Tag Archives: commoditization

Selling Insurance in a Commoditized World

Insurance is a complicated product. Period.

No debate used to exist relative to whether insurance was a complicated product. Complication was (is) obvious given the length of the policies, legal terminology, excessive use of prepositions and the aspects that get insurance nerds excited: inclusions within exclusions and exclusions within inclusions.

Moreover, no one wants to buy insurance. 2+2=4. That is simple, and the simple part is that, when complexity is combined with massive reluctance and resentment to purchase, this equals consumer misery.

One solution for mitigating consumer misery is to make insurance seem simple. “15 minutes will save 15%” makes insurance seem exceedingly simple. “The average consumer saves $X when switching to…” makes insurance seem simple.

The “commoditization” of insurance that has received so much press is really a misnomer. Insurance is not a commodity. A complex good, because it is complex, generally cannot be a commodity. A true commodity is a product that is always identical. Red winter wheat from one farm is the same as red winter wheat on another farm. With GMO (genetically modified organism) seeds, the product is literally identical. Silver is silver once processed.

Insurance policies and claim practices between companies are not nearly the same. This is why agents actually still need to read the policies they are selling to avoid E&O claims. This is why it matters if a policy is an ISO policy versus a non-ISO policy. Policies are not identical and, therefore, fail the test for commoditization. Is the goal the same? Yes, but the means and values are different. Therefore, the product is not a commodity, even in personal auto.

Instead, insurance is more easily sold by a certain kind of company/agent if that company/agent can convince the public that all policies are the same, and, therefore, the only difference is price. In other words, these vendors need to convince the public that insurance is indeed a commodity, even though it is not. And they are pretty good at doing this.

See also: Selling Life Insurance to Digital Consumers  

Rather than commoditization, the result is really better described by the economist Carl Shapiro in his fantastic study, “Consumer Information, Product Quality and Seller Reputation” (Bell Journal of Economics 13, no. 1 (1982): 20-35). He describes how, when a product is complex from the consumer’s perspective, mediocre vendors will always take advantage of the consumer and vendors providing higher-quality services/products.

The mediocre vendors do this by causing consumers to think they are getting the same product for a lower price. They may do this in a number of ways and, often in the financial world, will reduce a quality decision to one number. This number may be a rating, such as a rating company’s rating of an insurance company. The vendors know that insurance agents and consumers and regulators look at one number/letter. Then they work backwards to figure out how to get to that number with a product/service that really does not deserve that rating but that will qualify because they manage to check all the boxes. This may have happened many times in the credit crisis and was arguably a leading cause of the credit crisis.

I think this may be happening with some insurance companies today, but that is for another article. Relative to commoditization, the “one” number is a price. The silent message is that all insurance is the same, and the consumer should not spend any time considering the coverage differences or claims practices. Then the vendors go one step further and truly abuse the proper use of statistics because they only cite quotes that save money. For example, take the $300 saved when switching. The statistic may be correct, and statistics do not lie. The pictures people paint with statistics can mislead, though. If 100 people get quotes from this company, and 95 quotes result in premiums higher than they are already paying, but five do save money, then technically the tag line is correct because it includes the word “switch.” If instead, all quotes were included, I am guessing the average savings would be less, and the average savings of all quotes is a rather important point.

Another example is the focus on new business quotes vs. renewal pricing. This is a rather interesting point because so many companies jack renewal rates. Therefore, new business quotes vs. renewal pricing is really an apples-to-oranges comparison. Theoretically, with true actuarial based pricing, this difference should not exist. Consumers inherently get this, but the companies play to their advantage in two fascinating ways.

The first is that by advertising that the consumer is saving $X on new business, vendors cause consumers to think that new and renewal pricing are the same. The difference creates an opportunity to gain new business on price.

The second interesting play is that companies are not exclusively, and maybe not primarily, using actuarial-based pricing on either the new or the renewal. Instead, what they do at renewal is increase the price based on their price elasticity curve. A few insurance company people actually learned economics in college. They increase the renewal pricing knowing that they’ll lose a percentage of clients (to other companies encouraging insureds to switch for $X savings on average switch). The damage, if the pricing is designed well, is negligible because the extra money made with those who stay more than makes up the difference for those that are lost. Then they create stickiness in the initial sale because the initial saving is so great that consumers are likely to think they are always saving more with this company and will not shop as often, resulting in paying more than if they shopped all the time.

