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Posts Tagged ‘Insurance Agent Involvement’

Are Dog Bites a Homeowners Problem for Insurers?

Check out the following Insurance Journal article if you wonder if dog bites are a problem for insurers:

http://www.insurancejournal.com/news/east/2012/09/19/263512.htm

Is Insurance a Commodity? (6)

This discussion of Commodities centers on recent attempts by insurers to circumvent agents and sell insurance products over the internet.    I am convinced that insurance is not a commodity as it is not a product that can be sold in an unmodified state and be used properly.   It would be like purchasing an unassembled, complicated piece of equipment and having no directions for assembly.  It appears to me that is the case with “unbundled” “risk bearing” or to put it another way, the thing Insurance companies sell is a “risk finance” mechanism.    Agents add value to this product by showing purchasers how to use it and by adding their own body of knowledge to the process!

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A “commodity”, then, is a necessary element in the chain of production of a product or service, that is useful to someeone in it’s static state.  A “Commodity” needs additional process or knowledge or processing before it becomes a useful consumer product.   A “Commodity” is a factor in the chain of production.   Thus risk bearing is, perhaps, a commodity.   “Insurance” is a completed user friendly product that is packaged in a way that it is useful and dependable to the consumer. 

To make insurance useful and dependable to the consumer, the consumer needs additional knowledge and services not only at the point of sale but at every transaction point in the chain of use.    It is difficult for an insurance company to provide those services as their function is to provide risk bearing service at a profit.   There is an inherent conflict between what the insured wants and what the company is willing to give. That conflict creates a situation where there are sufficient incentives NOT to do the right thing on behalf of the client.

It is the same problem that surfaces in a Managing General Agent (“MGA”) relationship.  The insurance company gives the underwriting authority to the MGA.   This creates sufficient incentive in the MGA to “bend” the rules.   If the MGA does not actually produce a policy from this insured, they don’t make any MONEY, let alone profit.  The MGA does not have to “pay the claims” and they are incented only to write business.   An insurer is incented to make a profit on underwriting.   The more they can diminish claims experience, the more money everyone makes.   The more the MGA writes, (good or bad business), the more the MGA makes, but if they do not make the sale they make nothing.  The incentives are in the wrong place for optimal performance.  

So “raw” risk bearing is a service for which there MUST  be the value of additional knowledge before it becomes a product.   When it is purchased without the advice of an agent at the time of sale or without the benefit of an independent advocate at the time of the claim, the value of insurance is diminished due to the consumers lack of risk management knowledge, coverage knowledge and pricing knowledge.   The fact that the consumer made an inferior purchase is likely obscured until the time of claim.    The value of the agent is not apparent until the claim occurs.  

So, buying insurance without an agent is like buying an old fire extinguisher at a yard sale and putting it in your kitchen in case there is a fire.   You won’t know if it works until you have a fire. 

I believe I will focus in my next entry on the “Incentive” piece of this puzzle.

A Definition of “Commodities”. Is Insurance a “Commodity” (2)

This discussion of Commodities centers around recent attempts by insurers to circumvent agents and sell insurance products over the internet.    I am convinced that insurance is not a commodity as it is not a product that can be sold in an unmodified state and be used properly.   It would be like purchasing an unassembled, complicated piece of equipment and having no directions for assembly.  It appears to me that is the case with “unbundled” “risk bearing” or to put it another way, the thing Insurance companies sell is a “risk finance” mechanism.    Agents add value to this product by showing purchasers how to use it and by adding their own body of knowledge to the process!

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To decide if insurance is a commodity, it is necessary to determine the definition of a “Commodity”.

Source:   Black’s Law Dictionary:

“Commodities”

“Those things that are useful or serviceable, particularly articles of merchandise movable in trade.

Goods, wares, and merchandise of any kind; movables; articles of trade or commerce.  Movable articles of value; things that are bought and sold.   This word is a broader term than merchandise, and, in referring to commerce may include almost any article of of movable or personal property.

Staples such as wool, cotton, etc. which are traded on a Commodity Exchange and on which there is a trading in futures.”

Blacks Law Dictionary end of definition.

My beginning comments to this discussion:

“Rick Bearing” or “Risk Finance” may possibly meet the definition of a Commodity.   But that commodity product is has little value unless accompanied by knowledge of risk management.   Thus, insurance without advice is a recipe for post loss disaster.  Our “value” or “power”, as an insurance agent, rests in the asymmetry of knowledge between the client and the agent.

There will be more to follow this post, but we need to realize the reason we exist is that there are certain things a client does not know about how to USE insurance that WE DO know.

The raw product of risk finance may be “somewhat” of a commodity.   “Risk Bearing” or “Risk Finance” as a product may be able to be traded on a futures exchange (like commodities), but the added value of the “body of knowledge” of risk management” and the “body of knowledge of risk finance” as a “tool” of risk management is the added value a quality insurance agent, broker or consultant brings to the table.

This reminds me of what I have discussed with many of my consulting clients:

“What you know, likely won’t hurt you”

“What you don’t know, likely won’t hurt you, if you know you don’t know it.”

“What you don’t know, and you don’t know you don’t know, will hurt you every time!”

So our Value to our clients lies in what know that our client does not know… The “asymmetry” (our knowledge of risk management v. our clients’ lack of knowledge of risk management) is our value to the client.

We will discuss this “commodity” mentality more extensively in the next few days…

Howard Candage, CPCU, CIC, CRM

 

Insurance is not a “Commodity”!

This discussion of Commodities centers around recent attempts by insurers to circumvent agents and sell insurance products over the internet.    I am convinced that insurance is not a commodity as it is not a product that can be sold in an unmodified state and be used properly.   It would be like purchasing an unassembled, complicated piece of equipment and having no directions for assembly.  It appears to me that is the case with “unbundled” “risk bearing” or to put it another way, the thing Insurance companies sell is a “risk finance” mechanism.    Agents add value to this product by showing purchasers how to use it and by adding their own body of knowledge to the process!

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We will explore what is a “Commodity”, why I think insurance is NOT a commodity, and what agents can do to more effectively distriblute the risk bearing product more effectively and more to the advantage of their customers!

Borders goes “OUT OF BUSINESS”…Like the Local Insurance Agent???

Another “Big Box” store bites the dust. They drive most of the local bookstores out of business and then they cannot survive themselves.

When are we going to realize the value of putting money back into the local economy?

When are we going to wake up to that fact in the Insurance industry?

As we continue to go to the internet for the “low price” we will be contributing to the demise of local business.

Your local insurance agent is there for you! If they do their job correctly (and I will admit, some do not) you will have a local source for trusted advice to help you when things don’t “go so well”, and sometimes they do not “go so well”.

I pointed out earlier, there is a great deal of conflict between the goals of an insurance company and an insured at the time of claim.

YOU, consumer, NEED someone to look after you when the claim happens! Appreciate this fact and realize the value your local insurance agent adds.

If we don’t realize the value of the local business/insurance agent, we will become victims of the same “Big Box” thinking that led to the demise of Borders.   We will have no local support and insurers will be able to do anything they wish to their customers!