Quality and Protectionism in the Insurance Market

Why Market Blocking Is Not Best for the Consumer or the Industry

The insurance business needs to lose a vestige of the insurance marketplace of the last century. Let’s become more friendly to competition and the free market.

For my 30 years in the insurance business, insurers have engaged in a market practice that is anti-competitive, restrictive to the free insurance market, and just plain wrong.

From the insurance buyer’s perspective, the practice is called “market blocking.” It is the tradition that an insurer will only provide a proposal to a single agent — blocking all other agents from accessing that market for that insurance buyer.

For as long as anyone I know can remember, property and casualty insurance companies have only provided proposals of insurance to a single agent for a particular insurance buyer.

If Brown Company wants a quote from Insurance Agent A and Insurance Agent B, Peerless Insurance will only provide a quote to the first agent with applications. The same is true of Hanover, Acadia, MEMIC, OneBeacon, Hartford, Travelers, Chubb, AIG, Philadelphia Insurance, Maine Mutual, and every other insurer I can think of.

Agent A and Agent B will not be able to deliver a business insurance proposal from the same insurer.

For many agents and insurance buyers this means that there is little real choice, as different insurers have different appetites.

In some cases, agents game the system by firing off applications to insurers for no other reason than to keep other agents from participating in a bid. This practice of blocking limits competition and therefore has a negative impact on the marketplace. Restricting the ability of agents to compete for business leads to higher prices for insurance buyers.

This is clearly anti-competitive and allows certain insurance agents and brokers to control the marketplace without value to the insurance buyer. It is certainly true that the insurance buyer can assign the insurer to another agent. Two agents can’t quote the same insurer though.

Imagine the price of any product without competition. Let’s open up the marketplace.

I am not advocating regulation. I abhor government intervention in the marketplace and I am a consistent and vocal opponent of rules and laws imposed on any industry. In my experience regulation is usually couched in terms of protecting consumers when in reality the protection provided is for the industry itself or for protecting regulator jobs. Regulations almost always restrict competition in some way and that is against the interests of consumers. Further, government intervention always limits freedoms.

I am asking insurers to end the anachronistic practice of market blocking and allow multiple agents to present quotes for a single insurance buyer. Allow the buyer to see the quality and professionalism of the agent through open competition.

Open Competition

Not only is open competition good for the insurance buyer, it is healthy for the high quality agent. Fewer restrictions on competition means that more buyers will see the professionalism of the agents they work with.

Insurance companies also benefit. More competition means more good business will come to insurers who will have a better chance of winning exceptional accounts.

Further, I call for an end to state anti-rebating laws. Allow individual insurance producers to determine the terms of the sale of a policy. If the agent wants to provide a lower premium to an insured by cutting commissions, then why not let them? Does a restaurant set a meal price? Can a lawyer not set her own fees? Let an insurance agent do the same?

I’m sure that many can come up with reasons to retain these market restrictive practices. None of them, I dare say, have anything to do with what is in the best interest of the insurance buyer.

Allow insurance buyers to judge the quality of the agent and the coverage offered. Allow agents to compete freely. Remove restrictions on competition between agents. Allow quality and not protectionism to rule the insurance market.

Topics Trends Carriers Agencies Legislation Market