These companies that focus the consumer on one number and the concept that all coverages and claims practices are the same are smart. As Shapiro stated, companies that focus on causing consumers to think they are getting more quality than they really are is an inevitable outcome of a free economy.

What are the rules for successfully selling a non-commodity financial product as a commodity?

  1. The right kind of advertising is crucial. This means keeping it simple. Avoid all indication of complexity or differences between products.
  2. Barely mention “insurance.”
  3. Use bad humor employed by cartoonish actors/animated characters.
  4. Repeat, repeat, repeat, repeat, repeat, repeat, repeat, repeat, repeat. According to a report by Coverager, Oct. 16, 2018, Geico averaged 9.83 views per household of just one of their television commercials. To create enough sales and existing consumer brand knowledge, every household had to see that one advertisement almost 10 times.
  5. Spend huge amounts of money on advertising. According to the same Coverager report, citing Alphonso & Statista (TV advertising data companies), Geico spent $232 million on television advertising alone (not including online advertising) in the last quarter of 2017. It is estimated in the article that Geico spends another 20% or so online. Call it $250 million plus per quarter, which extrapolates to $1 billion plus per year. According to A.M. Best, the Geico subgroup rating unit (002933) writes approximately $30 billion in DWP annually. Advertising expense then is only between 3% and 4%. Advertising for Geico then is incredibly affordable.

(Note: I am using Geico because I have access to these data points and because the company has a successful strategy. I am not picking on them, and I am not advocating for them. With the data available, I can more easily explain the market using their data vs. other carriers, although those carriers may be more aggressive, less aggressive, better/worse, more expensive/less expensive, use all the strategies described or none. I also do not know with certainty if Geico uses the strategies described, and I do not mean to imply they do by including their specific results.)

See also: How to Resuscitate Life Insurance  

Barring a few billion dollars available, and remember those billions have to be used on high-quality adverting and corporate leadership, competing directly is not a wise decision. How then does an agent/company win with true quality and care for the consumer?

In Shapiro’s analysis, the masses are lost in these situations involving complex products. Marketing is about the masses. So the solution involves selling. Selling is about the individual. Selling is about treating people as individuals. Selling is about taking the opportunity to tailor coverage for each individual. Selling is about identifying clients who care about the right coverages (the masses are lost) and converting those who would care if someone took the time to explain why they, the consumers, should care. Selling is about matching consumers’ needs and budget with a policy that best fits their needs. Selling, in this environment at least, is about having the knowledge required to create a custom policy. The producer who does not know the coverages is like a tailor who cannot measure. The suit may not be off the rack and may technically be “custom,” but it is mostly worthless.

You can find this article originally published here.

The Problems With Blockchain, Big Data

Have you ever wondered why, when you buy software, you are provided a rather lengthy notice outlining its limited warranties and generally telling you what it will not do? As well, think back to when you bought that insurance policy for its investment purposes to resell it later in the market. You haven’t? Which are you more likely to do, sue an individual human being or sue a faceless conglomerate?

“Commoditization” is a buzzword in the insurance industry: the marketing of insurance as if is a fungible good. Selling on price alone, trying to shape the industry into something that can successfully copy the success of Amazon. Close behind is blockchain, praised for its “open distribution ledger” in the transaction process. With it is its cousin, big data, trying to minimize the human touch and handle the entire insurance process by using data alone in its stead.

There are elements that are likely to get in the way of a smooth run at these efforts by insurers.

See also: Blockchain’s Future in Insurance  

The legal definition of “commodity,” the root word for “commoditization,” includes the word “good” – any article of movable or personal property. For the practicing attorney in the U.S., the Uniform Commercial Code (UCC) comes to mind with the talk of goods, specifically Article 2. Under the UCC, “goods” mean all things that are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time.

