Better than Reality
Updated: Aug 25, 2020
With complete apologies for hijacking a quote concerning serious historical matters and from one of the 20th Century's pre-eminent historians, Hannah Arendt, the following quote has so many applications to the insurance world:
"Lies are often much more plausible, more appealing to reason, than reality, since the liar has the great advantage of knowing beforehand what the audience wishes or expects to hear.”
"Lies" is too strong a word for what follows but the same logic applies, and the damage being done is severe. Many aspects of the insurance industry are affected, each uniquely, but related in that the stories are prefabricated based on knowing what the audience wants to hear. Here are a couple:
The insured wants to hear, "You are completely covered, you don't need to read the policy, and the premium is cheap." This is the message many agents and direct purveyors convey. I see it in E&O claims. I see it in E&O audits. I see it when teaching coverage classes. A good example is an antithesis example: A good producer was trying to sell a good-sized account better coverage. This was a $20,000 commission account. The extra cost was only $2,000 for the extra coverage the client inarguably needed. Peanuts and pennies for vital coverage.
The incumbent producer had so convinced the client their policy had complete coverage making reading the policy a moot point and that it had a price tag that was at least $2,000 less; the buyer completely bought into the fabrication. The support for the fabrication was the buyer’s desires versus reality and the incumbent fabricated coverage based on those desires.
The fact that the coverage was clearly inadequate was not something the insured wanted to deal with, and honestly, was not an immediate concern and would not be a concern until a claim occurred. Selling reality in these situations is very, very difficult. The emotional obstacles are high. First, reality always sucks when selling real coverage solutions because more mental work is required of the buyer and seller. A producer must acknowledge this fact to overcome the obstacle. They have to decrease the emotional energy required if they are to succeed which ultimately means changing what the buyer wants to hear.
Next, the producer has to show the client the benefit of spending a few extra thousand dollars. With insurance, the benefit is always a severity issue to the insured, so this creates an additional complication. The human brain was developed to protect itself against frequent risks, not infrequent but severe risks. For example, showing someone that for $500, they could buy workers' compensation insurance and obtain the benefits of lifetime disability payments should be an easy sale. However, a life policy is a tougher sale than it should be because the owner cannot process that they would ever be injured severely at work. They can't process the severity event. One has to lay on the benefits thickly, but honestly, to get past this imperfection of human biology.
Relative to the incumbent's insistence the policy need not be read or compared, the incumbent is actually correct, to a degree, that the policyholder may not need to read their policy. They may have coverage under the agency's E&O policy.
Reading the policy after the effective date has diminished value also. One should know what the policy says prior to purchase. The "Duty to read your policy" is such a weak, self-defeating defense. Insureds need agents who read the policies to assure the client is getting the coverage they need PRIOR to sale. Furthermore, selling clients the coverage they actually need is one of the most important elements of a good agent's job -- and honestly, who needs a bad agent? The incumbent in this case left that last little bit out of his spiel.
One of the keys to overcoming these situations, when you are selling quality, is to know your forms and hopefully, the form you are selling against. Being able to read the policy and point out the material differences in understandable language and point out the painful deficiencies in a empathetic tone can make all the difference. This is also a wonderful place to begin the discussion to get the insured to doubt their incumbent agent. It is not always the best place to begin though, so do pick and choose. In other cases, you may want to start from a perfectly clean slate, build a program from scratch and then go back and compare what the incumbent has offered to what the insured has agreed is necessary.
Cyber is insurance no one really wants to discuss, including producers. This fact has created a chasm between insureds that have knowledgeable producers protecting them and everyone else. The problem is that snake oil salesmen have found cyber to be lucrative. People are being sold coverages that are arguably designed to never pay a claim. It saddens me how widespread the "policies that don't pay claims" belief, reality, and attitude has developed. The entire sales pitch is based on what the buyer wants to hear -- even though the buyer does not have a clue what their true exposures are, much less the coverage solutions they need.
