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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So, in conclusion, I do not think insurance is a commodity. It needs the advice and service from a competent agent to protect both the insurer and the insured. Insurance without risk management advice is likely not a good investment for an uninformed insured. Risk without a first hand, on the ground, rational, informed view of what the exposures present to the insurer is not a good investment for an insurer.
An insurance agent brings a lot to the table IF they are properly educated. Insurance agents need to put forth a more professional and educated front to deal with clients AND to deal with insurers. Knowledge is the key to being a successful agent. This is not a point of sale, transaction based business. That is one of the reasons other types of financial service firms have trouble with it. The value of an agent is about the added value of knowledge in addition to the SERVICE of bearing risk provided by an insurer.
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!
Insurance Agents are defined by the Insurance Company side of our Industry as the “sales and distribution” mechanism of their risk bearing operation. In my opinion this industry created, “point of sale” paradigm has created a mentality that the Insurance Customer relationship is a single “point of sale” event.
In truth, this is an extremely short term focus/strategy for both the Insurer and the agent. The Insurance Agent Customer relationship has to be viewed as a long term series of events rather than a point of sale relationship. This makes the strategic focus of the agent a long term strategy rather than a sort term strategy. This also forces the agent to focus on ALL the events in the life of the insurance customer relationship rather than just the “point of sale”. If view this way, the agent will be involved in all facets in the life of the relationship including at the time of claim. This is the way to add value and retain customers! Take a long term view, agents!
It is getting tougher and tougher for independent agents to survive as income continues to decrease. Rates have been decreasing, premium bases have been decreasing and the number of customers has been decreasing.
In the recent trade press a reinsurance intermediary, Holborn, speculated in National Underwriter that it would take three catastrophes the size of Katrina to harden the US property market (Capacity Tightens With ‘Three Katrinas’ Hitting U.S. Property Cat Re Market).
They immediately followed this with the statement that the “three Katrina’s” have already occurred. It will be interesting to see how this plays out, but the hurricane season is predicted to be more active than average and with the tornadoes this spring… this will be “fun” if we have a hardening market with the economy in its current state.
Can you imagine being a business owner and having a hard market suddenly thrust on you? Plus we face many challenges in the changing climate as agents.
What is the answer, agents?
Sell more business… Run your business as a sales organization and give excellent service to your clients. Insurance agencies are great businesses and have a wonderful future. Capitalize on this fact and give it your all to make it grow and flourish! Here’s to helping our clients and ourselves to have a prosperous future!
Don’t get me wrong here and please see the humor in my statement…
Insureds are not “dishonest”, I do not mean they will “lie” to you, but the problem is, the owner never “really” knows what is going on with their business (or family, for that matter)!
Business owners, particularly, never really know how the vehicles will be used or what will happen during the course of use. One case I was an expert in, involved Care Custody and Control of equipment on ”My Agency Client’s”, “Insured’s” truck. My client’s insured is an excavator. In the interview the Agent asked the Insured, “do you ever haul equipment for anyone else?” Easy question, easy answer, “No, I never haul other people’s equipment.” The Agent wrote no Care Custody & Control coverage for this contractor.
Subsequently on a rainy day (no pun intended) the owner told the truck driver to take the excavator to the dealer approximately 70 miles away to have the tracks re-pinned. The truck driver unloaded the excavator at the dealer’s premises and the manager of the premises sais to the driver, “Hey… We have your bosses buddies excavator here and his tracks are all re-pinned. Would you mind taking it back with you rather than deadheading back?” The answer (No.. we don’t have any insurance coverage for that”) Not this driver… “Sure I will!” It’s my bosses friend, after all! What can it hurt. They loaded the excavator and the driver said, “it looks kind of high,” so the dealership employees said “we’ll check it.” The driver went in the facility, finished his coffee, and took off with the excavator, assuming the employees had checked…. they had not. He wedged the excavator under the railroad bridge about a half mile down the road and guess what… No insurance coverage for the excavator!
Agents… Always set your policies up to allow for lack of knowledge on the part of the people who actually do the job! They didn’t buy the insurance, the owner did, so they don’t understand you just can’t go and do something that is beyond the insurance coverage! The moral of the story… NEVER Trust an Insured!