A quick note is that the U.S. courts have determined software to be a good/commodity. Explaining to the jury that an insurance policy being downloaded from the internet is not a good while software being downloaded from the internet is a good brings up the possibility that the “commoditized” insurance policy sold by the unaware insurer may find itself subject to a completely different branch of law than it is used to, the UCC and its rules and warranties. The UCC includes the warranty that the “good” (commodity) is fit for an ordinary or the specific purpose that may only be changed by amending it with a written exclusion or modification of the warranty. Now you know the answer to question one above. Software is a good/commodity that provides for the insurer having to give you a notice limiting or excluding the UCC warranty. At the present time, insurers do not provide you notice limiting or amending any UCC warranties, but that may change.

Blockchain may provide a distinct advantage in the transactional process. However, the transactional process in insurance is rather short; there are not various payment networks generally involved. The seller sells, and the buyer buys, and for the most part the transaction is complete. Once the policy is bought, the buyer cannot then resell the commodity/good on the open market; insurance is not commercial paper. Commercial paper is a written instrument or document that manifests the pledge or duty of one person to pay money.

One of the most significant aspects of commercial paper is that it is negotiable, which means that it can be freely transferred/assigned from one party to another, either through endorsement or delivery. The terms “commercial paper” and “negotiable instrument” can be used interchangeably. However, the insurance policy itself prohibits such commercial paper marketability and negotiability via internal contract prohibitions against its easy transfer/assignment to another (because of prohibitions against assignment of the policy without specific written consent.)

The UCC identifies four basic kinds of commercial paper: promissory notes, drafts, checks and certificates of deposit. The most fundamental type of commercial paper is a promissory note, a written pledge to pay money. A promissory note is a two-party paper. The maker is the individual who promises to pay, while the payee or holder is the person to whom payment is promised. Insurance could be considered a conditional promissory note (conditioned on the happening of a covered peril causing damages to the insured property, whereby the insurer pledges to pay). Now you realize why you didn’t recall buying insurance as commercial paper for its investment purposes; you can’t.

See also: Even in Big Data Era, Relationships Count 

Big data is seen by some insurers as a fix to the “brain drain” caused by the retiring baby boomers that are skilled in the insurance “arts,” rather than actually training newer employees in what has been a successful historical model in insurance. Removing the personal touch in the equation may be a mistake. Walking into Walmart, you are often greeted with a friendly hello by the official greeter. Walmart brought greeters back after an unsuccessful cost-cutting experiment removing them resulted in an uptick in both lawsuits and shoplifting. As innocuous as the initial move sounds, the fact is that people do not sue or steal as often when it involves a human personality as when it only involves a faceless corporation. I write elsewhere, “Go ahead, insurers, cut out the personal touch, the plaintiff’s bar will be glad to step in to that spot when their client is now more likely to sue you.” The answer to question three is that, for most people, suing a faceless corporation is generally not an issue.


  1. Commoditization may lead to application of the UCC against unsuspecting insurers.
  2. The blockchain advantages in commercial paper/negotiable instruments/open transactions are lessened by the realities that the insurance policy prohibits ease of transferability and that insurance does not possess the attributes of Amazon, although insurers would like to emulate its marketing success.
  3. Removing the personal touch in the insurance process may increase the likelihood of being sued.

Agents: Here’s How to Differentiate

Consumers are price-shopping insurance policies online in record numbers. According to 2017 JD Power research, the importance of price has surpassed that of a good past service experience when a shopper considers or quotes a brand.

Though increasing price commoditization presents an enormous challenge for insurance agencies, our newest sales lead response research provides some hope. With so many insurance organizations falling short on sales lead response best practices, there is a major opportunity for agencies, regardless of size or type, to stand out from the competition and win new policyholders.

The Impact of a Winning First Impression

The first impression an agency gives a potential customer is very important – not only how quickly they follow up, but also what they say. Most potential customers see this first interaction as a leading indicator of a longer-term relationship with the agency.

Effective follow-up that is timely, appropriately persistent, with a message that adds value for the recipient can increase the chance of conversion. Research shows that:

  • Calling a lead within one minute of an inquiry more than doubles conversion rates.
  • Leads who are left two voicemails on six missed calls are 34% more likely to convert than leads who don’t receive any voicemails at all.

