Google's Opinion on the Future of Insurance
There is a fascinating article by Russ Banham in the January 11, 2021, edition of Carrier Management magazine (https://www.carriermanagement.com/features/2021/01/11/215633.htm). It is well worth reading. If you don't have access to Carrier Management, the article focuses on Google's technology and the new leader of that division. It is worth noting the leader, Dr. Henna Karna, has a deep background in insurance analytics and actuarial studies. She is not just another Insurtech who knows nothing about insurance.
Combined with Google's cloud computing services, they should be able to achieve their goal of improving the analytics and analytical needs of insurance carriers. Improved analytics to insurance carriers often results in the services of agents becoming less important. So far that has meant less need for upfront underwriting, but it may also mean better analytics with which to further minimize upfront underwriting while simultaneously providing value added services agents may now be providing and improving the actual carrier brands. The stronger the carrier brand, in many ways, the less important the agent.
The part of the article that really caught my eye is the value proposition. If Google is right, then I was 20 years too early with what I saw as the future of insurance. I will get to that shortly, but the other part of the article that caught my eye was the pooling and use of data at the carrier level. If that happens, given how territorial carriers are with their data and how some carriers may already be beyond the need for the service, the supposition is truly revolutionary.
At the ground level what it means is data is more valuable than expirations. Agents have fought long and hard for ownership of expirations but not data. Data is more valuable given carriers have retained the right to communicate directly with clients. I am not convinced that agencies did not miss the point in their contract negotiations over the last 30 years. I wrote about this at least 15 years ago but the technology may not have been adequate then. Some really smart agencies are already taking advantage of the value of data over expirations. They acted and negotiated their contracts with the value of data in mind. A small handful of state associations also obtained some additional protection for agents in their states through their successful lobbying. Some insurers did not wait to begin building client data and communication strategies. What has been happening behind the scenes is interesting, but this article at least hints at it and brings it to the forefront of reality.
What will happen with data, regardless of whether Google convinces insurers to use their data services, is inevitable. It makes sense; expenses will be reduced, more fraud will most likely be exposed, and new revenue streams will be discovered.
However, what really got my attention is another subject upon which I have been consulting, preaching, and writing for decades and that is the selling of insurance policies has little to no value. As the person leading Google's initiative stated, "Today the basis of competition for insurance companies are things like price, claims experience and policy wordings. Tomorrow, those fundamentals will be table stakes." She goes on to state, "The new basis of competition in the industry will be things like the percentage of every dollar that a carrier returns to a policyholder, ..."
This is perfectly in line with Carl Shapiro's theory which states, in my words, that all industries move toward providing mediocre products and the winners are those that develop a cost structure that is the lowest, thus enabling them to charge the least. The exceptions are those companies that create high quality, boutique level advisory services. Two carriers that are writing about $10 billion net new per year have two of the lowest expense ratios out of all of the 900 P&C carriers. They are growing more new premiums each year than 98% of all carriers have in total premiums already on their books. Neither carrier pays agents well.
The only solution, and the Google executive is stating what I have been preaching, is that the value is in the investment the policyholder makes with the broker and the carrier. Rob Ekern has encapsulated some of the language better than anyone else with his TCOR program, also dating to 20+ years ago. Selling insurance the way it is sold today only makes sense if the buyer, and usually the seller, has no idea what is actually being bought and sold. Unfortunately, based on the thousands of producers and account managers I have interviewed and taught over the years, most do not really understand what they are selling. They are, in part, successful because they do not understand what they are selling. Their clients do not understand what they are buying either and in many ways this creates a weird alignment that is better for sales versus the seller having a full understanding of what is being sold and the buyer not understanding it. That situation creates too much disparity which would and does come across almost through sensation rather than direct communication.
However, carriers do not need to pay agents to sell a mediocre product that is becoming more and more price driven daily, particularly when the agents have little understanding of the product. Consumers definitely do not need agents who do not know enough to offer competent advice, although they may prefer their jolly personalities. An example of this lack of knowledge becomes clear when, prior to initiating a class, my education company tests the producers, agency owners, and account executives who take our business income classes. These are people who want to learn and are willing to put forth more effort into learning than those who are only interested in CE credits. Yet, more than 50% of those tested so far do not know the difference between revenue, income, assets, and liabilities.
Basic insurance is about insuring assets. Liability insurance is about protecting assets against lawsuits and liability relative obligations that would otherwise be paid out of a consumer's assets. Property insurance is about replacing lost assets. Business income coverage is about protecting the forward-looking income stream. If a person does not know the difference between revenue, income, assets, and liabilities, then they must be selling a product hoping it is the right coverage because they do not know enough to know IF it is the right product. This is proof of what a former insurance professor wrote, (paraphrased), "This is an example of a product sold by an ignorant person to an uneducated person and if either knew what they were doing, the product would not be bought or sold."
Google's proposition is about taking basic insurance, something a large proportion of agents do not understand, and elevating the sale to where the carrier and the agent must show the return on investment of purchasing a particular policy from a specific agent. This is going to require considerably more education and ability on the part of the agent.
I am excited about this announcement and Google's direction because the only alternative solution Shapiro identified as industries move toward mediocrity is to become a high-quality professional boutique advisory firm (in the services industry). Google's direction aligns with Shapiro's research and is what I have been trying to get agents to adopt for decades.
What is so fun about adopting a high quality boutique advisory model is that the agent's relationship with his clients increases, the value delivered is far better, growth is greater, profit is better, and there is less friction. But this process is not for most people because hard, hard work is required. To succeed, leadership is also required. I am seeing some high-quality young people striving for this model, but the people leading their agencies (including some of the largest brokers) are not providing the leadership and education these people want and need.
If you want to begin developing the skills to thrive, let me know. You will need to be ahead of your peers because as this process gains traction, catching up will be impossible. Most people in the industry will not see this progression until it is too late. Do not wait to see the progression to see if it is going to work. Assume it will and move forward. No downside exists even if I am wrong. If I am right, and still not two decades too far ahead, you will then be positioned to be perfectly situated!
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