On a Yahoo Group I belong to, someone posted about a startup called Bought by Many where prospective insureds can be grouped to buy insurance, including some forms not yet available. He thought it was a very intriguing way to identify enough demand to perhaps open up new coverages not available from other sources.
I visited the web site and noted that it claimed an “18.6% Average Discount.” The question was, an average discount on what? Apparently, the coverage provided by their products and alternatives to their products makes no difference. The only distinguishing feature they consider to be relevant is price.
This is reminiscent of the promotions by other well-known insurer advertisers such as Progressive Direct’s premium comparison board on some of their TV commercials and, of course, GEICO’s “Save 15%” slogan. The GEICO savings premise is likely based on the consumer allegedly saving 15% by not using an agent (as if agents still made 15% on commission on auto insurance rather than the 7-10% more common today). AND it ignores the fact that GEICO still employs agents (legally only agents can sell or service insurance) who they must pay salaries and benefits. AND it ignores their $1 BILLION advertising budget that dwarfs that of most insurers using agents who market for them.
Also, similar claims that “People who switched their insurance to us saved an average of $346 a year!” are misleading because they don’t reflect the fact that many of their quotes don’t result in consumers actually switching, so on average the premiums being quoted could be the same or even greater than those available from other insurers. In addition, these savings don’t reflect the possibility that their quotes are for minimum limits and/or inferior coverage. If you get an online quote that appears to be a better deal than you already have, ask the carrier for a copy of their policy so you can compare it to the one you currently have. They won’t give it to you. Why? You be the judge of why they won’t let you examine the contact before you sign it. Do you enter into any other kinds of contracts (e.g., leases, loan agreements, service contracts, etc.) where the party that drew up the contract refuses to let you review it before you sign?
When you consider the real commission levels agents receive for booking auto insurance vs. employee salaries and benefits direct sales carriers pay, plus the HUGE advertising expenses of these direct sales carriers, it is highly unlikely that there is a 15% savings solely attributable to buying insurance without an agent. Even more important, such sales slogans completely ignore two critical values a good independent agent provides. One is assistance in loss exposure analysis to make sure the customer has the right insurance product package. The second is the immeasurable value an independent agent brings to the table in advocating on the customer’s behalf in the case of contested claim denials. I have spent over 28 years assisting great agents go on the mat for their customers in getting the insurers they represent to overturn or reconsider initial claim denials.
In the coming weeks and months, I’m going to provide blog subscribers with many real-life examples of where consumers had significant uncovered claims because they, thinking they were “saving 15%,” chose to buy their insurance without the aid of an agent. As my blog “Reprint” policy says, you will be free to use these posts to educate your customers and prospects.
When my son moved into an apartment, the property management company required renters insurance and they had a relationship with a vendor that could provide it. You could read the policy online. No endorsements. Limited named perils. Minimal additional coverages. $50,000 liability limit. Pure junk. For an extra $80, I could get him a good HO-4 from a decent company. For an extra $120, I could get him a premium policy. He went with that AND a personal umbrella policy. I told him if he was ever short in paying for this superior coverage, I’d pay it, but he was going to protect his assets and income stream AND, even more important, he was going to protect the public from his possible negligence.
Direct sales insurers and online comparison raters don’t discuss these issues. To quote legendary salesman Morty Seinfeld, “Cheap fabric and dim lighting, that’s how you move merchandise.” Do direct sales insurers and most of the new upstart InsurTech “disrupters” really care about helping consumers identify their exposures to loss and insuring them, or are they more interested in “moving merchandise” by quoting cheap premiums on inferior products and generating cash flow for themselves and their investors and venture capital providers?
Photo by H.L.I.T.
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This is the kind of honest, straight-forward information that should be shouted from the rooftops! It’s concerning how many well-meaning adults think they are doing their families a service by buying the cheapest insurance possible, while in fact they have opened themselves to suffering huge out-of-pocket losses by choosing poor-quality coverage. I look forward to sharing more of your insights on our blog.
Thanks, Ellen. I plan on blogging more on this and giving real-life examples of people who, as the knight in Indiana Jones and the Last Crusade said, chose poorly.
Since I’ve never read a GEICO policy, it would be advantageous to be informed about its deficiencies with real-life examples. Keep it coming! Thanks, Bill!
I’m going to do some articles in general about what to look for and later will likely address some specific carrier forms. The biggest obstacle is that the forms may vary by state and change at any time. I recommend to agents, FIRST learn the differences between the policy forms and options YOU sell so that you will know whether the premium differences that come up in your comparative rater are based on coverage differences or not. Job 1 is assisting customers in identifying exposures then selecting the appropriate and proper insurance/risk management product/technique to minimize their chance of financially debilitating loss. THEN you make a value decision where price is considered in the context of coverage and service.