Insurance agencies may be under the impression that their contact strategies and specifically their lead response efforts are timely and effective, but Velocify analysis of actual calls, voicemails and emails shows that, for many of them, sales response tactics are more likely to be in need of an overhaul.

See also: 3 Great Apps for Insurance Agents  

Here are some pro tips to help improve call and voicemail performance shortcomings identified in the Sales Lead Response: The Ugly Truth Behind Call, Voicemail, and Email Practices study.

Call and Voicemail Timing and Cadence

While there is no optimal, magic time of day to make a call, following up quickly and then at strategic intervals can improve outcomes. Our analysis showed that sales professionals are often miscalculating when it comes to the most effective communication cadence — the right number and timing of phone calls and voicemails.

Calling a lead within one minute of an inquiry more than doubles conversion rates, but only 7% of the prospects in the study received a call within one minute. Almost half of all prospects submitted didn’t even receive a voicemail. Of those who did, 40% received only one voicemail, and 34% received too many. One prospect even received 10 voicemails.

PRO TIP: Velocify’s six-call strategy suggests leaving a voicemail on the second and fourth call attempt. Leaving the first voicemail on the second call results in a 31% higher conversion rate than leaving that voicemail on any other call.

It’s important to weave voicemails into a company’s call strategy because missed calls can go unnoticed, and a voicemail is a good way to get a prospect’s attention. However, producers need to make sure to strike the right balance because research shows leaving too many voicemails before contact, as many as five or more, can actually be worse than not leaving any voicemails.

The Impact of Message Quality

Voicemail frequency can increase the chance of conversion, but agencies need to leave quality messages to maximize callbacks. Accordingly, the study evaluated voicemail quality on five basic criteria: context; clarity; length; personalization; and tone.

Only 18% of prospects received “good” voicemails that included all five. Almost half (46%) of all voicemails were scored “bad to terrible,” meeting three of the five criteria or fewer. On the opposite end of the continuum, 8% of the voicemails received didn’t even meet one of the five criteria.

See also: How Life Insurance Agents Can Be Ready  

More Effective Phone Skills, Powered by the Right Tech Tools

Insurers can avoid inadvertently throwing money away by responding appropriately and learning how to more effectively maximize every prospect interaction. There are a number of technologies and techniques available that help improve process so agencies can more easily and effectively make a better first impression.

Distribution Debunked (Part 1)

Over the past two years, there has been a rapidly accelerated emphasis on insurance technology, data and distribution. But are we as an industry spinning our wheels? I think the answer to that question is a big yes. Why? Because we haven’t asked the right questions and are not trying to solve for the right problem.

All of the major technology, big data and distribution initiatives out there have a few common origination points, namely, underwriting profitability and transactional efficiency. There is a ton of money and resource spent on this, then we charge distribution with leveraging them in existing channels and in line with current transactional norms. In other words, we are trying to apply technology solutions to distribution channels that are not motivated or prepared to accept them – we then scratch our heads and wonder why we are so far behind as an industry.

See also: Fast and Slow: the Changing Landscape  

Asking the right questions:

To fully leverage our capabilities and move our industry forward, we fundamentally need to start asking different questions – we need to go at the problem from the customers’ perspective and then drive the solutions backward. This means having the courage to understand that a distribution infrastructure that is unwilling to change will have to be shelved in favor of distribution outlets that embrace change. Without that realization, there can be no progress. The only technology advancements that can take hold are the ones that support the traditional avenues and solidify the position of the stagnated channels. Until we understand this, we will never improve. Don’t believe me? Let’s look at the landscape:

Why are we being commoditized?

Insurers battle the commoditization of their product – yet distribution insists that the primary customer decision point is price, even though study after study shows that customers will pay a higher price when there is value and convenience provided. Because of this, the traditional distribution channels insist on building comparative quoting infrastructures and “get a quote now” facilities that escalate the commoditization.

What does value mean?

