InsureTech, Transparency & Communism

 

The title alone may elicit anger, bewilderment, curiosity and who knows what other emotions. The reason these movements and cultures are similar is they promise regular people some advantage based on an obvious current disadvantage. But then they take advantage of these same people.

In his writings, Marx analyzed the serious disadvantages existing then that extremely few people could ever break through to achieve a decent life. People were actually shrinking in size, physically becoming smaller, because their disadvantages were so great in the early- to mid- 1800's in much of the Western world. Analyzing the situation correctly, down to the willingness of many in the moneyed class to use violence to keep people in their "place" gave hope to followers of socialists and communists. They hoped the leaders of these movements had solutions for decent lives. These leaders then used the populace's desperate desire for a solution to do a bait and switch. Over the next 100 years, the bait and switch resulted in 30-40 million people in these countries dying, usually starving, but sometimes being massacred by their own government.

Believe it or not, that is a history lesson that applies to insurance. The populace does not trust this industry. They do not understand their insurance contracts even if they ever read them (and neither do many people with insurance licenses). The populace sees insurance as totally opaque. Their feelings are fed by the advertisements of attorneys promising the need of their skills to make sure claim settlements are fair. Their feelings are fed by rejections of medical claims and skyrocketing premiums. Their feelings are fed when a clearly uninsured driver fails to observe a stop sign resulting in severe injuries but the UM claim is denied because the injured driver was possibly a tiny bit at fault (this is a true claim that I witnessed). That claim should be paid even if the driver was somehow, for sure, a little at fault because the spirit of uninsured motorist coverage is to provide coverage when the other driver is inadequately insured and at fault, and a 98% at fault is a legitimate UM claim.

Insuretech firms have analyzed consumers' feelings toward insurance with far more precision and insight than any agents' association, carrier, or market research firm previously. Then these firms actually listened to the research results rather than proclaiming, "That's just the way it is!" The key element is transparency of pricing, claims, and coverage. I am all for transparency. Transparency is definitely needed on many levels in this industry, including agency compensation.

However, some insuretech firms have maybe done a communistic bait and switch. On the one hand, they promise transparency. On the other hand, I saw a policy that had almost no coverage. The price was cheap. People want to believe the party that analyzed the problem has an ethical answer so they fail to initially question the new preacher. Meanwhile, the preacher provides transparency (pricing) while obscuring the offset (less coverage). Not having quality coverage after a large claim can bankrupt (starve) a client.

Another example is financial wherewithal. I saw a traditional carrier with an A+ rating compared against a nontraditional carrier rated an A-. The agent did not even take the time to learn the latter was not technically an insurance company. Alternative forms of insurance are not the same as insurance companies and while they carry benefits, they carry extra risks that needs to be disclosed.

This is all kind of like airline pricing. A ticket is $100 but if you want to take a bag it is $100 more and if you want a seat it is $300 and if you want a seat that fits, the price is another $700. But if the advertisement says $100 versus one that includes everything advertised at $700, the $700 seat is at a disadvantage. Firms like this have discovered they can make what they are selling appear much more transparent than it really is, and what comes later is anything but obvious to the consumer.

Agents and companies do need to become more transparent. From this perspective, the disrupters may be providing the best motivation for the existing players to greatly improve. Here are a few, simple steps for transparency:

Agents: Always offer at least three quotes. Offering only one quote provides zero transparency toward your efforts to go to the market to find clients the best deal. They only see one quote. How do they know you even went to the market? How do they know differences in coverages and options exist if you only provide them with one quote?

People want to be in charge of their buying decision and if you only give them one quote, you are giving them a take it or leave it option. That is not a good option. If you give them three options with short summaries, your hit ratio is likely to improve because you are giving them a choice. Otherwise they have to create their choice, which means finding two other quotes from other agencies. Give them three quality quotes and they win and you win.

Next, use claim surveys. People buy insurance to protect against claims. So when they have a claim, ask them how they feel about how their claim was handled and settled. Track timeliness. Build a database that you can use to steer clients toward the companies that are best at claims, even if they charge a little more. Their satisfaction increases and you have the opportunity to easily show that not all companies are created equal. Everyone in the industry reading this knows which companies they would prefer in a claims situation. Let's help clients gain some of this knowledge too.

Read forms to make sure coverages apply. Anyone can sell the wrong or inadequate coverages. Do-it-yourself buyers will also make this mistake. A professional will know the forms.

At the extreme, if you want to be really, really good, you will ask clients about their real exposures. I hear so many producers and CSRS quote what someone wants, and that's it. They call it good. Clients may know superficially what they want, but the reality is they want great coverage. They attest to this in E&O suits all the time. Great coverage is not necessarily limited to an HO or GL policy. The homeowner wants coverage with full RP coverage, flood, etc. The same goes for GL. They want business income, an umbrella, etc., especially after uninsured loss. A pro knows the coverages the client likely needs so offer those coverages rather than only the coverages requested.

Communism and its bait & switch cost tens of millions of lives. Don't be a victim of entities doing the same in insurance. Don't let your clients become victims either.

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information. 

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Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively. We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds. We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.

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