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  • Writer's pictureChris Burand

Sanpo Yoshi

Sanpo Yoshi is a 17th century Japanese philosophy which means “three-way satisfaction”. The principle is that a business transaction should be good for all three parties: the buyer, the seller, and society.

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What if Sanpo Yoshi were the guiding principle for the insurance company, the agent/broker, and the consumer relationship? I’m confident some readers are thinking, “Insurance is already good for all three parties!”

I know insurance is supposed to be a three-way benefit, but the practice of insurance is quite often anything but. Sometimes one party benefits far more than the other two and sometimes two parties benefit far more than the third. How would the balance of “good” in insurance even be measured?

For the carrier, the measure is easiest. A carrier should be able to achieve a 100% combined ratio over the life of the policy, as if that policy created an adequate premium pool. Why a 100% combined ratio? Because that is the industry average combined ratio over the last 30 years. Carriers make plenty of profit (the average is over $50 billion annually) at a 100% combined ratio.

For the agent, the measure is slightly more complicated because they have the actual direct contact with the insured. The most basic measure is the sale needs to be profitable.

Agency management has much to do with whether a sale is profitable but for the moment, let’s assume the quality of agency management is a neutral factor. Generally, a 13% commission rate with neutral management is sufficient to be profitable on medium-size and larger accounts. On small commercial and personal lines, 13% is not enough if the agency is doing much more than placing or if a producer is involved. The dollars generated at 13% are just too limited.

Next, consider reputation. The agent must build and maintain a reputation. If the agent is a peddler, they are hoping for nothing to go wrong, rather than focusing on anything but making the sale. And this is an issue because if the goal is to simply make a sale, the consumer is being left from the triad. The E&O legal world absolutely supports this view because the foundational premise preached is the agent should be nothing more than a placer of the insured’s orders. The agent is an order taker, not an advisor.

Excluding the large commercial accounts with professional loss control and consultants who evaluate policies on behalf of their clients, somewhere between 95% and 98% of all clients do not know what coverages or amounts to request. But the E&O burden is on the insured to request the coverages they need. It’s like going to the doctor and telling them with extreme precision what surgery you need or telling an attorney every single thing they need to include in your contract. It’s an unrealistic burden, but courts have placed that burden on the backs of consumers. This enables order taking agents to sell clients policies that benefit the carrier and benefit the agency, but the insured is not getting the coverages they need.

Measuring the benefits to the insured is most difficult if, for no other reason, most insureds do not have a claim very often. If they have inadequate coverage without a claim, is anyone injured? Generally, no. (A significant exception to whether the insured is injured is most applicable to medium to large commercial and high value net worth personal lines where the total cost of risk is measured and the wrong coverage is shown to have collateral effects on the insured’s balance sheet.)

If an insured does not have a claim and will not have a claim, they don’t need insurance. We really cannot easily measure whether an insured benefits until there is a claim. And because insureds do not usually have claims and most do not really understand what coverages they need or the coverages they are buying, insureds often focus on the lowest price. Price is the most tangible data point and one they may pay monthly versus having a claim every 7 to 10 years.

It is that difference between payment frequency and claim frequency that creates such a good opportunity for carriers and agents to benefit at the expense of insureds. Some of the policies I am seeing today are quite illusory. While insurance “experts” often advise that insureds win when policy language is ambiguous or misleading, insureds only win after a court determines they win. Even if a court determines coverage exists, the ruling will not be for 3 to 7 years, long after the insured needs the money. Some of the exclusions I am seeing, even in personal auto policies, are to the point of being unethical. The exclusions are so unusual that agents are not looking for them and insureds don’t read their policies anyway.

I see agents selling coverages that are clearly inadequate and getting away with it because insureds do not know better. Often the agent does not know better either.

And I see consultants teaching sales techniques that never emphasize the need to actually provide quality coverage. The goal is to simply make the sale, whatever “the sale” means.

While the E&O experts do not recommend it, the best three-way solution is to offer insurance consulting. The agency is the broker between the carrier and the insured. A good agent can see both sides and “broker” coverage the insured needs (this is why the term “broker” sometimes carries a higher standard of care because it implies a higher level of knowledge and duty to the insured). And then, if legal, charge a fee for being a broker rather than an order-taking, peddler of insurance policies. Consultative sales are worth far more than 13%. Carriers should pay more too because the benefit to carriers is higher when working with better agents.

My agent/broker clients who have built this model are far more successful in growth and profit margins. They also enjoy going to work more. And this holistic, three-way model is a far better environment for hiring people who want to feel like they’re providing value. Everyone benefits monetarily and even emotionally (well, maybe not all the carriers).

What is your personal reason for being on earth? To make a sale and make lots of money without much concern for the other parties or is it to do good?

If your reason is to do good, let me know if you’d like to learn about consultative selling, total cost of risk, and coverages. My programs have helped bring Sanpo Yoshi to the insurance industry.


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.

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.

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