable

Many entrepreneurs know they have to have insurance, but it’s often the last thing they really pay attention to (especially in a start-up), and when they do they’re mostly concerned about what it’s going to cost. With employees, they know they have to have Workers’ Compensation. They know they have to liability insurance, and fire and theft and acts of God insurance and so on. But where to start and how much do they have to buy?

That’s where the kind of insurance company you choose can be important. There are several varieties of insurance companies, but very broadly speaking there are three types.

Direct Carriers

These are the big ones, like Geico, Allstate, and State Farm. Their salespeople are called “captive agents.” They work on commission or a salary/commission combo but they can only sell their company’s policies. You may think captive agents don’t have enough choices to offer while representing only one company, but that’s not necessarily the case. Direct carriers have a huge portfolio of options. As you can imagine, writing and selling insurance is a fiercely competitive business. They have to be price-conscious. In fact, direct carriers boast about saving you money by cutting out the middleman, that their in-house people are better trained and know their product lines inside and out. Of course, you might not get the same in-house agent every time you call.

Online Carriers

More a mode of delivery (virtual) rather than the traditional brick-and-mortar operations, these aggregate quotes and allow you to more easily comparison shop, even if you don’t get as complete a quote as you would with an agent. This represents a major upheaval in the insurance marketplace. Driven by the mobile shopping habits of Millennials, more and more insurance is sold online. This is particularly true where a company like Geico spends $1 billion a year on advertising and State Farm spends more than $800 million.

No matter how much they spend, not every company can deliver. Google Compare, for example, took a year’s run at selling auto insurance before giving up last March. A writer in the widely read Insurance Journal said, “Many believe that Google failed because it does not understand the insurance business.” Even Google hasn’t beaten the insurance game.

Independent Carriers

On the other side of the online and direct carrier business is the person working for an independent insurance agency. These may sell products offered by 30 or more different insurance companies, like Safeco, The Hartford, and Travelers. Usually there are several different agencies representing many different carriers in everybody’s hometown. They are truly small businesses in themselves. Their agents are available to sit down and chat about your business or your startup.

Wait a minute, you say, you don’t want to pay commissions, you don’t care if anybody buys you a coffee, you just want the best price. Again, remember how competitive the game is. The independent can shop your needs to a large array of underwriters competing for your business. Moreover, online comparison-shopping makes the whole process fairly transparent.

Then there’s the last element to consider when disaster strikes: you want service. Any driver who has dealt with a fender-bender knows that some insurance companies are a lot more responsive than others. It goes without saying: find one you trust so you can worry about other things.