If you take a look at your insurance policy or Auto Insurance ID cards, you may notice that the "issuing insurer" name may be vastly different from the brand name you recognize as your insurance carrier. Do not fear, you're still covered by the name brand company. There are just some legal technicalities at play. There are three main strategic advantages for insurance carriers to have more than one issuing insurer.
Pricing Segmentation
State regulations require insurance carriers to apply their underwriting rules equally to all consumers. For example, if the insurance carrier's underwriting rules state that a surcharge is added for all claims occurring in the past 5 years, they couldn't waive this surcharge for me and not you because they thought I was a nice guy. That would be considered discriminatory. This is the reason why we can't lower your premium just because you ask us to do so. Unlike other industries, such as car dealers or department stores, we can't arbitrarily adjust prices to make a sale or satisfy an unhappy customer. While good intentioned, these legal parameters can result in unforeseen consequences. Specifically, they can limit the options insurance carriers can provide to different types of customers. Therefore, some companies choose to have multiple issuing insurers so they can provide more competitive rates to less claim prone customers. For example, MetLife uses the Economy Preferred Insurance Company or EPIC for preferred drivers. Therefore, if you meet certain criteria, you can qualify for coverage with the Economy Preferred Insurance Company and take advantage of lower rates than a customer with a less than stellar driving record. Those drivers that don't qualify for this preferred program can still qualify for coverage with MetLife, however, they may be placed into the Metropolitan Property & Casualty issuing insurer. This helps to stabilize prices for preferred drivers as it allows MetLife to target rate increases to one issuing insurer over another. The end result is better drivers are rewarded with better prices.
Block Stabilization
Similar to pricing segmentation for new business, block stabilization allows insurance carriers to avoid disruption to a well-performing block of policies while implementing changes for new policies. If carriers have loyal policyholders that have been with them for a long time, the carrier may not want to upset the applecart by implementing price or coverage changes. However, the need to stay competitive and/or the need to meet the changing challenges of new business, may require the carrier to develop a new rating model. Therefore, a carrier can close an existing issuing insurer to new business and establish a new issuing insurer. This allows well performing, seasoned business to remain on the books without any disruption but also allows the carrier to compete for new business in a changing marketplace.
Distribution Segmentation
As there are different distribution channels, some insurance carriers use different issuing insurers to differentiate between them. For example, Liberty Mutual traditionally sold personal lines products such as auto and homeowners insurance only through Liberty Mutual captive agents. Therefore, if you wanted to get a policy with Liberty Mutual, you would have to purchase it through a Liberty Mutual agent; I couldn't sell the product to you since I'm an independent agent, not a captive agent. To reach more consumers, Liberty Mutual purchased Safeco Insurance several years ago as Safeco Insurance is only sold by independent agents. Therefore, I can sell you a Safeco policy but not a Liberty Mutual policy and a Liberty Mutual agent can sell you a Liberty Mutual policy but not a Safeco policy. Although both companies are owned by the same parent company, they each serve different distribution channels through the utilization of issuing insurers.
Michael Lloyd