Friday, December 27, 2013

What Type of Insurance Buyer Are You?

I have had some interesting conversations about insurance this past week. I have spoken to several individuals who are buying insurance because they are required to, forced to by government or by a lender. In each case these individuals have told me to only insure for the base requirements and not a penny more. I generally refer these individuals to another insurance agency because they will never be happy with their insurance plan and will definitely be unhappy with their insurance in the event of a claim. I sympathize with these people because I used to be one of them.

 You see, I did not understand that insurance is a financial tool. I thought of it as an unnecessary expense and hated paying the insurance premium which I considered a waste of my hard earned money. And, I didn’t understand how insurance paid in the event of a claim. I just assumed that insurance paid the same regardless what you pay in premium so I figured that you should pay for just the bare minimum. It wasn’t until a trusted insurance agent explained to me that insurance is a contract and you are purchasing a contract that the insurance company will honor but only to the limits of the contract and no more. So, by buying the lowest insurance limits I was ensuring that I would not be fully protected in the event of a loss. The insurance company would pay their contracted limits and I would be stuck paying the balance how fair is that?

 Here is the part that changed my perception and how I view insurance now as a tool. The difference in cost between being insured at the very basic limits and the cost to be insured properly is barely noticeable. The insurance companies don’t give you massive savings for choosing the lowest coverage. They still build in all of the fixed costs of insurance into the lowest limits of liability. So, when you increase the limits to be properly insured the increase in insurance is at a much lower rate. In fact, in some cases increasing your limits doesn’t increase the premium at all! So, why doesn’t everyone carry full limits if the cost to be properly insured is only nominally more?

If you read my previous blog posting you will know how I feel about the insurance industry focusing its entire message on price turning insurance into a commodity. Just like buying 4 rolls of toilet paper verses 12. And this reinforces consumers into believing that if you buy a little, the bare minimum you must be saving money! I know that it is counterintuitive but in insurance that simply isn’t true.

 Insurance is a tool. It helps you protect what you have allowing you to focus on creating wealth for your family. You can never get ahead by being insured poorly and ineffectually and the cost difference by being properly insured is shockingly low. Next time before demanding the bare minimum compare the cost between minimum coverage and proper coverage and you may become a convert like me.

Friday, December 13, 2013

If All Insurance Is The Same, Why Not Pick The Cheapest?

This is a dirty secret that we in the insurance industry created. It is the monster that grew too big and now we have no control over. It all started with price competition which was a good thing. It is important to be competitive and it is important to the consumer (our clients) to receive the best product possible at the best price.

And then something happened. In the zeal of the industry to offer the lowest price, to never be undersold we treated insurance like a commodity. The consumer (our clients) have been deluged by advertising for the past 20 years to believe that they are paying too much for their insurance and in just a few moments by quoting online or calling in to the company they can save huge sums of money over what they are paying now.

After decades of reinforcing only price the consumer has accepted that insurance is a commodity no different than laundry detergent, paper towel and other consumables. If all insurance is the same why not pick the cheapest?

In the early days of price competition insurance companies found ways to offer their products at the lowest price possible and that was healthy and smart for the industry however as more insurance carriers entered the market place featuring direct to the consumer options the message was only price and less about providing comprehensive coverage. Again, the image that was presented to our clients and the consumer was all insurance is the same so just pick the cheapest.

In this last decade we have observed even greater pressure to force the price of insurance down convincing the public that they are paying too much through credit scoring in most US states and the advent of picking your insurance by what you are willing to pay. You might be thinking what is the harm in that? The free market is good for everyone, isn’t it? Credit Scoring is a statistically proven concept whereby the consumer with lower credit scores is statistically shown to have higher levels of accidents and violations. Credit scoring has done a remarkable job of lowering insurance costs for those with the highest credit scores. Insurance companies advertise the insurance savings based on the very best credit scores so when they say that you could save $400 on your insurance premium it is based on those with the best credit scores however the vast majority do not enjoy those savings and this is the big lie in insurance.

The conversation with the public is all about price and not about the insurance coverage and this is my biggest fear. When price trumps the conversation about being properly insured you end up with the consumers not being protected during a claim. And it reinforces that insurance companies and agents are dirty rotten scoundrels trying to get out of honoring insurance when we trained the consumer (our clients) to base their decision on price alone.

Consider this, you are going to need heart surgery and you need a surgeon. Do you shop for the best price or for the best surgeon? You are in a legal fight that could cost you most of your family assets, do you shop for the best price or the best attorney you can afford? Think how important insurance is to the average person. It provides protection for their vehicles and for their home and personal belongings. It may even provide protection for their very lives and health. In the event of a catastrophe insurance has the ability to restore that person, family and their belongings as if it never happened. Literally, that family’s future and the assets of future generations of that family depend on the type of coverage that they have. I can promise you after many years of handling claims that not one of my clients in a serious accident or loss was worried at the time about how much they paid. So, I will continue to make certain that the insurance coverage is the first and most important topic that I have with my clients and then after we agree on proper coverage shop the market place for the best price. All insurance is not the same and price is only part of the conversation.
Choose your insurance first. Ask the hard questions and challenge preconceived beliefs about insurance to make sure you have the most comprehensive coverage. Make sure that the insurance company or your insurance agent understands what you expect in the event of a claim and settle on your insurance coverage plan first. Only after you have an insurance plan that works for you should you shop the markets for the best price. And keep in mind that your coverage plan changes as you go through life. Take the time to discuss your insurance plan with your agent each year. Be clear that you want your coverage plan to be competitive and you expect your insurance company or your agent to verify that it is. If they are unable or unwilling to do so that is when you should look for another company and/or another agent.