Benefits of Knowledge
I read a short analysis relative to a specific kind of insurance and the sales thereof. The author is a stickler for agents' and carriers' ethics and is a passionate believer in the value of insurance -- when the insurance is sold by quality producers and the clients' needs are appropriately matched to the product sold. The author's conclusion of this particular insurance product was that it is not a good product for most client's needs. He finalized his analysis by stating the product "is sold by agents who do not fully understand it, to clients who do not fully understand it."
Clients rarely understand the insurance they buy so his point on that is moot. The only difference is the degree to which clients' expectations exceed reality. The first part of his conclusion is extremely insightful. I know a producer who described all the benefits of this exact form of insurance in an incredibly confident manner. She sold a lot of this form of insurance and truly thought she understood the product -- but she did not. To listen to her, while knowing that she did not have a clue about what she was selling, was an experience. Regular consumers would have, and did, buy her confidence more than the product.
I know knowledge, true knowledge, increases confidence. My clients' producers who possess solid, high level coverage knowledge see much more in forms and resulting opportunity than their peers.
But, what if ignorant confidence works just as well as justifiable confidence? I see a considerable amount of ignorant confidence in Insurtech. Their confidence is fueled by the belief that if they have capital, they'll disrupt the industry because whomever gave them capital believes and validates them, often with inadequate due diligence but that is beside the point. Sometimes confidence truly wins even when the technology is pure vaporware.
But what if one has a regular agency staffed by ignorant people who cheerfully think they know what they are selling? The customer will not know their agent is incompetent until after the fact. Beyond the obvious ethical issues, which is not a concern for some, can an ignorant person be made more confident and therefore successful than they would be if they actually knew what they were doing?
Absolutely!!! In fact, I had an agent call me out of the blue today to tell me that more knowledgeable and smarter people were liabilities. He advised that when producers know too much, they fail to convince customers coverage actually exists!
Per the agent's call, one reason confident but ignorant producers can and do succeed is they are not smart enough to understand the product. They simply believe they are selling a good product, and they believe that without verification. Their belief transcends ignorance causing customers to believe too. When they learn coverage does not exist, even after an E&O claim, they often remain incredulous. Their innocence, their ignorant innocence, causes people to trust them. Why do you think insurance advertisers use stupid people in their advertisements rather than people who seem knowledgeable? Humans tend to trust innocence. The problem is that ignorant bad answers have no more material value than deceptive bad answers. The customer still loses.
A simpler story is often easier to believe and preach. This works in these purveyors' favor. "This is a wonder product! It insures all these things..." But, the fine print has all these exclusions. Those exclusions create barriers to belief.
I know many producers who can barely spell insurance, but truly believe in what they are selling. They are apt to provide positive answers to all questions. "Do umbrellas cover property? Sure."
These are extreme examples, but lots and lots of insurance is sold through relationships between two marginally knowledgeable people. One knows next to nothing and the other's knowledge is much greater but still quite limited. "BI -- it's all about the worksheet? Right?" Or, "Stated value has a co-insurance feature? Really?"
The reality is that the producer has faith the policy has coverage, but only faith, because their reading of the form is cursory. If no coverage exists, they plan to rely on their carriers' favors or the caveat, "It's your responsibility to read your policy -- not the agents' responsibility."
Ignorance has worked well so why knock it now? It has worked, maybe not optimally, but quite well in the past. The difference is that times are truly changing. The change is that ignorance can be replicated by technology, however, when technology provides bad answers, it costs carriers less. In other words, a computer can provide bad advice for a 7% commission versus 15% for a human. Ignorant producers may still have the ability to sell, but can they live on 40% of 9% commissions or less? Customers can DIY it and their ignorance is still their problem because then they really had better read their policies. At least if they go through an agent they can sue the agency for E&O. It's a lot harder to sue a computer (further reducing the Insurtech distributors' costs and thereby increasing their ability to survive on lower commissions).
Whether ignorant producers, who in their simple version of a product can be convincing or Insurtech creates the alluring proposition that consumers have the knowledge to choose the right coverages, consumers lose.
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 Insurance Education, 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.