Howard Candage Insurance Blog

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

I held a Risk Management 101 class recently and the conversation quickly went to how to focus an Insured on Managing Risk rather than just Buying Insurance. The conversation was all about how to help a client trust you when the client has not experienced a claim. As this is an interesting conversation, I will focus on it in the next few entries.

It is important to understand first that a client is in denial when they approach you to make an insurance purchase. They have been compelled to you by some outside source (a bank or a finance company) and they are simply thinking of getting the insurance to satisfy the insurance requirement for the loan or to comply with some other sort of rule that says they must carry insurance. They simply are not thinking about having a claim and you need to focus them on the adverse consequences they could face if an incident does occur, especially if they do not have proper coverage!

Fundamentally I feel, we are attempting to make them think long term rather than short term and to thus get into a mental position to think about the value of what they are buying rather than just the price. This, as a longer term focus, requires a different set of skills and a different approach. In my next entry I will talk about our usual methodology to attempt fairness and how we try to give an “apples to apples” comparison. Why this may not be the best approach and how we can build trust with the client very quickly and avoid this trap.