Commoditization of Insurance: How It Hurts Your Clients

The attempted commoditization of property and casualty insurance is something that we have seen taking place more and more over the recent years, especially in personal lines. Our clients are barraged with the message that they can save money on their insurance in just a few minutes, and it is surely more than just an innocent oversight that coverage and quality of service are nowhere to be seen in these massive marketing campaigns.

Unfortunately, this part of our industry, which was once considered to be noble and a truly lifesaving resource for people at times of heartache, has resulted in insurance being considered by many to be a necessary evil and something not worth paying any more than the bare minimum. 

Commoditization of insurance hurts our clients, our agencies, and with insurance carriers  as a whole. Yet, the question remains for those of us who are agents — what can we do to educate clients on how commoditization of insurance hurts them instead of helps them? 

Why Educate Our Clients on Commoditization of Insurance?

It may seem like the obvious answer to why we should want to educate our clients on why they should avoid price-only shopping. Yet, that’s simply not the case. With inflation being at an all time high, educating your clients is crucial. 

Clients believe that saving money on their insurance premiums is key to creating a budget they can afford. Although this is certainly true, what you will learn in this blog post is how focusing on the short-term savings could lead to a disaster if they need to make a claim. Long-term thinking is more often a necessary focus for insurance since clients (and we as agents) certainly have no idea if or when a catastrophe will occur that will require a client to file a claim. 

Further into this article, you will learn more about the importance of why clients should not treat insurance like a commodity where price should be the sole factor in their decision making process. Thinking like this can yield potentially dire consequences. 

How Have Independent Agents Met the Challenge to Avoid the Commoditization of Insurance?

Many in our industry are realizing that we are selling insurance in a hard market. How have we, as insurance professionals, met this challenge? Well for many, if not most of us, it has turned us into price sellers. After all, it is what clients have come to expect given this unprecedented time of inflation that no one in the current generation has ever experienced. Clients continue to feel the strain of increasing prices in every avenue of their lives. The insurance industry as a whole continues to push the lowest price factor as a means of attracting more business.

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 Selling on price only leads to our demise. Our clients trust us to offer them the insurance products and coverage options that are best for them (even if they are convinced that they want the lowest prices). 

If we choose to offer only the lowest priced options without the proper coverage, we will have claims that go uncovered because of the coverage we chose not to offer because we tried to play the price game. We make less money because lower premiums means lower commissions. Oh, and we will probably lose the client anyway because when a low price is the only thing we can offer, there’s always someone who can beat us with a lower one. They certainly won’t refer their friends and family to us because they’ll feel like we didn’t know what we were doing since they didn’t get the coverage they likely  believed they had for a “great low price.” 

The commoditization of insurance seems like a good idea, especially to the price conscious client, but in reality, it can lead to an absolute disaster. So, as the agent, what can you do to help the client and yourself in the long run with your business model?

Winning the Low Price Insurance Game as an Independent Agent When Clients Want to Save Money

So, how do we win the low price insurance game? We win by not playing it. Don’t get in the mud with the price sellers. Then, what’s our competitive advantage when our clients want and even need to save money? Sell value. That’s a great, two-word phrase, but what does it mean? 

Educate your clients about real life risk management. Teach them why the right insurance policy  is so important and why it’s worth investing in a good insurance product that will protect them when tragedy strikes. Teach them that it’s more than just paying for cracked windshields or buying the cheapest insurance policy. 

Consider the following scenario. Whenever you go to an E&O prevention training, how does the risk transfer instructor drive home the point? With stories! They tell you E&O horror stories so that you understand it’s not worth the risk. Why don’t we do the same thing with our clients? Teach our clients about risk management and back it up with a story that really illustrates why that extra coverage is worth it. It will save them money if disaster strikes. 

In fact, it was when I realized that this exact risk transfer strategy had been so effective on me that I became such a believer in it. I was finally getting off my parents’ insurance as a young, single guy living with a few roommates. I was working for SIAA, but still knew very little about insurance products. I was talking with one of my colleagues, Richard Kunz, about not thinking I needed a renter’s insurance policy because I don’t own enough stuff. 

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Richard then explained personal liability coverage and told me a true story about a young man, not a homeowner, who was downhill skiing and accidentally ran into a woman on the slopes while he was going at a high rate of speed. This woman ended up in the hospital with significant medical bills which led to a lawsuit. Because this was a non-vehicular accident, his auto policy did nothing. 

Just like me, this young man did not think he needed renter’s insurance just to cover the stuff he could cram into his 10x10 room in the house he was sharing with friends. If only he had known that without renter’s insurance, there would be no recourse to pay any judgment against him for all of the injuries to this woman and to pay her medical expenses. If only he had known that renter’s insurance covers more than just the stuff in his closet. Then maybe at less than 30 years of age, he wouldn’t have had to declare bankruptcy. If only he had an agent who had a better business model than to act as an order taker for insurance products. If only his insurance agent cared to educate him on insurance products that could have protected him in the event of a catastrophe. 

After Richard told me this story, I immediately realized how “worth it” a renter’s policy would be. The peace of mind alone was worth it. By the way, I’ve had several opportunities with family and friends who were renting a home and didn’t have renter’s insurance to explain personal liability and tell this story. Without fail, this “teach and tell” strategy convinced each person to contact their agent about renter’s insurance. Why their own agents hadn’t used storytelling as a competitive advantage as part of their business model, I certainly can’t say, but hopefully my friends and family are better protected now if something happens.

Stop Selling and Losing on the “Save Money” Business Model

Tired of selling on price? Tired of losing on price? Then stop focusing on the “save money” business model. Go back to being the type of agent that shops for what clients need: someone who can find them the right insurance policy with the right coverage. 

Start teaching your clients how insurance will protect them when some of the worst and least expected things can happen to them. Some of your clients won’t care. And some people don’t need to be your clients. Be a different kind of agency by being a different kind of agent. You’ll be amazed at the loyalty and the increase in sales, especially from more referrals, when your clients learn from you and feel like you are actually trying to protect them.