The situation, anecdotally, is becoming dire, especially for cyber wrapped up in programs and other coverages and especially on smaller policies. I hear of new market entrants greedily pursuing 30%-40% profit margins based purely on paying almost no meaningful claims. The industry is heading straight to a black eye and more regulation, but for now, the purveyors are selling based on what buyers want to hear and the better agents know too little about cyber to counter effectively.
Knowledge is critical when countering snake oil salesmen. Remember, if one sells on knowledge, what Isaac Asimov, the famous science fiction writer, wrote, "[we have] a strain of anti-intellectualism...nurtured by the false notion that democracy means that 'my ignorance is just as good as your knowledge.'"
Asimov's insight gets to the heart of much of the buzz and billions surrounding Insurtech direct to consumer sales systems. Many of these systems are based on what consumers want to believe. Not all the creators of these systems are evil. Some of whom I've heard actually seem to believe that what consumers want to believe is reality. Most are young and their innocence is almost endearing. Some have no idea whatsoever the coverages they are selling are wholly inadequate.
The insurance industry sells legal contracts. An insurance policy is a legal contract. An insured may want to believe he/she can figure out the coverages they need without knowing how to read legal contracts, much less ever having read legal contracts. Well, that is science fiction beyond the limits of even Mr. Asimov's science fiction.
One reason the industry's profitability over the last ten years has been so strong (the carriers are averaging $46 billion profit annually per A.M. Best), may be partially attributable to paying fewer claims due to the industry not selling the right coverages. This brings me to my profession: consulting. It has been publicly documented that at least one consulting firm has advised carriers on how to avoid paying or at least postponing payment on otherwise legitimate claims. In this case, the consulting firm’s solution is what select carriers want to hear. Paying fewer claims whether because the agent did not sell the coverages or the carrier did not pay the claim, just digs a deeper hole for the industry. No one needs insurance that does not pay when a covered loss occurs.
I have seen and worked hard against agencies and carriers using consultants that only sell what the buyer wants to hear. The wasted money and opportunity is beyond the pale. Many sales consultants are particularly problematic and teach everything but how to get clients to buy the coverages they actually need. No one needs to make a sale with the wrong coverages, but that point is almost always ignored in the programs I've witnessed.
I have little faith that the following advice will be taken because it is free and not what people want to hear. I am not a sales consultant but I track sales success for clients and the following is the most effective sales technique I have ever seen. Sell clients the coverage they need using a coverage checklist. Alternatively, without a checklist, what is the value of selling the wrong or inadequate coverages? An agency principal told me the other day that making sales was more important than knowing coverages and they would forego the coverage education. My retort was this, "What does selling inadequate coverages brought upon by ignorant producers bring? E&O claims and reputational harm." Selling the right coverages is the better solution for all and who needs producers who cannot sell the right coverages?
Furthermore, if you are thinking it is cheaper to sell the wrong coverages, you may be right but the Insurtech companies can sell the wrong coverages even more cheaply than you. I think the eventual commission for insurance sales involving ignorant sales people will be between 7% and 9%. Some of the Insurtech models can operate successfully at this commission point, and my estimate is based on what I know companies are thinking. Can you survive financially on these commissions?
The liar or the disingenuous person knows what you want to hear -- that you are tall, beautiful, funny, successful, a great leader, you will be wealthy, and you are so smart you can buy legal contracts intelligently without ever reading the contracts. I know one agency strategic planning consultant who uses no pertinent and tested data for his strategic plans. The stories he tells though are just what agency owners want to hear. Or, the sales consultant who tells owners they know how to motivate salespeople to sell when inherently, they have no desire whatsoever to sell insurance. Push a rope.
Books and movie tickets and binge television watching are far cheaper with better storylines. In your heart, do you want to build a successful agency on reality or prefabricated stories based on the storyteller knowing what you want to hear? In your heart, do you want to build real protection for your clients based on their actual exposures and coverage needs, knowing and understanding forms, or do you prefer to tell clients what they want to hear and hope they never have a claim necessitating reading their policy? Do you want reality or a fairytale?
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.