Stop asking what they want you to ask

If you are reviewing or shopping your insurance portfolio and really want to uncover the differences in your choices:

Stop asking:  Who has lower premiums?  Who has the best discounts?  Should I bundle my policies?  Who provides good customer service?  Which insurance company gets good reviews?  Can I pay monthly?

Start asking:  How will I be judged when they calculate my premium?  How can I improve how I’ll look to this insurance company?  Does this insurance company have a human being ready to work with me, or is it a computer doing all the judging?  Does this insurance company have an interest, experience, and an ability to deal with my wealth and lifestyle?  What’s the future premium curve going to look like if I have a claim?  How committed are they to the future with me?  Are they increasing or reducing their product offerings?  Can they articulate who their ideal client is and does that look like me?  In what way do they stand out against their competition?

Photo:  Rachael McGraw, Seljalandsfoss, Iceland

Accident Forgiveness – Meh

Insurance companies love selling “accident forgiveness” on their auto policies.  Ever wonder why they’d do that?  Consider this:

An insurance company has 10 clients.  Statistically let’s say they know that 2 of them will have an accident in the next 5 years costing $5,000 each.  So over the next 5 years they’ll spend $10,000 paying claims, but let’s say they only collected $8,000 of premium for that same period.  Consequently, they need to raise rates enough to make up the additional $2,000.

Here are the options the insurance company has in order to remain profitable:

A). Without accident forgiveness, it makes sense that the 2 who got in an accident will see their premiums go up by $200 for the next 5 years to collect their $2,000 back.  If either of those 2 clients leave before 5 years are up, however, the insurance company doesn’t have a chance to make up the cost of the claims.

B). Or, they sell each of the 10 clients “accident forgiveness” for $40 for 5 years.  The same 2 get in accidents and their rates don’t go up, but the insurance company collects $2,000 from the “accident forgiveness” premium.  The 2 who caused the accidents are happy because their rates didn’t go up, the insurance company’s happy because they pre-funded the claim cost and don’t have to raise premiums, and the 8 who didn’t get in an accident think they are happy because their accident might be next and who wants to give up their accident forgiveness benefit?

So it sounds like everyone’s happy, right?  And maybe everyone should be.  But I have a concern that the “accident forgiveness” is a profit center that puts more money into profit than to cover losses.  And maybe that’d be okay, but I also think it provides another avenue for arbitrage and manipulation without traditional correlation and relevance in rate and market selection.  I do not know one way or the other.  But what I do know is that at least one insurance company pays their agents MORE as a percentage to sell policies that come with “accident forgiveness” (and many other add-ons).  And when it starts to seems so important to try and convince me and my clients why they should buy stuff like this, it not longer feels like we’re dealing with a true consumer-driven benefit.

From agent to advocate

Related to the last post, I’ve taken stock into how our jobs as risk advisors have changed.  It used to be that we’d recommend a risk-financing strategy, find an underwriter best capable of backing it, and then sell the consumer on why the plan makes sense and why that underwriter is the best for them.

These days, we still recommend a strategy, but we spend more time selling the underwriter on why they should take-on the consumer than the other way around.  Maybe over time our job will continue to evolve from an expert with the eyes & ears of the underwriter to an expert who best understands and advocates for the client.  I’d prefer that.

And in defense of the importance of that position, just ask me how well I think the consumer is generally protected by relying on what they can get a) online by themselves, b) from an insurance-company employee, or c) from an insurance salesman.  The proof I’ll share will come from real losses, real claims, and real disappointments where somewhere along the line someone didn’t design the plan correctly and didn’t choose their underwriter wisely.

Photo: Amber McGraw, Silfra in Thingvallir National Park, Iceland

Arrrrggghhh!

Average drives me crazy.  Or I should say, being happy about being average drives me crazy.  Insurance companies, I’m talking to you.

I’m still looking for an insurance company partner who can demonstrate a consumer-focused culture.  That means being responsive in communication and the resolution of claims.  It means demystifying billing statements and not being cheap by charging petty fees on premium payments.  It means realizing ahead of time that a client’s experience can be affected by a judgmental underwriter who doesn’t wait for all of the information before non-renewing an existing customer’s policy.  It means not changing the mind about what makes a good customer year-to-year-to-year.  It means pushing as far “down the ladder” as possible the authority to make final decisions.  It means being able to say no and to explain it so that (even in disagreement) it’s at least comprehensible.

These are daily problems, and only a small sampling. In fact, the list above is just from things that have popped up this week and it’s only Tuesday!  Why don’t people love insurance companies?  I know why.  And I don’t think these are merely grumblings found in the daily grind of a job.  I think it’s systemic of the culture inherent in the entire industry.  Risk. Worry. Scrutiny. Skeptical. Protective. Complicated. Process.  These are unfortunate hallmarks of our industry.

There’s room for someone to change it, though.  And if the history of the entire world is any indication, someone will someday.  Someone will find a way to upset the apple cart with new hallmarks.  Genuine. Curious. Creative. Wow!  Passionate. Selfless. Respect. Urgent. Flexible. Inspired.

Seriously, I’m an optimist.

I’m actually a very positive, optimistic person.  It may seem otherwise with these posts, but they’re the result of now realizing I have 25 years of pent-up frustration with my industry.

I’m frustrated at how insurance companies generally treat their customers as if they’re doing them a favor.  I’m frustrated that the insurance industry itself has intentionally dumbed-down its professionalism in the way it advertises itself.  I’m frustrated that so many agents are lazy and don’t invent.  I’m frustrated that consumers choose their insurance so poorly, usually based on bad info and applying bad criteria.

