Three months ago, I published a blog post called “’Sort by Price’ Is Lazy.” If you’ve subscribed to this blog in the past 3 months, I’d recommend taking a few minutes to read that blog post. To refresh the memories of those who have read it, I reprint a post from Seth Godin’s blog which used the ‘Sort by price’ moniker. He gave several analogies about shopping for airline tickets, books, movies, restaurants, etc. using online tools that focus solely or largely on price. To quote an excerpt:
“Low price is the last refuge of the marketer who doesn’t care enough to build something worth paying for.” – Seth Godin
My blog post also referenced another of his blog posts called “When Time Catches Up.” Seth makes the point in this post that bad decisions happen for one of two reasons:
- You’re in a hurry, and/or
- The repercussions of your decision won’t happen for months or years.
This is why using comparative rating can result in bad decisions. Many of the disrupters today talk about improving the “customer experience.” This largely means getting a quote, currently for auto or home, in a matter of minutes. That appeals to people in a hurry. That alone can result in a bad purchasing decision. But when you couple it with reason #2 above, it almost assures a bad decision IF there is a claim. For most people, claims don’t happen that often but, when they do, if you have not, as Indiana Jones was advised, “chosen wisely,” you may pay a high price for your uninformed rush to buy.
Insurance Journal recently ran an article about Progressive’s new “HomeQuote Explorer” service which allows consumers to get a homeowners insurance quote online in allegedly less than 15 minutes. According to the article:
“This might sound familiar because it’s the formula we used to put the power of comparison shopping in the hands of auto insurance customers in 1996,” said Progressive CEO Tricia Griffith. “We think HomeQuote Explorer will compel a lot of homeowners to take a few minutes to make sure they’re getting the right coverage at the right rate.” [emphasis added]
So, answering a few questions online “makes sure” the consumer gets the “right coverage” at the right rate? How does that work? To find out, I went to the HomeQuote web site and got a quote on my house. The home page said:
We’re the only insurer that lets you instantly compare home insurance rates and coverages from multiple companies side-by-side….We make getting a quote as simple as possible. Just enter your address, and we’ll automatically answer questions for you based on public records, such as those from the county auditor.
Based on my address, the site listed five initial rating factors, including age, area, etc. Of the five data points acquired online from public information, four of them were wrong, including the square footage of the house. That might explain why the quote on my dwelling was off by at least a couple hundred thousand dollars. My house has been inspected by insurer reps (third-party services) three times and I had a professional reconstruction appraisal done when we bought the house. The value this web site came up with was far less than 80% of the real replacement cost figure that I’m confident is accurate.
Perhaps this would be corrected if I called the phone number provided with my quote to finalize my purchase? I don’t know because I didn’t call. And I don’t know what other questions they might ask me if I call. Will they ask if I have a boat dock and a boat that need coverage? Incidentally, my dock is on Army Corps of Engineers property…would their “insurance expert” know that my homeowners policy likely does not cover this structure? Would they know the possibly several options to properly insure it? Will they ask whether I’m the VP of a local high school athletic booster club that is uninsured? Will they ask about that “vacant” land I partially own as a member of an LLC that uses it for hunting by members? Given the special limits in HO policies, would they ask about my $20,000 in bonsai trees? Would they ask about me smoking and grilling BBQ and selling it several times a year to neighbors? Would they ask about my activities as a paid umpire at youth baseball games? Or about the band I’m in called The Old Dogs when we open for The Eagles next month?
OK, so I made up some of this. But the point is, how does “fast, cheap and easy” help me identify my exposures to loss? Also, the web site says:
Compare rates & coverages from multiple companies
We have an entire network of home insurers to provide a wide range of options. When you get a quote, we’ll search our network to match you with a policy based on your info. Plus, we’ll show rates and coverages from multiple companies for you to compare side-by-side. [emphasis added]
I was only provided one premium quote and it was from their own company, ASI. There was no listing of premiums and HO insurers like that provided by other comparative rating web sites. I also got a quote on a house where I used to live and still only got a single quote. I can only assume that they just provide detail on the lowest price and that there really is no “coverage” comparison.
So, how does this approach benefit consumers?
Photo by shankar s. 
Bill Wilson
Latest posts by Bill Wilson (see all)
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The Chinese have done petty well building on price have they not?
A good independent insurance agent will never be replaced by three clicks and a credit card payment. So many of us will continue to fight the good fight and try to prove our worth and show-up when the claim happens. I always enjoy your perspective, Bill. Not sure why others are so intent on down grading our industry, especially when they are supposedly educated in how it works. Oh, and I will admit I know nothing about how insurance is sold in China, and isn’t that what we are talking about…insurance?