Tag Archives: broker

Risk Placement Services’ Ryan Collier

Ryan Collier, chief digital officer of Risk Placement Services, discusses the development of a friction-free process for placing coverage for retail brokers, making it a more attractive wholesale partner in the process.

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Unfair Perception of Insurance

The definition of a commodity, per Investopedia is:

“The basic idea is that there is little differentiation between a commodity coming from one producer and the same commodity from another producer. A barrel of oil is basically the same product, regardless of the producer. By contrast, for electronics merchandise, the quality and features of a given product may be completely different depending on the producer. Some traditional examples of commodities include grains, gold, beef, oil and natural gas. More recently, the definition has expanded to include financial products, such as foreign currencies and indexes. Technological advances have also led to new types of commodities being exchanged in the marketplace. For example, cell phone minutes and bandwidth.”

West Texas oil of x grade is West Texas oil of x grade. It does not matter what hole in the ground it comes from. The market values it the same. Red Russian wheat is Red Russian wheat. It does not matter what farmer grew it. The market values it the same. When the market values something the same, regardless of who grows it, drills it, makes it or services it, that “something” is a commodity. Sometimes the product is truly indistinguishable, such as the oil and wheat examples.

Sometimes. though, differences exist, but the buyer does not recognize the differences and therefore treats something as a commodity that really is not. The seller knows, or should know, the difference. The seller can then take advantage of the buyer by selling a product/service of less quality than the buyer imagines at the commodity price. Or, the seller will sell a higher-quality product at the commodity price and lose money or at least waste money because no one is paying for the extra quality because the buyer does not realize the higher quality exists.

In these situations, a perceived commodity exists, not a real commodity. The difference is important. Insurance is a perceived commodity, not typically a real commodity (a few exceptions exist). As a result, quite often, people buy lower-quality insurance policies because they think all policies are commodities, so why spend any extra? If they were correct, then their logic would be right. However, they are getting taken advantage of because they are comparing a lower-quality product at a lower price with a higher-quality product at a higher price and not seeing the difference in quality. Where they get suckered a second time is the seller of the lower-quality product prices the policy higher than actually necessary but materially less than the higher-quality policy. The insured thinks he is getting a good deal when he is not, the higher-quality provider loses a sale and the lower-priced seller makes extraordinary profits.

See also: Insurance Is NOT a Commodity!  

Any reader thinking this is not happening clearly does not live in the real sales world. An entire economic analysis of this circumstance was described in detail in 1980 by an economist named Dr. Shapiro, and we’re seeing it played out before our eyes every day. The only winners are the entities selling low quality.

The reasons insurance is a perceived commodity rather than a real commodity are:

  • Insurance is complex. All one has to do is read a policy to understand that it is complex. Then add the elements of service and claims, and how no one publishes quality claims data relative to which carriers provide the best claims service, and one understands why consumers’ eyes glaze over.
  • Most consumers do not want to buy insurance, even if it was simple, so asking them to invest time and energy into determining which product is quality by learning something so complex as insurance when they do not even want to buy it is asking for far too much.
  • Let’s be honest, most producers and customer service represenatives (CSRs) do not truly understand many insurance coverages, either. I have been teaching coverages, auditing agencies for E&O, answering email questions from agencies regarding coverages and so forth for 30 years. I am amazed at how little quite a few producers and CSRs do know.

If sellers cannot explain insurance, they default to selling insurance as a commodity. Typically we refer to this as “selling price,” but it is really defaulting to selling insurance as a commodity because the only differentiation with a real commodity is price. Such actions reinforce to the public that insurance is a commodity. At the very least, producers should selfishly avoid selling insurance as a commodity because, bluntly, insurance companies and the public do not need to pay 15% commission to sell a commodity. To sell price is to tell the market you are worthless.

The industry now has new players, insurtech or disrupters as they’ve become known. Many have no insurance background and therefore no pretense they know anything about insurance. They do not pretend that insurance is special. They see insurance as a commodity. Many industry veterans cannot stand the thought of obvious “know-nothings” selling insurance, but at least when they admit they know nothing I admire them for being honest. Quite a few people in the industry who have decades of experience do not know much either but will not admit it. These particular new players are simply making ignorance transparent.

When ignorance is transparent, price also becomes more transparent, and this is what the public, who sees insurance as a commodity, wants. They want transparency. If they see insurance as a commodity, they certainly do not want pricing obscured by an agent, who pretends to know something, when he does not, making an extra 15%, which means the public may pay an extra 15% that is truly a waste. Truly, the industry should not be upset if the result is to eliminate the waste incurred spending 15% on agents who are incompetent.

