Tag Archives: myth

The Myth of ‘Sold, not Bought’

A recent conversation crystallized a thought that has been rattling around in my brain for a while: that, despite the industry orthodoxy, insurance is no longer “sold, not bought.”

The reverse isn’t yet true, either. It isn’t correct to say that insurance is bought, not sold. Instead, we’re in a middle ground, where insurance is both sold and bought. People certainly still rely on advice about insurance, and a good agent can spot a need and fill it with a policy, but a huge percentage of people now begin their searches online. They also do more and more research on their own, out of reach of brochures and PowerPoint presentations. With COVID accelerating the move to digital, customers often won’t even sit down in person with an agent before buying a policy.

Yes, “sold AND bought” is confusing — but this situation also creates opportunities for those who are first to adapt to the new reality.

The conversation that pulled the thought together for me was with Amy Radin, a longtime senior executive at Fortune 500 companies in financial services, including American Express, Citi and, most recently, Axa, where she was chief marketing officer. Amy has added “author” to her resume, publishing a book on how to produce disruptive change in big organizations, and now consults to both big corporations and insurance startups. She spoke with me for a webinar as part of this month’s ITL Focus on strategic innovation and brought up agents’ “Uncle Joe” issue.

Uncle Joe?

“Even with someone who has bought an extremely high-end policy, they’re investigating their options. They’re talking to neighbors. They’re talking to their Uncle Joe, who is very successful, so they respect his opinion. They’re talking to people who lead lives like theirs,” Amy said, based on customer journey research she has done or commissioned over the years. “Customers will tell you they went through an investigative process that has nothing to do with anybody who’s licensed by the regulators to sell insurance.”

She added: “Most policy holders would be offended to hear that the industry views them as being sold to. I doubt any of them will tell you, I just called my agent and said, Tell me what to do.”

The “sold, not bought” notion will, I believe, increasingly limit innovation, because it will keep executives focused on the products and on tools for agents rather than on how people’s needs are changing in these turbulent times.

Her recommendation: “Go out and listen to your customers. Don’t hire a market research firm. Don’t rely on surveys. Sit down with a handful of people who are giving you their money and understand what’s changed in their lives.”

She cite a Harvard Business Review article by Michael Porter that said only 3% of executives actually go out to interview customers — even as the executives preach the need to be “customer-centric.”

“Ask: How am I to do business with? Tell me about that policy you bought? How did you decide what to buy? Who did you consult?

“Don’t do this in the context of trying to sell the product. And don’t just ask about rational needs. Ask about emotional needs. How are they feeling — not just what are they doing? Insurance is a product that’s pretty fraught with emotions.”

She cites an experience she had understanding an emotional need while at Citi, where she was an EVP and chief innovation officer in the U.S. credit card business from 2000 to 2009. During the Great Recession, all sorts of people fell behind on payments, which traditionally would have meant launching a barrage of calls to browbeat delinquent customers. But Amy suspected that many would appreciate a digital experience, so they could negotiate terms and make payments without being shamed by another person.

“It’s very emotional to be in collections,” she said.

She eventually got to run a test, which found both that customers appreciated the digital option and that Citi profited financially.

“The digital experience is now standard practice in that business globally,” Amy said.

Insurance sales are unusually complex because, as Amy put it, “Nobody is getting out of bed in the morning saying, I’m dying to get another insurance policy.”

But a challenge creates an opportunity. Some companies are responding by embedding insurance into other sales, to make an offer to people in a time of need — auto insurance when they buy a car, renters insurance when they sign a lease, etc. Other insurers are trying to fit into the new buying process and make sure that prospects will come across them while doing their research online. Many are trying to clean up their interactions with customers, using chatbots to speed routine inquiries, implementing omni-channel approaches so that someone who begins a conversation with an agent or company via a website can easily pick it up via text message, etc.

Yet those moves feel like just the beginning. Whoever first figures out the new “insurance is sold and bought and sold and bought…” paradigm will create a more collaborative model that will delight customers — and bring a lot of them into that company’s fold.

Stay safe.


P.S. Here are the six articles I’d like to highlight from the past week:

Does Pandemic Signal the End of Agents?

There will always be a need for intermediaries who deeply understand customer needs and can create that right combination of coverages.

Claims Development for COVID (Part 2)

One study found that 50% of those infected were unable to work full-time six months after recovering.

What’s Wrong With Commercial Auto?

If we can reduce, standardize or eliminate costs associated with litigation, the industry would be in a much better position. AI offers an answer.

