Don’t talk about insurance, but let’s chat about financial resilience

Even I mention “insurance” a lot.  It’s partly bad habit and partly because common vernacular and understanding demands it.  It’s what folks expect.

But insurance is just a product, a financial tool to accomplish something more important.  Nobody’s in the market for an insurance policy.  But they are in the market for financial resiliency.  The ability to weather a sudden and impactful storm of serious consequence, whether because of a fire, or a serious injury, or being sued for something you did (or didn’t do), or having some part of your financial life stolen from you, is what every family wants.  It’s what they’re shopping for when they buy insurance.

I think consumers would be better served if we stopped talking about insurance, took the labels off, and started talking about building a strategy to improve financial resiliency.

Leaving the choice to you makes for a bad agent

Would you accept your tax accountant presenting you with 3 options on the filing of your tax return?  What about your doctor giving you a choice of different ways to fix your broken arm?  No way!  Experts are supposed to know what is best for you, recommend a specific course of action, then get it done for you.  Why else would you hire someone?

So it pains me every time I see an insurance agency presenting families with multiple insurance-portfolio options.  It always makes me think either a) they haven’t done enough work to really know the customer, b) they don’t have a clue which alternative they should recommend, c) they lack confidence to take a stand, d) they’re lazy and want the customer to do the work, or e) they care more about running their business than caring for their clients.

I am all for consumers being the boss and having a final say in things, but it should be only after an expert has worked hard enough to make a recommendation they’re willing to stand behind.

Just one small example of why people fear insurance policies

Which of these kind of policies do you have?

  • Replacement cost?
  • Guaranteed replacement?
  • Functional replacement?
  • Extended replacement?

And oh yeah, any of those subject to a co-insurance penalty?

Insurance policies are contracts of adhesion, which means you don’t get to pick what parts of the contract you want to keep and what parts you want tossed out.  You’re stuck with what’s written.  But you DO get to choose which contract you want when you buy your insurance and despite common misconception, there are differences between what’s offered by Company A vs. Company B.

Maybe you don’t want to become an expert at reading insurance policies and understanding the differences between the above (and many other clauses), but you might want to be sure to choose an agent who’s done all that already and can recommend which is best for you.

Choose an insurance adviser in 4 questions or less

Discerning consumers ask good questions of advisers whom they hire for advice and service. Undiscerning consumers are influenced by geckos and talking price tools, and probably don’t think using a middleman is necessary.  If you’re among the latter group, good luck to you – you’ll know if you chose wisely after the loss happens.  If you’re among the former group, however, here are 4 questions that will help you decide if you’re putting your trust and faith in the right place.

  1. If I follow your advice and you become my agent, how much of my interaction will be with you vs. a member of your staff or service team?
  2. How much authority do you have in your agency to make any decision necessary to better my interests?
  3. Would you describe your agency as “full service”, or do you have a dedicated focus in one area of expertise?  And if you’re an expert, describe for me how deep your knowledge and experience goes.
  4. Give me an example where you’ve gone over-and-above what you think your competitors would do for their clients?

5 factors that predict whether a family will make a change to their insurance plan.

After reviewing tens of thousands of insurance portfolios, we know that 80% of families will pursue a change to their insurance plan if they see at least 1 of 5 indicators (R.I.S.K.S) of poor insurance performance.

  1. Real estate investments either not insured correctly, or with not enough coverage and flexibility to fully restore its value.
  2. Immunity from liability missing because of insufficient insurance.  Most common are insufficient limits of protection against lawsuits, but it can also manifest in not covering a family Trust or LLC, family business, volunteer activities, etc.
  3. Special valuables like jewelry, wine, art, collectibles, musical instruments not covered correctly.  Most people don’t know that insurance companies intentionally put limits and gaps of coverage in their standard policies against such important assets.
  4. Knowledge of the agent and underwriter, most especially among high net worth families.  It’s amazing how many HNW families and high-valued homes are insured by insurance companies and agencies that have absolutely no special knowledge or experience of the special needs presented by having significant wealth.
  5. Squandered premiums.  This usually gets folks’ attention. Close to 90% of all portfolios I review show a waste of premiums either because of inefficiency or poor agent professionalism.

Insurance: is it risk transfer or risk financing, and who cares anyway?

It might seem a small detail, but insurance is not a transfer of risk. Transferring risk means that you found someone else to bear your exposure to loss.  Financing risk means you’ve made an arrangement for someone else to pay for your losses up to an agreed upon limit and under certain terms and conditions.

The reason it’s an important distinction is because when you are selecting your insurance, you’re choosing both an amount you want financed (your limits of coverage and the scope of coverage provided by the insurance policy), and an amount you will pay for yourself (deductibles plus excluded losses plus amounts in excess of the limits of coverage you choose).  Anything beyond the insurance you’ve bought is still your risk and you haven’t transferred it anywhere.

Thinking this way may help you conclude that it matters how good the policy is (insurance contracts DO differ among underwriters), and what your insurance priorities are when selecting limits of coverage.