Insurance is not risk management

A problem with insurance is that it’s a passive post-loss device that is often confused as “risk management”, which it is not.  Insurance just sits and waits to see if what just happened to you qualifies as eligible for financial assistance, but it does nothing to help you seek-out the risks in your life and defend your financial position with a plan of action.  And that passivity and insurance-company-centric focus has lead to a widening gap between what insurance can do and what you may actually need.

Insurance is neither revolutionary, nor evolutionary, and it’s easy to see its deficiency when you consider the risks of tomorrow that don’t relate well to the way in which insurance products are manufactured, priced, and serviced.  There are worries among families that don’t get addressed because insurance doesn’t have an answer for them other than, “if that happens, there may be coverage if…”, and many families and advisors then just stop and miss out on what might be a real solution.

We conducted a survey of families and their advisors and asked them to describe what they most worry about, or what they think will affect them most in the years to come.  A list of some of the most common responses are below, but note that very few are “insurancey”, like kitchen fires, toilet overflows, dog bites, or windstorms.  If your risk management process is simply to shop insurance and decide which deductibles are best, you’re not likely to be addressing some of these other concerns.  We believe a better way is to incorporate a truly holistic risk-management approach as your process, with insurance being just one small piece of it.  And it’s in the development of that process that we can help.

risk list table

Photo:  Rachael McGraw in Florence, Italy

The Power of Surrender

During a breakfast conversation today with a friend (thank you Peter Beeson from Fit Insurance), I was reminded of the importance in committing yourself to whom you are called to be, and then leaving the rest behind if you request the assistance of someone else’s calling.  It is tempting and habitual to try and possess responsibility for all decisions and actions, perhaps due to ego, arrogance, or mistrust, but real power comes from recognizing gaps in expertise and leveraging someone else’s ability to take over and help.

I’ve said many times that the clients with whom I work best are those interested in outsourcing intelligence to experts in various fields.  This willingness to draw a line on a subject across which they recognize the need to seek help is, in my opinion, evidence of one’s success and happiness.  The weight and burden of navigating the ingredients of a good risk-management experience, for example, need not be borne by a busy and successful family, but instead can be offloaded with high expectations to someone who stands ready and willing to take up the charge to deliver the right answers and the right results.

Self-serving though it may appear to be, I see everyday the consequence of families trusting no one, or trusting the wrong person in the design of their insurance and it is one of wrong answers, great worry, and inefficiency.  We think a better way (in insurance, business, and life) is to establish high expectations, find the right expert for the topic at hand, match decisions with personal values, and then rely on the strengths of others to deliver a more peaceful approach to complex and serious life issues.

Photo:  North Cascades, Washington State

The Cost of Worry

What never gets done because we give way to anxiety or unease?  What never gets invented, or created, or performed, or discussed because of interference of some concern?  Economists measure productivity based on the ratio of outputs created by inputs, and I wonder how much more we would do if we weren’t limited by worry.

It’s easy to joke that risk management is a worry business, but I think it’s a liberate-from-worry business.  If you feel like you know where you want to go, but you’ve got a list of worries, your two choices are either avoidance or dealing with it.  Planning around what you’re worried about is the only choice that’s going to move you where you need to be.

Every day I hear more reasons why people don’t do something (acquisitions, deals, job changes, vacations, delegation, school, etc.) than I have discussions about what can be done so that people can do something.  There’s no perfect unburdening of worry, and there’s no removal of all risks, but leaning on a plan that liberates and frees-up confidence of action is a better recipe than doing nothing at all.

Cost of Worry

Photo:  Wild Horse Island, MT

What I Believe

I believe in being a good steward of the opportunities we have with the people we care for and the gifts and talents we’ve either been born with or have worked for.

I believe noble work involves investing in your craft so that you know what you’re talking about, acting for the benefit of others, and having a fierce affection and loyalty to your clients and friends.

