It never ceases to amaze me how life converges. It is rare to find a subject that is interesting that something else does not soon appear in the same vein.
For example, in the morning I read an article about casualty insurance that is concerned with internet sales and the commodification of some of the personal lines. Car insurance being prominent. It referred to a McKinsey newsletter that formed the basis for the article. Its title. – Adapt or find another line of work. Pretty clear.
I sent it to one of our people with the comment that this will likely happen here in respect to some forms of life insurance. When I returned from lunch I found this, from the insurance journal, in my email .
Maybe the convergence is always there, it just the noticing part that causes the excitement.
So what is the message? There are several.
- Regulators have no difficulty in doing things that may or may not be well founded in terms of the benefit to clients. Price is a poor indicator of value but the commodity market implicitly assumes that all product is equal and only the price differentiates them.
- Insurance of any kind is both complicated and subtle enough that the average citizen could easily miss the nuance. Will the regulators make people whole after the fact? Possibly not.
- The average citizen has little interest in learning all the parts they need to know and even compared to their tiny interest, their skill to do so is even more deficient. Few could estimate their coverage need accurately. Not 1% of the people outside the profession have a reasonable chance of understanding and comparing two policies.
- The average advisor has been derelict in their duty to inform their client what it is that they do. It is unwise to assume that clients know what you are doing for them. It is even more unwise to assume that if they once knew, they still know.
Purchasing on the internet points out several things:
- The client does not really know what they are doing.
- The insurers will be writing contracts that are non-standard and biased in their favor.
- The company will use the value of the coverage bias to reduce the price and thus rank higher in the survey.
- There will be no agent with the skills to inform and advise. Certainly no incentive to get involved.
All for what? So the customer can think they bought insurance cheap. That is a false value. If you don’t know what was removed it is dangerous. As the old saying goes, “If you want good oats, you must pay a fair price. If you are willing to accept oats that have been through the horse, you can pay less.”
Advisors in any insurance space that want to be paid for their advice need do two things.
- Be valuable.
- Help the client to understand what that value is.
If you cannot do both, then learn to operate in a market that relies on price alone to differentiate, or as McKinsey suggests “Find another line of work.”
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.