The catch, as Dr. Shapiro described back in 1980, is what happens to the producer who truly knows what she is doing, brings true value to the consumer and is worth 15%? What happens to the insurance company who truly has far better coverages or far better claims service? These entities bring important value to all of society, and they are being squeezed. Here are some of my suggestions:

  • Actually know coverages. Actually learn business income. Actually learn ordinance and law. Actually learn at least what questions to ask around cyber. Actually even learn the differences in homeowners policies.
  • Then learn how to discuss coverages with clients. Knowing coverages and knowing how to communicate coverages are two different things. This is work and a craft. Learn your craft well.
  • Hire a marketing firm/publicity firm to explain for you your knowledge and ability to communicate.
  • Package the insurance policy with services. Insurance policies in and of themselves do not deign a premium of 15% commission any more. The 15% is for the package of services the agency provides, the experience the agency creates at sales, renewal and claim.

See also: Insurance is Not a Commodity? Hmmm  

I work with a handful of clients that have truly built their culture around these features and others. They do not have the problem of selling commodity insurance that most agencies have, and their organic growth rates prove it. Study after study has shown that, regardless of the industry, building expertise, communication skills and a consumer experience around the sale is absolutely the only way to counter, even thrive, in a world where consumers perceive a product to be a commodity when, in reality, it is not.

RIP to the Idea of ‘Sold, not Bought’

Let’s have a moment of silence for the “sold, not bought” paradigm. Before anyone gets panicky, we’re not laying agents to rest, but rather recognizing that sold, not bought is about a mindset that served our industry in the past and that holding on to it for too long is now hurting us.

It’s not about favoring a particular distribution method. Agents can live without this paradigm — and likely be better off for it.

Learning from other paradigms

If people in your company are still having arguments internally about this, let’s first look at what we can learn from other arguments that have died over time. These include:

  • “the Earth is flat;”
  • “the four-minute mile is impossible;”
  • “HIV is a death sentence;” and
  • “Pluto is a planet.”

What’s common about all these arguments? New capability. Somewhere along the line, a scientific breakthrough, a person with new knowledge or a separate discovery caused us to see the argument in a new way. Then we eventually agree on the new truth. It’s time to do the same for the sold, not bought paradigm.

What’s changed?

There is new capability in the hands of consumers that did not exist when the paradigm was created. The modern consumer has so much new capability that the term “prosumer” was invented by Alvin Toffler in his 1980 book “The Third Wave.”

A prosumer is a very active consumer who blurs the lines between professional and amateur and controls information flow, the experience and, even, the sale. Modern companies like Amazon, Apple and Google have done a great job, both leaning into this trend and shaping it.

See also: Paradigm Shift on Cyber Security

As an industry, we have convinced ourselves that nobody wakes up in the morning and wants to buy insurance unless someone makes her do it. This drove the sold, not bought paradigm. It had truth to it in the days when consumers did not have access to information like they do today. However, the prosumer found this concept disrespectful and, perhaps, even arrogant. Hanging onto this notion has caused the industry to lose focus on the end consumer and shift the focus to the agent as customer. We then end up with:

  • Complex products that please a few key sellers but damage the customer experience;
  • A heavy push in marketing strategies that result in expensive incentives and margin pressures; and
  • Compensation models that provide incentives for the wrong behavior and lead to onerous regulations, such as the DOL fiduciary rule.

Opportunity to relearn

There’s a lesson here, but we need to revisit the nature of demand. Economics lessons tell us that there are several nuanced styles of demand, dictated by the nature of a product.

It’s the manufacturer’s job to cultivate demand, manage demand or both. Historically, creating demand was in the hands of the agent and was fused with the sales process. Because of the prosumer’s new capability, the role of demand creation and the sale are now decoupled.

See also: Taking the ‘I’ Out of Insurance Distribution  

For those who think nobody wants life insurance, think again. While it isn’t as highly sought after as beer or shoes, the 2014 study by LIMRA and Maddock Douglas indicated there are almost 19 million “stuck shoppers” (people who intend to buy but the current experience causes them to get stuck along the way) for life insurance. In addition, if you talk to some of the new startups/disruptors in the insurance space, they believe insurance is a bought product, and it is simply their job to cultivate more demand and create a superior experience.

So if we replace the paradigm of “sold, not bought” with “bought, not sought,” we can put the responsibility back into the manufacturer’s hands to cultivate demand, deliver better on the experience and, most importantly, ask ourselves what role advice plays in the new world. Many are pointing to robots as the answer.

But can an industry so deeply rooted in social purpose really operate without humans helping humans? If not, we have an opportunity to reinvent the agent role in a profound way.

What Does Success Look Like?

It seems every press release you read, every case study in the news, every session at industry conferences and every webinar on tap for the next six months will at some point mention the 100% implementation success rate of the vendor involved. That fact, in and of itself, throws serious shade on what really constitutes implementation success and dilutes the impact or validity of the concept as a whole, but should it?

Depending on where a person sits, implementation success can mean different things and may include different elements, technologies or metrics. Implementation success is therefore often qualified by varying criteria that are completely dependent on the role of the individual in the project or the company. To truly guarantee implementation success, all perspectives and perceptions must be considered and incorporated.