The Key to Agency Management Systems

Insurers must be flexible, to understand what kinds of integrations would be most valuable to agents.

False Dilemma Facing Life Insurers

Selling life insurance to digital native consumers requires an omnichannel approach, regardless of what you consider your primary sales channel.

Arrogance and Nature’s Deadly Hand

Four years ago, almost no large companies were thinking about the impact of climate change on their businesses. Finally, many are.

6 Worst Things to Happen to Insurance

On Dec. 31, I will close out nearly three decades with the Big “I” at both the state and national levels, which followed a 19-year career with ISO and its predecessors.

To paraphrase the Farmers commercial, I know a thing or two because I’ve seen a thing or two over nearly 50 years. I’m so old I can remember when there were underwriting cycles and when investment income was as critical in driving those cycles as underwriting results.

When I started to look back over a long career, I was initially inclined to write about all the great things I’ve experienced—there have been many. But I decided to take an approach that I hope won’t be perceived as negative.

The good things don’t need fixing. So rather than focus on the best of 47 years, I’d like to address six issues I think are bad for the industry that have evolved at an accelerated rate in recent years. Here’s my roundup of the six worst things that have happened to the insurance industry in the last 47 years.

See also: How to Reimagine Insurance With IoT  

The ‘insurance is a commodity’ myth. Anyone who pays attention to TV’s incessant insurance advertising knows the focus of the most prevalent ads is almost exclusively price. The public has been duped into believing that there is no real difference between insurance policies or insurers, and that the agent serves no useful purpose except to cost you an extra 15%.

At some point, even with the miracle of today’s technology in the form of automation, data analytics and more, insurers will be operating about as efficiently as they possibly can. If competition still focuses on price alone, how can insurers continue to compete? Considering two-thirds or more of the premium dollar goes to  losses and loss adjustment expenses, you have to reduce that expense. The easiest way to do that is reducing what the policy covers.

The vanishing premise that the purpose of insurance is to insure. Perhaps due in large part to price-based competition, after the coverage broadening that began in the 1970s, insurance policies are increasingly stripped down to the point of sometimes becoming illusory.

In various seminars and webinars, I recount a story about my experience with a tree removal service whose excess and surplus commercial general liability policy excluded both in-progress and completed operations. While this trend is particularly apparent in personal lines and the E&S marketplace, it is spreading to standard markets, as well.

The problem is exacerbated by regulators who no longer review insurer form filings for coverage reductions, focusing their resources almost exclusively on keeping prices low—even if the reason they’re low is lack of coverage that endangers the public. Is it time for minimum coverage specs, just as we have minimum auto liability limits?

The obsession with data vs. people. Among underwriters and actuaries, today’s buzzwords are “data analytics” and “predictive modeling.” There is nothing inherently wrong with either—as long as they’re used properly as a tool.

My son is a data scientist in another industry, and the potential applications of the data many organizations collect are remarkable. But for us, it’s just an evolution from the pure actuarial analysis the industry has practiced for many decades. The industry can’t exist without the ability to predict losses.

The movement today, though, is not about predictability in the aggregate, but whether an individual risk or very small subgroup of insureds is likely to have a loss. At issue here is the accuracy and relevancy of these models, as well as their impact on affordability and availability for those individual risks that the algorithms say don’t measure up.

As Ben Franklin said, “All things in moderation.” Self-serving firms selling analytical services use the media to tout analytics as the be-all, end-all solution for all that ails the industry.

Consider this anecdote: Several decades ago, an agent negligently failed to insure a barn that subsequently suffered a total fire loss. The branch manager of the insurer contacted the four other branch managers of farm insurers the agent represented. They each agreed to pay one-fifth of the loss “so their agent wouldn’t be embarrassed in his small community.” How likely is this to occur today?

Industry disrupters and the resurrection of the “death of the insurance agent” prediction. Insurance industry media is loaded with stories about tech disrupters that are going to revolutionize the industry and put insurance agents out of business. Been there, done that.

How these startups are getting millions from venture capitalists is puzzling when you consider some of their business premises, including a recent one involving “micro-insurance.” The premise here is that a consumer purchases a policy with a phone app that only covers a particular item—snow skis, for example—and only while they’re in use. How can insurers possibly price such a risk affordably, and who wants 40 separate micro-policies?

The reality is that the foundation of the industry rests on an often complex legal contract. It’s not like buying a pair of socks or K-cups on the internet. Not every transaction can be reduced to a smart phone app or Amazon-like “one-click” purchase, nor should it.

