Simple Solutions

Once upon a time a doctor on Main Street USA made the same diagnosis and prescribed the same solution for every patient. This was a long time before WebMD or even Marcus Welby, MD. Patients had to weigh their two options (excluding patients with obvious physical injuries): knowing already what the diagnosis and prescription was going to be before ever walking into the doctor’s office versus traveling long, hard hours by buggy or horse to a city doctor who might provide a different diagnosis/prescription.

Even though everyone in their community got the same diagnosis and prescription, and therefore logic itself suggests most of the doctor’s diagnoses were wrong, the prescription was usually harmless and 90 percent of the time, patients recovered. The doctor made enough money and was well enough respected that he had little incentive to take updated medical courses, especially when he too would have to travel hard roads to take the courses. Why make the effort to improve his diagnostic ability when 90 percent of the time, his patients improved!

Eventually, the state announced a plan to pave the road to the city to accommodate the growing number of automobiles. Vehicles soon traveled the new asphalt and the trip to a city doctor was fairly easy and affordable. The doctor’s income began declining and he got upset about the new-fangled competition, and how better education didn’t replace decades of experience, how the new medical technology (what is rudimentary today) could ever substitute for his psychic ability. He never understood that being an upstanding member of his church and community along with his 90 percent success rate were not substitutes for quality medical care. He never understood he was a fraud.

2015 – Insurance Distribution

Agents across the land have 90 percent retention rates in standard lines. They are usually upstanding members of their communities, country clubs, churches, and business associations. They are good listeners to their clients’ problems and they generally make good income. The new highway is being paved and they see it. They deny the commoditization of insurance but they have been offering the same diagnosis over and over and over for so long that insurance is already commoditized in many locations and lines and the agents did it to themselves.

For example, in auditing homeowners files, interviewing personal lines CSRs and running reports showing homeowners coverages, the vast majority of consumers are offered replacement cost on the structure and property and no other endorsements. A large proportion of homeowners, maybe a majority of homeowners need other coverages such as flood, earthquake, ordinance and law, water backup, schedules, extra coverage for firearms, in-home businesses, and umbrellas, to name just a few important additional coverages.

Worse, most homeowners are not even offered higher liability limits. It seems that most CSRs and agencies think higher limits means $250,000 or maybe $300,000 or a few think it is $500,000. Higher means higher. Higher does not mean a specific number. In other words, almost no one is offered limits higher than what they’re quoted or request.

The net result is a commodity policy. Everyone gets the same coverages with different limits and any coverage differences inherent to a particular company’s form are glossed over if even mentioned. Agents have created a commodity policy.

Business owner policies (BOPs) are possibly an even worse/better example. Better because a business should never be treated as a commodity and worse because the coverage differences are even more significant making the commoditization a worse mistake and a greater errors and omissions (E&O) hazard.

E&O exposure increases for many reasons including not offering clients the right coverages but also because when clients are moved from one BOP to another BOP, agents often are not advising clients of the coverages lost and professional agents have a responsibility to do so. Not only then are agents putting themselves out of a job but increasing the lingering liability too.

Cyber coverages are a more recent addition to the list. I hear agents and company people talk about cyber as if they actually understand the risk or coverage. They don’t or, if responsible, they would be discussing the significant differences between different companies’ forms. The differences are so significant a blanket term like “cyber” simply is an abuse.

Commoditization

The examples go on and on and on and because they go on and on and on, commoditization has become the rule, not the exception. Historically consumers have been stuck in a small town so they bought from the person they most trusted. However, they knew, maybe not cognitively, but they knew the diagnosis and prescription was the same every time – a basic HO-3 without questions or a BOP with $1 million liability, etc., etc., etc.

They knew, even though agents did not seem to understand, that a 90 percent retention rate was not indicative of satisfaction but instead was indicative of inertia and lack of alternatives.

The agent insurance distribution system was broke long before the new highway of web-based insurance providers and mega advertisers began growing their market share. Agents were just small town doctors in a fortuitous place that were not making the correct diagnosis 90 percent of the time but because more than 90 percent of clients didn’t have claims in any given year and probably 99 percent did not have uncovered claims that could have been covered, agents had 90 percent retention rates.

As much as I personally dislike, viscerally dislike, commodity insurance sales, what these new entities are doing is taking advantage of a broken system. They are calling out those agents who have made a good living for years selling the same diagnosis and prescription, and while these new entities are even worse at times, often offer the same coverage, and often even more inadequate, they sell more effectively. They are marketing more effectively.

For all those readers seeing crimson, do not confuse intent with reality. I am not suggesting most agents did not and do not intend the best results for their clients. However, they sell consumers what they think the consumer will buy, not what the consumer needs. They have not stayed current and some, due to the deteriorated state of continuing education (CE), have never been current on their coverages.

The solution is not to avoid investing in marketing, social networking and call-in business. That is trying to go back in time, keeping the same life style and at best, play the same game as the bigger commodity players. It is an absolutely losing proposition proselyted by sales consultants always wanting to be at the forefront of the latest new thing and is being sold to desperate people trying to hang on rather than develop.

The opportunity is to follow medicine. Technology exists now to personalize medicine. Insurance is not nearly as complex as human DNA so if medical prescriptions can be specific to an individual, why should insurance not be sold extremely individualized? It’s time to diagnosis each client’s needs individually and provide them with the coverage they need.