The July 2002 issue of Training Magazine includes an article with this comment (emphasis added):
"But for things that come in relatively standard forms and well-known formats, such as commodity selling (insurance, automobiles, mortgages, etc.), the emphasis is as much on the personality and credibility of the salesperson, as the advantages of the product. Ergo, personality reading, best-foot forward, overcoming objections, or power-statement, construction-type training has an allure. The goal of commodity selling is to sell the salesperson. The goal of technical selling is to sell the product."
Contrary to popular belief, insurance is not a commodity. Buying an Auto policy isn’t like buying a can opener, and putting together an insurance package for a contractor isn’t like processing a mortgage.
Insurance is more than a policy. Purchasing insurance is a complex process that requires matching products and risk management techniques to exposures that aren’t always easy to discern.
In addition, a critical component of insurance is the financial stability of the company, its customer and/or claims service, and its ability to meet its future obligations in delivering the product. These considerations are too often neglected by insureds who view insurance as a commodity, and who often suffer after purchasing based solely on price.
However, even if we concede that insurance isn’t a commodity, isn’t that how we usually sell it? How often does the sales process revolve around the issue of price rather than product/service?
FACULTY RESPONSE
Insurance might not be a commodity, but the sale of it often is. The salesperson is rarely offering a product that’s different than the competition. Whether it’s due to packaging (BOP), forms standardization, state regulations, coverage requirements (WC), or just the prolonged soft market, there’s very little product differentiation out there. Just because a product is complex (biochemistry of the human body) doesn’t mean the sale is complicated (eat right, exercise).
FACULTY RESPONSE
Scott Adams (Dilbert) said something interesting recently, "Soon all companies will be selling one of two things: technology or confusion." In other words, if we don’t sell technology, we’ll sell confusion so that the consumer doesn’t realize we’re all selling the same product.
Is insurance inherently a commodity? No. A commodity is something that’s the same regardless of who sells it, such as gold, silver, or wheat. However, it’s often sold as if all competitors are selling the same product. This is due to the "lemon" effect. When people buy a used car, they don’t know if it’ll be a lemon or not. Therefore, they pay more for lousy cars than they should and less for the best used cars than they should.
The same goes for insurance. Because the differences between insurance companies, agencies, and products are subtle and complex, salespeople neglect to explain them. This results in consumers who are unaware of the differences. They often pay more for less than desirable coverages, questionable company stability, and inadequate agency services. Conversely, they aren’t willing to pay more for good coverages offered by good companies from good agencies because they don’t know enough to tell the differences. They end up paying an average price.
To best serve our clients, we can’t sell insurance as a commodity. Agents who don’t sell insurance as a commodity are incredibly successful. They have revenues per person often 50% greater than their peers, their E&O exposure is significantly less, and their customers are much better served.
FACULTY RESPONSE
I’m an expert witness on a case that will make case law if we’re successful. Our claim is that there’s little if any Personal Goodwill (vs. Business Goodwill) in an insurance agency because, while the sale of insurance is certainly based in the experience, expertise, sales ability, and personality of the producer, its maintenance is primarily that of a commodity product.
As long as the agency treats the account well, and the product and the price are competitive in the industry, the accounts will stay. If the accounts aren’t treated well, or if the product or price competitiveness deteriorates sufficiently, the account will tend to leave if solicited by an agent with better products and prices (and the promise of excellent service after the sale).
FACULTY RESPONSE
I couldn’t really disagree with the premise that insurance is a commodity. However, one claim can make a believer out of almost anyone.
There’s no doubt that Personal Lines in almost all categories is a commodity. You can’t drive a car without insurance. You can’t have a mortgage without insurance. Does it matter where it comes from? Not usually.
In my consulting experience during the past 20 years, most agents believe they sell and retain clients with customer service. This couldn’t be further from the truth. Some agencies can’t keep a client through the first renewal based on their customer service practices. In the long run, price is a key factor.
Do you have an opinion? If so, email your opinions to [email protected] and we’ll post them here:
SUBSCRIBER RESPONSE
First, we need to define "commodity." Merriam-Webster says that it’s a "mass produced unspecialized product." Then we need to specify perceptions. If taken from the perception of the average insurance purchaser, insurance is indeed a commodity. For the most part, the average insured thinks that all insurance is the same. The industry has unintentionally reinforced that idea by standardizing forms and making them "E-Z read" to allow average consumers to think they can understand what they’re reading. We’ve also done a poor job of showing the public how an insurance policy is constructed.
Insurance professionals know that every policy is an aggregation of forms that when combined make up a contract that promises to do certain things. Insurance companies have the option of adding or omitting certain forms that can change the obligations in the contract. Therefore, what might on the surface look like a mass-produced product (contract) can actually be a very specialized, specifically worded document. And if it’s specialized, it’s not a commodity.
By not requiring a higher level of training and education to sell insurance, the industry contributes to the perception of their products as commodities. Less scrupulous agents might try to convince buyers that the products are all the same and that they should base their purchase solely on price. As long as a claim doesn’t occur, the insured is convinced that the uneducated agent is right.
There are numerous instances where insureds buy coverage based solely on price, only to suffer an uncovered loss that could’ve been covered if only they’d paid a little more. That’s why E&O carriers exist.
The underlying problem is greed. Greed is why companies try to cut costs by selling their products over the Internet or by phone. Greed is why some agents will sell a stripped down product that doesn’t provide the best coverage for the insured’s needs. Greed is why an insured will buy the cheapest policy.
Education is the answer. We have a responsibility to educate the insurance buying public, one at a time, as they come in to talk to us. But as long as there’s somebody on the next corner who has a modicum of credibility and the same license I’ve got, and will sell a lesser product for a lower price, we’re going to lose. And, holding the moral high ground in this situation doesn’t put food on the table.
You’re damned if you do, and damned if you don’t. As long as we’re paid a percentage of the premium commission, some agents are going to do whatever is required to put food on the table. The solution might be fee-based compensation, but I’m not so sure about that either. This one’s a real can of worms.