The certificate of insurance frenzy and the “additional insured” illusion. Everybody wants to be covered by everybody else’s insurance. There’s nothing wrong with requiring business partners to carry insurance; it’s a good thing, because with the exception of auto financial responsibility laws and loan requirements, there’s not much pressure to ensure that individuals and businesses carry insurance to protect the public.

But I’m convinced that this situation has gotten out of control. Companies are spending billions of dollars on control and monitoring, while the actual coverages they provide are becoming increasingly illusory. What is gained here? And what are the ethics behind a large firm effectively forcing smaller businesses to cover them under the little guy’s policy, even if the big guy is 99% at fault?

The dumbing down of the industry. From agents to underwriters to adjusters, far too many industry professionals do not read the policy forms they sell and service. Many others review them at some point, but fail to understand what they’re looking at. Still others read them and think they understand them, but can’t apply them to real-life loss situations.

The problem is compounded by the increasingly rapid societal changes and exposures we witness daily. Insurance executives—including the people involved in the latest wave of industry “disrupters”—appear to lack both a historical perspective of the industry and a fundamental understanding that the overriding purpose of the industry is to protect individuals, families and organizations from financial ruin.

See also: Why Are Insurance Websites So Bad?  

The insurance knowledge gap is growing, as is the apparent disdain for quality insurance and risk management education. I think mandatory, bean-counting continuing education programs carry some of the blame—by and large, they’ve almost completely failed to accomplish what they set out to accomplish.

Despite the negative tone of this article, we work in a great and indispensable industry. Civilization and commerce as we know it couldn’t exist without insurance—but there’s always room for improvement.

I have no career regrets. It has been a great ride and a privilege serving all of you over the years. In closing, I’d like to point out that I’m not disappearing from the industry—just moving to a new chapter in my twilight years. I will be unveiling a website next month, where I will be blogging about these and other industry issues for (I hope) many years to come. I hope to see you there.

Rebuttal: Protection Gap Is Not a Myth

As with most articles I read at Insurance Thought Leadership, I enjoyed The Myth of the Protection Gap. I do agree with the author (Paul Carroll) that not everything that can produce a negative outcome or loss needs to be insured. In fact, we are now in an era where we can buy insurance for nearly any property we own with a swipe of an app on a smartphone. Assuming that these companies are not charities, this approach is counterproductive, simply because it forces users to waste time having to remember to insure the thousands of small dollar items we own, when we can just afford to replace them. So place me in the camp that says insurance is for instances where we could not otherwise reasonably expect to be made whole again.

But the protection gap itself is very real. I will use Paul’s hypothetical example to illustrate a counterpoint to his conclusion:

“To make the math simple, let’s pick a country at random and make up some numbers out of whole cloth. Let’s imagine we’re Gabon, and we, as a nation, incur $1.5 billion of losses a year, while only $500 million is covered by insurance. We’re told we have a protection gap of $1 billion. We should buy $1 billion of additional coverage.

It’ll only cost us $1.3 billion.

That’s because — again, in very rough numbers — the insurer has to tack on 20% on top of the losses to cover expenses and needs its 10% profit margin to keep shareholders happy.”

Let’s break this down: If the losses for Gabon are $1.5 billion per year, with $500 million covered, then how much insurance do they need to buy? The article is suggesting the answer would be an additional $1 billion.

But that is not the right answer. The right answer is that Gabon should not buy any insurance!

How is that possible? Well, if I know with certainty that my losses over time will be $1.5 billion, then instead of buying insurance I can set aside funds to pay those anticipated losses. To put it another way, if I were insuring an entity that will have $1.5 billion losses each year, then the premium I would charge MUST start at $1.5 billion (because I know for sure that those will be the losses ) and then tack on expenses for managing those claims, issuing paper and, of course, my profit margin.

Am I nitpicking? Yes, I am.

The hypothetical example likely meant that losses would average $1.5 billion per year and not BE $1.5 billion. But words matter, and, in this hypothetical example, the word “average” changes enough of the example to magically make the protection gap appear in full vengeance.


Well, averaging $1.5 billion per year in losses can mean lots of things. It could mean $1.5 billion each year, every year, OR it could mean a $30 billion loss happening exactly once in the next 20 years (or an infinite set of other combinations).


It is this uncertainty in the losses that makes insurance such a valuable tool for risk management. Insurance is that tool that allows Gabon to manage its cash flows in such a way that it can function day after day and not have to worry about finding $30 billion at a moment’s notice. Insurance is not about paying for the average annual losses, it is about paying for the extreme losses and avoiding the cash flow crunch associated with that. The smoothing out of volatile cash flows IS the peace of mind that is often marketed to consumers of insurance.

