Everyone Needs the Same Insurance
The other day I attended a meeting regarding how to scale insurance sales. During the meeting, I started thinking, "Let's just make everyone buy the same insurance! We can pretend we're selling them insurance specific to their needs, but no one ever goes to a neighbor's house for coffee and compares insurance policies. The only variance needs to be for whatever amount the mortgage company requires for Coverage A."
Scaling would be super simple. Line up a few carriers that agree to use the same form. It would be pretty simple and in most states would only require slight filing modifications. Make use of the same generic ISO form that insurance departments have already approved dozens of times.
Training people is such a pain. When you sell everyone the same policy, your staff does not need an iota of knowledge about what they are selling. Soup to nuts training would take four hours at most. Your labor costs could decrease materially too because your potential employee pool would increase significantly . It is conceivable you could make agents out of Skid Row drunks in twenty-four hours.
The opportunities created would be even better because the process could ultimately be automated with bots. If everyone has the same coverage, bots can be created to answer 95% of the customers' questions. Bots never come in with hangovers, or childcare problems, or COVID days.
But wait, YES, if you act now additional awesome benefits accrue! You will have virtually zero E&O exposure! Can you imagine? You are treating everyone the same, as if they were robots and pawns. Everyone gets identical treatment. Everyone gets identical coverage. Everyone gets an identical level of service. No advice is ever given. No options are ever given. No bias exists because everyone is treated like a number.
And the benefits just don't stop! This is better than the famous Bass-O-Matic! When all clients get the same coverage, same service, and no advice, assuming you want that personal touch and do not use bots, commissions per account manager can probably top $1 million in personal lines, how awesome is that!!!!
Carriers will go along because they really don't care if clients are treated as individuals. This model reduces their loss adjustment expenses significantly because their adjusters will not need to read forms to determine if coverage exists. A little memorization will go a long way. Then the carriers can also advertise they are settling all their claims in record time as evidence of their awesome customer service.
Their regular underwriting expense ratios will decrease too because who needs underwriters with this model! Another really impressive benefit for carriers is that this model does not require 13%+ commission rates. Insurance companies are going to die to be the paper on these programs. The developers don't need 13% either because at $1 million in commission per person, they will need 80% fewer staff and that staff, coming off Skid Row, only needs to be paid half of what the going rate is now! Some offset is required for high paid programmers and extra vacations for the executives, but that is peanuts. And for anyone who thinks the marketing costs will be excessive, you really should closely examine GEICO's and Progressive's ROI on their huge advertising expenses. It is cheap!
Carriers can slightly over charge since no one will be doing policy comparisons, save money in LAE and underwriting expenses, and finally make a profit in homeowners insurance. Wall Street will write articles about the brilliance of their leaders.
This is a genuine business plan. Some readers may think I am being some combination of cynical and satirical. This business plan, in various renditions, is the platform for a substantial percentage of Insurtech delivery systems. Plenty of lipstick and hair gel is being applied, but fundamentally, this is the business model. The savings are real. The companies generally haven't figured out how to realize the savings yet, but that does not mean they won't be able to do so. The biggest hold up will most likely be their antiquated processing systems including inadequate human systems combined with IT systems developed pre-1990.
Because consumers have no idea what they are buying or whether what they are buying provides adequate coverage until they incur a claim, marketing geniuses can make people think they are buying adequate protection for their assets without making any attempt to do so. The advertising campaigns, especially for personal auto, have already achieved a uniform impression, convincing consumers that all insurance is the same. As a challenge, find one auto insurance commercial that addresses actual coverage (and not the promise that all coverage is not the same). Find one commercial that addresses adequate liability limits or even the importance of uninsured motorist coverage. To carriers, the insureds are just drones.
The issue is not limited to personal lines. I see the same approach in cyber and cyber is arguably the most complicated coverage that exists in the standard markets. Because it is so complex, agents generally possess about 10% of the required knowledge to understand what they are selling, and insureds have about a 5% chance of understanding of it. This delta between complexity and knowledge level makes cyber a perfect product for this "everyone needs the same solution" approach specifically because no one knows what they actually need.
As a great example, every single carrier is pursuing the SME market hot and heavy as if they have something special to offer that the other 250 carriers clamoring for SME accounts do not. The profit margins are high because the sellers and buyers have limited knowledge of what coverage the buyers actually need. No one ever reads the time limits on business income coverage in BOPs as just one example of this issue (and this is just one tiny example of the deficiencies in BOPs for the majority of commercial clients). Additionally, the one key advantage agents historically provided was a check on excessive rate increases but so much business has been moved to SME carrier service centers that this check has been minimized enabling carriers to use elasticity pricing, magazine subscription pricing if you will, rather than actuarial based pricing. This is the key to the profit margin on this market and why everyone wants it.
The example of the de facto model written above, hasn't been worked out to the extreme I have presented here, but that is just a matter of time.
The rewards are too high to stop this train unless regulators wake up. For those people who felt their stomachs squirm reading the first 700 words, the opportunity presented is to quit being a simple, transactional agent. Become a true subject matter expert and advisor to your clients. The clients I have who have pursued this path have achieved the best of all worlds. They are doing good for the world and, at least, for their clients. They are making their clients' lives safer and protecting their livelihoods far more effectively. My clients are also making more money. This is the best of both worlds for those with a heart. They also tend to be my favorite clients and I love working with people to build the model, education, and knowledge.
Robert Frost wrote the decision so well: "Two roads diverged in a wood, and I--I took the one less traveled by, And that has made all the difference."
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None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.