For the CEO, it’s all about the big picture. Sure, nearly all CEOs want an increased ability to process new business and grow the company organically, but time and again individuals in this role will focus on these key questions:

  1. Did we implement what we set out to implement?
  2. How will this implementation affect our ability to modify existing products or launch new ones?
  3. Does this implementation support our construction of a future-ready technology environment?

For the CFO, everyone instantly assumes a successful implementation is simply about being on-time and on-budget, and while those factors are definitely important, CFOs additionally want to know:

  1. What is the maintenance and licensing like on this new technology product, and how does it affect our total cost of ownership (TCO)?
  2. Does this implementation make other downstream or supporting systems obsolete, requiring the company to make additional technology investments in the coming year(s)?
  3. Does this implementation allow the company to retire existing legacy systems and recognize cost savings in maintenance and support of these systems?
  4. Is support or the professional services required to implement changes included in the initial contract price, or is it an additional, and continuing, charge?

For the CIO, data conversion is a crucial, yet truly not sexy, part of the package that allows one system to be turned off and the other turned on, so to speak. It is important to understand that while CIOs are often thought to have the most interesting, cutting-edge piece of the insurance technology puzzle, these individuals are not easily distracted by solutions, tools and gadgets that turn out to be little more than bright, shiny objects. Questions CIO typically focus on when measuring implementation success include:

  1. Does my internal team have the expertise today to maintain the new solution, including making simple changes without deep technology programming expertise or the ability to create and implement custom coding?
  2. Will I be able to easily integrate emerging technologies as the need arises?
  3. What is the upgrade path for this solution that will clearly demonstrate my company is not implementing legacy?

Other players, including the company’s heads of claims, underwriting and customer service, are counting on achieving a certain percentage of straight-through processing (STP), decreasing the time from first notice of loss (FNOL) to claim resolution, and still others are rabid about mobile access and self-service capability delivered via a portal. Alternatively, FAIR Plans, for example, are less concerned about growth and bottom line profits, but instead are focused on increasing internal efficiency and delivering a top-quality customer experience. Different strokes for different folks.

So, maybe it’s time to acknowledge that the magical middle ground that will make everyone happy likely doesn’t exist. It’s back to the old saying that it’s impossible “to make all of the people happy all of the time.” The trick is knowing which stakeholders’ happiness is on the nice-to-have list and which is on the must-have list. Keep in mind, there are degrees of happiness, and incorporating even small pieces of capability can be important when it means validating stakeholders’ priorities and implying broader ownership across the enterprise.

Ultimately, what composes implementation success is unique to each company and should be well-defined for each company before the start of the project. All projects should have a well-defined set of expected outcomes from both business and technology that need to be achieved to have that project defined as a successful delivery. While budget and schedule can be a part of the objectives, they should not be the primary drivers. A successful implementation is one the delivers the required business and technology outcomes.

When the core system implementation itself is done right, with the right partners and a well-defined set of objectives, it leaves room for peripheral goals to be achieved at the same time with a faster ROI and the ability to get back to the business of insurance.

How to Push Back on Healthcare Premiums

If you are a CFO or HR professional reading this article, you are probably familiar with the typical renewal discussion with your employee benefits broker. It goes something like this:

Broker: “Well, the insurance company initially wanted a 12% increase.”

You: “How can that be? We have performed fairly well this year.”

Broker: “I agree, so we went back to the insurance company and negotiated the increase down to 5%. That is two percentage points below the industry average, so I suggest we lock it in and wrap up the renewal.”

This conversation happens all too often. Cost increases are the norm in the health insurance industry, and employers are satisfied with merely beating industry averages (while brokers are receiving pay raises because of commissions on the higher premiums).

By accepting these terms, employers may be overlooking a big problem.

See Also: 7 Tools for Cutting Insurance Costs in 2016

Let’s pretend the data below is your three-year insurance summary. Take a look and determine if you have had a successful run.

  • Enrolled employees: 300
  • Total health plan costs: $3.5 million
  • Average annual cost increase: 2.5%

At first glance, it would appear that you had a pretty successful stint. A 2.5% average over the past three years is definitely beating industry averages. So what is the problem?

A closer look shows you are spending more than $10,000 per-employee-per-year (PEPY). Was this really a successful three-year run?  No. You should be ticked off with this performance. because YOU WERE PAYING TOO MUCH TO BEGIN WITH.

For comparison, the average cost of providing a group medical plan in the state of Colorado is $8,160 PEPY. The average cost of providing a group medical plan in the U.S. is $9,504 PEPY.. By spending more than $10,000 PEPY, you are spending more than the average U.S. employer and significantly more than the average employer in Colorado.

Now, plan costs can differ based on industry and location, but the message here is clear. Do not be satisfied with merely beating industry averages. It is too easy to be satisfied when you are only comparing your current costs with your previous costs. If you are an employer that is already spending too much, it is time to challenge your broker and the status quo. Dig in and find out why you are paying too much, and begin implementing the appropriate cost-containment strategies that will help you reverse the cost increases (albeit small) that have affected your plan for far too long.