I believe most people want their time & money management to be in alignment with their personal values, and that contentment comes from having this feeling.

I believe that worry is a roadblock to happiness and inhibits good decisions and slows good behaviors.

I believe that knowing what you want can liberate capacity and apply what’s already good to go make it better.

I believe that people who are grateful, gracious, and giving are more successful than people who are cynical, contentious, and controlling.

Photo: Safety Bay, Flathead Lake, MT

4 Most Important Questions

Here are the 4 most important questions families should be asking themselves when it comes to their insurance:

  1. What are the losses that could cause the most damage to our financial plan?
  2. If those losses happened, how much money would we need to keep the financial plan in working order?
  3. Of those most serious losses, which ones would we be willing to buy insurance for?
  4. Of those that are insurable, what are our expectations of the insurance product and the insurance company in how they both perform after a loss?

If you have answers to these questions, and you can find a reliable expert who’s able to engage in a conversation about these and help you find the solution that fits, you stand a good chance of making an ultimate decision about your insurance that matches your personal values, and a greater likelihood that future claims will meet your expectations.

Don’t fall into the trap of listening to insurance people talk about product features, customer-service satisfaction scores, “bundling” and other gimmicks, and false promises of premium savings.  You can get all of those things and still have insurance that has zero chance of actually getting you what you need.  Have high expectations, have a strong sense of your need, and demand your insurance partner be all-in on what matters to you.

Photo: Rachael McGraw – Maui, Hawaii

A Comment About Worry

I believe that worry is an inhibitor to general happiness.  Worrying takes effort and attention away from the discovery of mission and purpose, and it is the enemy of intentional living.  I know this because I worry.  A lot.

But I also know that when liberated from worry, I make better decisions.  And when I make better decisions, I worry less.  So I work hard to focus myself on the controllable and the activities that are tied to making decisions to fit with my values and my wishes.  Because when I feel I’ve done the good-decision-making part, I’ve not got much more to do.

So I sometimes go looking for decisions to make, especially in a stressful time, as the antidote to worry.  It’s not always easy, but it can be a learned habit when coupled with a desire and the right attitude.  I believe it hinges on three key ingredients:

  1. Know what you are talking about.  If you don’t know it, go learn it.  Worrying while ignorant is the worst place to be, so go learn what you need to learn so you can decide how to get out of that place.
  2. Act.  Make a commitment to perform and do whatever it takes to get yourself out of the situations you’re worrying about.  It’ll happen a thousand times faster than if you wait for someone else to act for you.
  3. Grow in your personal relationships.  One person worrying is lonely.  Sharing worries and asking for help means you’ve got a team.

I do what I do because I believe there’s value in helping people worry less about some of the financial stresses in life.  And our core business value is Know | Act | Grow because it’s how we think you can get to our motto:  Less Worry | More Happy

Photo:  Rachael McGraw – Joshua Tree, CA

My Personal Insurance Priorities

I consider my insurance the defense of my financial plan.  I think of the ways my financial plan could be derailed, and then I look for the ones that would have the greatest impact and I buy insurance to fund the consequence of that loss.  So here are my insurance priorities (in order):

  1. Income – my future plans depend on me making an income, so I am most concerned about replacing it if I can’t work.  So I have really good life insurance and disability insurance (an individual policy that I control, NOT a group/employer plan).
  2. Health – The most frustrating insurance I own is my health insurance.  Expensive, confusing, and limited in coverage, I still consider this the second most important policy I own.
  3. Lawsuit – I used to manage the handling and resolution of tort-related lawsuits, so I am well-qualified to say that they are expensive, long, stressful, and affect every part of your life.  So I have significant protection against allegations of negligence in the form of an excess liability (umbrella) policy.  It also protects me the same way if someone injures me or my family (excess 3rd-party liability).  I also hold two very large liability policies for my business, primarily so that lawsuits don’t interfere with priority #1 above – keeping the income coming.
  4. Real Estate – Second to my business, real estate is a large single-asset holding and if something happened to it, I’d want it restored back to the way (and value) it was.  I have a full replacement guarantee on my home with no reconstruction limit, and I have unlimited coverage for additional living expenses for the time it’s likely to take to get it rebuilt.

