"The simple things you see are all complicated" --Pete Townshend
This quote is from The Who's famous song, "Substitute." The song is about being fake, substituting substance for plastic, substituting real emotion for fake crocodile tears, being a substitute for another guy. It is about deceptive appearances and deceptive appearances are a huge problem in the insurance industry.
I was teaching an insurance coverage class yesterday and a person asked, "Why does insurance have to be so complicated?" First, insurance truly is very complicated. That is reality. Insurance is complicated for many reasons. When I first came into the industry I asked my grizzled boss's boss why insurance was so complicated. I asked, why not make it simple so that people know what they are buying? His response is still correct:
Insurance contracts need to be detailed, which means complex, because every human will interpret any ambiguity differently. Clarity requires detail and detail results in complexity, especially when dealing with so many possible causes of loss and determinations of value.
Plaintiff attorneys make their living off ambiguity. For insurance companies to remain solvent, the contracts need to be precise which results in complexity. A huge proportion of insurance contract complexity is the result of an insurance company losing a lawsuit forcing them to provide coverage they never intended to provide.
If insurance were not complex, carriers would not need agents.
In some instances, insurance contracts today are so complex that once a person gets through the initial exclusions, with the add backs, and the exclusions to the add backs, many a smart person will be left wondering what is actually being covered. There must be a better way, but I have not seen it yet.
Recently a couple of carriers have introduced their solution in the form of simple and short policies. This was tried before back in the early 1980's I believe. It did not work according to my grizzled old boss because the plaintiff attorneys took advantage of the lack of detail. We'll see if it works this time. However, I wish there were a way to better inform consumers that the simple contract they see is truly complicated. Creating a quality short insurance contract is hard work. Moreover, since the insurance company writes the contract, one should probably assume it is written to protect the insurance company. Writing a quality short contract that protects the insurance company from providing coverage for claims they never intend to cover is extremely difficult and complicated. Time will tell if the carriers succeed, but if they do, the simple product consumers are purchasing will likely provide less coverage than the complicated alternative. An excellent article on this subject was written by Chris Boggs titled, "Warren Buffett Champions an Inferior Product."
That simple cartoon ad selling insurance is actually extremely complicated. The research and analytics that went into the product, the pricing, the marketing, even the exact colors used might deserve a Noble prize for at least two of the carriers using this marketing approach. To consumers, it looks quite simple, but the simple things the consumers see are actually quite complicated.
At the agent level, you must make a decision. There is a fork in the road. Are you going to sell an extremely complicated product as if it were simple or are you going to sell the complicated product as a complicated product?
If you are going to sell an extremely complicated product as if it were a simple product, are you going to remain simple and relatively uneducated too or are you going to become quite knowledgeable but dumb down the details to make the sale? This is the second fork in the road.
Ignorant agents selling to ignorant consumers probably serves the insurance carrier the best, the agent second best, and the consumer last. This is why some insurance companies seem to purposely hire salespeople who are not the sharpest knives in the draw or the brightest bulbs. I am not knocking their strategy. I am just explaining their strategy.
"The simple things you see are all complicated" is such a great lyric. Someone is usually being taken advantage of when complicated things are made to look simple. One way to tell if you are the mark (or sucker) at the poker table is asking, "Who made the approach?" In other words, who is asking for the sale? If someone is selling a complicated product to a relatively uneducated person, and the product looks simple, the potential buyer is the mark.
The same goes for agency sales. Buyers approach potential agency sellers with what looks to be like a simple EBITDA multiple pricing method. Development of the multiple, if the acquirer knows what they are doing, is a complex process. It is anything but simple, but it looks so simple to the potential seller. Did the potential buyer approach the seller making a price that was difficult to develop, but looks simple? Then the potential seller is the mark.
Just to give readers an idea of how complicated developing the correct EBITDA multiple is (assuming the buyer is not just throwing money on the table as some seem to do), the IRS requires business appraisers possess years of experience and unique professional designations for the work they review. Banks that know what they are doing require the same. The people that develop the models are usually highly educated and the models they build are so complicated that they do not even bother to explain all the details to their own bosses. Being a Certified Business Appraiser has provided me with an interesting comparison of complexity between the two worlds and business appraisers doing their jobs well have the same problems explaining complexity to clients that agents have in explaining complexity to insureds. Explaining complexity is just hard work.
The best, and I would argue the most ethical people, find a way to simplify complexity without selling fake value. Selling fake value is the easy way out. No magic answer exists, and 100% success is never achieved. Here are a few suggestions for honest and ethical simplification of complex selling:
1. Pictures. Pictures are worth 1,000 words.
2. Stories.
3. Open ended, exploratory questions.
4. Practice, practice, practice in developing the communication skills.
5. Conversations.
6. Identify the emotional trigger required to cause the insured to give you the time to explain the complexities and the time to then cooperatively develop a solution that aligns the insured's complex needs with complex insurance contracts.
7. Time. You need time. Quite a few agents correctly state that addressing complexity takes too much time for the commissions involved and I agree completely. That is why the fee model makes so much more sense for honest, ethical, and knowledgeable professional agents. An appropriate fee will be adequate for the time involved and remove, or at least minimize, the incentive to take short-cuts.
You will need time to work with the client and time to dovetail the coverages to their needs. Not everyone wants high quality furniture and many people are willing to take unnecessary risks with "simple" insurance contracts.
"The simple things you see are all complicated" is a fact in the insurance world. The question now is, what forks in the road will you take to address this reality?
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.