Everyone is paying too much for insurance. At least, that’s what the advertisements run by major insurance companies would have them believe. Whether an ad is for a “name your price” tool, a claim that the company will sell the consumer “only” what he or she needs, or a mention of savings after a funny video about woodchucks, the message is that the price of a policy is paramount.
For insurance agents, this way of selling is bad for both consumers and the agents’ bottom lines. The better approach is to focus first on coverage and second on price.
Before a loss, a consumer naturally wants to pay as little as possible for insurance. Losses are theoretical at that point. After a loss, his focus is, “Am I covered and for how much?” Selling coverage leads to more satisfied customers in the long run. Tim Wahl of Gallaher Insurance Group in Clayton, Missouri says, “Once people understand how they can be sued and how their future wages can be garnished, they are usually very open and willing to purchase insurance limits at a level that will better protect their assets and lifestyle they have worked so hard to obtain by purchasing an umbrella policy or better primary coverages.”
Long Island agency owner David Clausen focuses on protection and customer experience for his high net worth clients. Using technology, he says, “(W)e’re able to improve client relations, anticipate their needs and provide fast solutions.”
Selling coverage also reduces an agent’s vulnerability to errors and omissions liability lawsuits. Even with additional coverage or higher limits, an uninsured loss is always possible, but it is less likely. Also, if the agent has documentation that coverage was offered and rejected, it will be much easier to defend against a future E&O claim.
Often, clients are unaware of how little coverage they have. Bill Wilson of InsuranceCommentary.com tells the story of a contractor he interviewed to cut down some damaged trees at his home. The contractor proudly said he was fully insured and showed Wilson a copy of his Commercial General Liability Insurance policy, for which he had paid $700. The policy covered only tree trimming and pruning and excluded ongoing activities. In other words, the contractor had no liability coverage for cutting down trees. This was an uninsured loss waiting to happen.
Another benefit of selling coverage is that it may increase commission income. Often, higher limits do not significantly increase premiums, so the commission gains may be slight. However, some badly-needed coverages, such as for earthquake damage, may generate sizable commissions. While protecting the client should always be the agent’s top priority, the extra commission is a clear upside.
Coverage also helps keep customers around. Former agency owner Joe Totah, founder of Strategic Agencies, LLC (publisher of AgencyEquity.com) says the proper approach is always to make certain the client is not underinsured. “This is what wins referrals and policyholder longevity.”
In a numbers game, there will always be a competitor somewhere who can beat an agency’s price, whether through reduced limits, higher deductibles, exclusions or eliminated coverages. These methods leave consumers exposed to uninsured losses they don’t expect. Competitors may offer better prices but not necessarily better or even the same coverages.
Totah says that a price focus sends the wrong message. “Doctors and most other professionals who run a practice almost never say ‘call for a quote’,” he notes. Agents who focus solely on price, he says, are telling customers they have no other value.
Wilson says that price competition inevitably leads to uninsured losses. Eventually, he says, carriers will be as efficient as they can be. After expense ratios are lowered to a minimum, the only way to be cheaper is to reduce losses and claim handling expenses. Noting that some firms are bragging about quotes in two minutes, he says underwriting will not reduce losses. That leaves reduced coverage. “(N)o one much will notice,” he says, “other than the families who lose just about everything they own because they bought an inferior product.”
The price will always matter. However, agents can help their clients and themselves by focusing on the benefit side of the cost-benefit equation.