When I design my own insurance, I keep these four priorities in the forefront and everything else matters very little to me.  I keep high deductibles because I’d rather fund my smaller losses with my own $1 than pay an insurance company $1.30 to do what I can do.  I choose my insurance company based on 1) the quality of the contract, 2) their reputation and passion toward claim resolution, and 3) their track record of consistency across all aspects of their company in doing what they say they will do.

Auto Premiums Still Rising

Auto insurance premiums have jumped significantly, and that trend will continue.  For probably quite awhile.  And probably in large numbers.

The insurance industry has credible evidence to support an increase in premiums.  The biggest impact is that cars are so much more expensive to repair these days.  It’s the gadgetry, most of which is meant to keep us safer.  Just like crumple zones many years ago helped keep passengers safe, innovations in technology that help to reduce the frequency and severity of passenger injuries are pricey to fix.

Many cars these days have automated systems that sense traffic around them and can drive, stop, and change lanes without driver input.  But when those sensors are damaged in an accident, the liability for correctly replacing and reprogramming those systems are extremely high because so much depends on getting it done right.  And when there’s liability for doing it wrong, there are high costs associated (mainly to buy insurance for the inevitable lawsuit down the road).

We had a client with front-bumper damage to a Tesla which in the “old days” (2 years ago) probably would’ve cost about $10,000 to fix, but they had the entire $95,000 car totaled because the sensor that read for forward obstacles was damaged and no one would/could repair it.  And since the whole concept of insurance is that neighbors pay for their peers’ losses, all insurance premiums have increased substantially to account for these realities.

This feels especially acute because of the rapid rise in consumer acceptance of this technology.  This hasn’t been a slow boil, but a rapid social change and it’s likely here to stay.  Even as driverless cars begin to enter the market, there will be accidents, and we’ll see auto premiums for those who drive their own cars have to respond.  If there are fewer car owners, there will be fewer people to whom the risk can be spread, leaving the supply of insurance-loss funders (policyholders) in shorter supply.  This will mean even higher premiums.

Manage to the result

When deciding what to do with your insurance, it helps if you think down the road to the day in the future when you have a loss and need a claim adjusted.  Having that end-result in mind should help you decide what to do.

There are some objective criteria you’ll want to touch on, namely:

  • Do you want to manage a home loss within a finite window of policy limits, or do you want to be worry-free with a guarantee of full replacement?
  • Do you want to leave the calculation of your car’s value for after the loss, or do you want to know ahead of time exactly how much you’ll be paid if it’s totaled?
  • Are you fine with insuring some valuables for only certain losses, or do you want your special property covered for almost any damage or loss?
  • Do you want to be forced to rebuild your home in order to get full benefits, or might you like to take the cash and either do it yourself, or move elsewhere?

And then there are some more qualitative results you’ll want to consider, namely:

  • How quickly will you want to be called back, given answers, have estimates completed, bills paid, etc.?
  • Are you willing to “work” and apply your own efforts to get your claim resolved, or do you just want things handled and resolved and leave you out of it?
  • Will you cooperate and understand claim cost-cutting initiatives, or will that upset you and leave you feeling “nickeled and dimed”?

It’s unfortunate that our industry doesn’t do a good job of convincing people that insurance isn’t a commodity.  That’s probably because the ones that do the most advertising/convincing wouldn’t attract many customers if they tried to compete on quality.  But we see everyday that entry-level insurance usually gets entry-level claims results, either because the design was no good in the first place, or because the adage that you get what you pay for is actually often true.  So don’t believe the hype – be clear in your expectations and then seek the design and execution of your insurance to answer to them.

Photo:  Amber McGraw – Flathead Lake, MT