There’s another story to be told, however, and I intend to tell it to whomever wants to listen.  Insurance does regularly stop financial ruin.  Thank goodness.  And for as much as I usually implicate insurance companies as to why most folks find insurance so soul-sucking, the remedy toward a better experience doesn’t lie with them.  The solution is to consider it important enough in your life to interview and find an expert who shows genuine dedication to knowing what they’re talking about, demonstrates passion about engineering the best solution for you, and then has the gravitas to get things done as they need to be.  And then I’d expect good results will follow.

Photo: Rachael McGraw, Amsterdam, The Netherlands

7 better questions for consumers

One of the best ways to improve your skill as a consumer is to improve your line of questioning.  Insurance companies are great at data collection and they know more about how you’ll make your next buying decision than you do.  That’s why they invest hundreds of millions of dollars advertising in the way they think you’re most likely to be manipulated.

So instead of you giving them what they want (consumers who are lead to believe that unimportant things are important, usually), demand that they give you what you want by teaching them the questions you expect them to answer.  Some suggestions to ask of your agent (if you don’t have an agent, interview some and get one):

  1. How will you decide which insurance company you’ll recommend to me?
  2. What’s the most compelling reason why I should do business with you?
  3. How would you rank the insurance priorities in my portfolio?
  4. In describing “good service”, what does that mean to you?
  5. With the insurance company you’re recommending, do you anticipate a gap between how I’ll expect my claim to be handled and the way it will actually be handled?
  6. Which insurance company is most likely to act consumer-focused?
  7. Which insurance company employs the smartest employees?

Death of the (lazy) middleman, please

A recent online business journal’s headline: The Death of the Middleman.  Maybe so when what’s available for sale and what is wanted by the consumer is obviously, easily, and profitably matched.  I don’t think we’re there yet with risk management and insurance.

On Monday I told a family what I thought they needed in order to be financially protected. On Tuesday I listened to an insurance company tell me what they’d require from that family in order to qualify for their insurance.  The two didn’t match.  So I’ve got a willing consumer who needs X and an unwilling insurance company who will only provide Y.

That happens a lot.  And what also happens a lot in response to that, unfortunately, are agents who a) give up looking for creative solutions, or b) don’t tell the truth and try to sneak an insurance company into providing insurance they don’t want (you can imagine this doesn’t work well if a claim occurs, by the way).  So there are a whole bunch of families out there with bad insurance because too few agents are willing to go find improved solutions.

And on the other side, insurance companies keep lopping off the ends of what counts as “good business” in their eyes.  They keep slicing thinner and thinner what defines an acceptable client with things like pricing algorithms, “no-more-than” guidelines, and “only-if” scenarios.

That’s fine – it’s their business.  But my business is showing how a good middleman is valuable.  Insurance companies are governed by boundaries and generally limited thinking and being a middleman able to find the differences among them can make a difference between “you’re covered” and “nope, sorry”.

Your bad claim experience begins now

One of the most frustrating moments in my job are the times when I hear of a family suffering an insurance loss and then realizing that the claim-handling experience with the insurance company didn’t match their expectation of how they wanted to be treated.

The reason it’s difficult is because I’ve got to think of a diplomatic way of saying that the bad experience is probably because there was a moment years prior where they decided to pursue an insurance company based on cost or some other reason unrelated to pursuing the best fit for them.  It’s my belief that a bad claim experience actually begins the moment you buy the wrong insurance from the wrong insurance company through the wrong agent (or buy it direct because you thought you could).  It just may take awhile to show up.

Insurance. Is. Not. A. Commodity.  Among the insurance-purchasing factors there are differences in needs, differences in pricing, differences in coverages, differences in claims handling, differences in client appreciation, and differences in talent and experience.

Is insurance a hedge?

In finance, holding a long position means you profit if a security you own goes up.  By contrast, holding a long position means you lose if the value of the security goes down.

Admittedly not exactly the same, but I like to generally use the long-position analogy to refer to your ability to earn an income, to the value of your tangible assets, and to the preservation of your net worth. You’re financially probably all good if your income rises, or your tangible assets remain intact, or your net worth isn’t attacked in a lawsuit.  So you hold “long” positions in those elements of your financial status (to be clear, those things are not securities and this is just an analogy).

If you no longer had the ability to bring home a paycheck, or you lost your tangible assets to an unfortunate event, or you owed someone money because of a lawsuit, that “long” position means you’ve just lost to an occurrence you didn’t prepare for.

Insurance works similar to any other financial product that aims to limit the impact of certain risks to your financial position.  It’s not a short because there’s no profiting from insurance, but it’s predictably able to reduce the consequence of loss on “long” positions.  My point is that the smartest consumers think of their insurance this way because it defines the scope of how they make their insurance-buying decisions.

Things Do Happen

I’m a little squeamish about telling insurance horror stories because trying to motivate thru fear isn’t cool.  Unfortunately, bad things do happen and giving real-life examples of everyday scenarios that put wealth at risk can be a good counterpoint to apathy and an unwillingness to believe that anything bad will ever happen.

So here are just three actual claims where, had the families not carried a sufficient umbrella, they’d be liquidating other assets to satisfy a judgement of negligence.

A babysitter left a 5 month old infant unattended in a walker. The infant toppled the walker, struck her head on the floor and suffered brain damage. The parents of the infant sued the teenage babysitter and her parents. The court awarded the infant’s parents $11,000,000.

An insured’s daughter hated math class as well as the teacher. The daughter made several “disparaging” and false remarks about her teacher online. The teacher sued the parents for personal injury and $750,000 was paid.

The insured’s tenant claims she became ill from carbon monoxide poisoning resulting from a faulty furnace. The tenant claimed permanent brain damage and demanded $750,000.