Protect Your Hearth and Home...for Less

BY THE TIME you've haggled over the price of a new home and endured the financial strip search that is part of getting a mortgage, you may be inclined to go the easy route when it comes to homeowners insurance. That is, you may just leave it up to your friendly insurance agent to find you the best deal.

Bad idea -- at least if you want to save money. While an agent may be a valuable resource, shopping around on your own can save you big bucks off your premium -- as much as 50%. The reason is simple: By doing your own legwork you eliminate the middleman and his fat commissions. Independent agents are a font of information, but they usually can't beat the deals offered by an insurer that sells its wares directly over an 800 number (USAA, Amica or American Express, for instance). Even insurers with captive sales forces, like Allstate or State Farm, write cheaper policies. This section will familiarize you with the market so you know where to shop most effectively.

The Phone Folks
So-called "direct writers" are insurance carriers that sell their products directly to customers over the phone, without the benefit -- or extra cost -- of a fleet of agents. Some of the most active in the home market are:

It's very close to a sure bet that the lowest quote you get will come from one of the direct writers. These companies have the lowest selling costs, usually about 21% of premium income, compared with 28% for companies that use agents and 35% for independent insurance agents, according to Conning & Co., a Hartford, Conn., investment firm that specializes in the insurance industry.

There is one problem with direct writers, however. They are extremely selective. Amica gets most of its new business via referrals from existing customers. USAA limits its pool of potential customers to people with an armed-forces connection. American Express looks for new auto insurance customers among its cardholders (though you can call the company and ask for a quote even if you're not a cardholder). Amex then uses the auto-customer list to target potential customers for homeowners insurance.

Direct writers don't have an unusually high rejection rate -- USAA, for example, accepts more than 95% of applicants. But that's because they target their customers so carefully. If you are a high risk case (see Are You Hard to Insure?), it may be hard to find a direct writer to take your business.

The Captive Sellers
You should also try some of the big guys like Allstate or State Farm. They're known as "captive sellers" because they employ an in-house, or "captive," sales force. State Farm is by far the largest home insurer in the U.S., capturing 24.2% of the $24 billion in homeowners policies written each year. Allstate is a distant second, with a 12.5% share. Their local offices are in your phonebook.

These companies pay their salespeople commissions of about 8%, while the average commission at an agency writer such as Travelers is more like 13% to 20%. Because of their low commission structures, the Allstates of the world can often work up quotes that are competitive with the direct writers'.

The drawback to buying from an in-house agent is that he or she won't offer you as much choice in policies. And, if the company isn't writing the kind of insurance you need, or it won't cover high risk cases, the agent won't be able to help you.

The Agency Writers
For the cost-conscious, this should be your last resort. These are the companies that are represented by high commission independent agents. Among the biggest agency writers in the homeowners market are Travelers, Chubb and Safeco.

An independent insurance agent usually represents six or seven agency writers. A good agent is a storehouse of valuable information and advice, and many people are simply in the habit of buying all of their insurance from their local agent. But because of their high commission structures, the agency writers simply aren't going to be price-competitive. Say your agent sold you a policy with a $1,000 annual premium. At some companies, $150 of that premium goes back to the agent as commission. If you'd bought the policy from a captive seller, however, the agent would probably get no more than $100.

If agency writers are so expensive, why would anyone buy insurance through an agent? The simple answer is that the other insurers just won't cover some applicants, or will do so only at discouragingly high rates. An independent agent can sometimes shop around for you and find a deal you'd never find yourself. But it is still unlikely to be a low-cost policy.