We insist on defining value in our own terms instead of on the customers’ terms. We continue to hear from insurers that they will not be the lowest price but that they provide significantly better coverage. That’s all fine and dandy, but the reality is that other insurers can mimic your offering in less time than it takes for you to educate your distribution, and then get them to start selling the product. In other words, your competitive advantage is hijacked before it ever gets to market. We fail to recognize that DISTRIBUTION ADOPTION TAKES LONGER THAN CUSTOMER ADOPTION. That has been OK for a lot of years because everyone has been looking at things the same way, but what happens when your competitors wake up and finally “get it”?

See also: A Practical Tool to Connect to Customers  

What does the customer want?

Isn’t it fascinating that this is what is at the bottom of the list? Ok let’s dig in…

  • Customers want a process that is not PAINFUL.
  • Customers want to feel like they are buying the right thing from the right company and feel good about the transaction.
  • Customers want more than just a promise to pay.
  • Customers want to get their questions answered quickly and clearly.
  • Customers want to communicate in a way that works best for them.

It’s important to ask the right questions so you can solve for the right problem. In our next installment, we’ll look at each of these and how distribution breaks down.


If Growing Gets Tough, Tough Get Growing

Successful businesses continuously draw on their strengths – and their people – for growth.

How do you describe the strengths of your business now? How would you describe the strengths that you’ll likely need in a year? In a few years? And how do these strengths translate into the skills your people will need in the future? For most companies, the answers to these questions are always evolving, as disruption increases and the pace of business picks up.

We’ve seen the recent evolution of companies’ capabilities — like fast-food chains rolling out deluxe coffee-shop menus, or utilities delving into smart home appliances.

A lot of organizations have solid processes for evolving their business strategies. But as sound as the development and approval process is, it often leaves out an important aspect: Can your people evolve, too?

Most CEOs aren’t certain that theirs can. In our latest CEO survey, nearly 80% of U.S. business leaders say they’re concerned that a lack of key skills threatens their organizations’ growth prospects.

This stat raises the question: Are some of these organizations taking their growth strategies too far afield, beyond their core strengths, in a desperate search for faster growth?

In Strategy+Business Magazine, we recently wrote about how companies that deliver sustainable growth remain true to what they do best and take advantage of their strongest capabilities—what we call a capabilities-driven strategy.

It takes a substantial effort. As we say in the story, “If you respond to disruption by changing your business model and capabilities system, you can’t dabble. You have to commit fully.”

That level of commitment is only possible, of course, with the right people to step up and deliver on your company’s greatest strengths.

Think of the potential talent issues at hand for so many businesses: How does a legacy technology company avoid disruption and commoditization? How can a fast-food chain turn up its café side of the business without trained baristas on hand? How can a utility amp up the tech-savvy talent needed to design Internet-and-data-fueled thermostats and security devices?

They’ll all need to align their talent strategy with their business strategy.

In our advisory work with clients, we are in frequent talks with companies that need to make these moves. And talent is at the top of the priority list.

Before preparing to grow your strengths, think about the capabilities in your current ecosystem of people and where gaps might pop up: 

People strategy, leadership and culture: Does our people strategy support our growth initiatives (and, more importantly, is there a strategy)? Is the right leadership development system in place, including a robust global mobility program? Will our culture support the execution that’s required?

  1. Reward: Does our compensation and benefits strategy still fit? Is pay competitive? Are there areas to be restructured that could free capital for re-investment?
  2. Talent acquisition: Do we need to pull in brand-new talent by strategically hiring from the outside or by making strategic acquisitions?
  3. Organization design and operating model: Have we designed an organizational structure and operating model that have clear links between all our capabilities?
  4. Change management and communications: Do we have the right program management structure and strategic change methods for execution? Do we know who the real information brokers are in the organization who will informally drive the change?
  5. Technology: Do we have the right technology to support the kind of employee experience our people need? Are we leveraging workforce analytics to retain our top-performing people, and are we conducting frequent employee surveys to understand the pulse of the organization?

These are just a few of the talent areas that are important to understand.

Odds are you won’t need to revamp all of them. But a carefully designed and innovative talent strategy underlies the successful evolution to get growing.

 To read more details on the strategic changes you may need to make to stretch your growth, read the full article, “Grow from your strengths” in strategy+business magazine.