90% of California homeowners lack earthquake insurance. The take-up for flood coverage is similar. These perils have caused hundreds of billions of dollars in property loss, the bulk of which were uninsured. Tens of thousands of families became homeless. We’ve seen it In Louisiana after Katrina and in the tri-state area after Sandy, and we will see it again. The protection gap is not a myth, it is very real, and these perils will continue to cause hundreds of billions of dollars in damage. These are losses that homeowners and businesses cannot fund themselves. They require insurance to protect them from these catastrophes.

This fact alone provides a wonderful opportunity for our entire industry to grow by solving huge and emerging problems faced by societies. This is why we exist; this is our irreplaceable contribution to society.

Debunking ‘Opt-Out’ Myths (Part 3)

This is the third of eight parts. The first article in the series is here. The second article in the series is here.

Workers’ compensation is a mysterious realm. Just pick a state. Even those of us who regularly read workers’ compensation statutes, regulations and official government websites have great difficulty triangulating the truth about basic rights and responsibilities for injured workers.

The little communication provided to injured workers tends to be oversimplified, leaving them no choice but to hire a lawyer to navigate the system. In fact, armies of trial lawyers, insurance and claims personnel and government employees are needed for basic functions of workers’ compensation systems. These armies then find much to argue over, which drives an endless pursuit of “reforms.” Even the industry’s biggest proponents and thought leaders complain of dysfunction. OSHA has also now joined the chorus claiming that workers’ compensation systems “add inequality to injury” and shift too much cost to injured workers and other government programs.

Against this backdrop, we’ve seen the Texas “nonsubscriber option” (often referred to as “opt-out”) grow to cover considerably more than one million workers and successfully handle more than 50,000 injury claims a year. A more highly regulated “Oklahoma option” launched in 2014 and has withstood two challenges at the Oklahoma Supreme Court.

Statistically credible data demonstrates that better outcomes for employees can be achieved through more deliberate, easy-to-understand communication that supports requirements for employee accountability. Such simple injury management principles have resulted in billions of dollars in employer savings and economic development.

Now, both Tennessee and South Carolina are considering option legislation, with several other states wondering if they should do the same.

Having worked on legislation and regulatory systems related to option programs for more than 25 years, I can understand the initial confusion and distrust by option opponents. Moving from a hyper-regulated, almost exclusively state-regulated system to a more free-market alternative that relies on a combination of state and federal laws takes people out of their comfort zone. They have legitimate questions that deserve good answers.

But too much of the discussion to date has been devoid of any spirit of inquiry. Workers’ compensation carrier associations issue fallacious descriptions of the purpose and mechanics of option programs. Allegations by plaintiff attorneys in lawsuits are quoted by workers’ comp industry media as irrefutable facts. Instead of research, option opponents attempt to promote class warfare while falsely disparaging reputable employers.

In the midst of this chaos, only one thing is sure: We are in a period of transition, and the facts will emerge, one way or the other.

In-depth information about options to workers’ compensation is more accessible every day. For those who are willing to have a reasoned public policy dialogue and information exchange, a path of progress emerges. For those who prefer uninformed hostility over homework, their true intentions will become more obvious, and their voices will be less credible as the days go by.

Busting 3 Myths on Engaging Employees

I recently read another post about why people hate their jobs and what employers can do about it. The post, published in USA Today and titled “The Motley Fool: Why you hate your job,” is just another attention grab. It really contains very little from a fresh perspective.

To their credit, they do cite the well-referenced Gallup survey that 52% of workers are not engaged in their work and that a further 18% describe themselves as “actively disengaged.” The author goes on to drive home the point that American productivity is a victim of this epidemic: “The most strategic act that any organization can take is to better engage and inspire team members.” That’s the best advice in the post.

The post contained three suggestions for how the leadership of an organization can fix this problem of employee engagement. As a response, I’d like to bust three myths about engagement.

Myth No. 1: Employee engagement can be fixed by external stimuli

Do we believe we engage our workers better by allowing them to take all the time off they want or by letting them write their own job descriptions? Do we believe that people are like animals; if we train them properly, they’ll roll over or wag their tails when we wave a treat in their presence?

People want to matter. “Do X, and they’ll respond Y” is a myth busted by treating people as free agents. The best people aren’t better than the non-best people. The best simply appreciate our goal and like doing their job. They want to be a part as “we” achieve the goal. They aren’t better than the other people; they fit better. Fit requires clear understanding of goals. Many people don’t understand their own motives. When they experience disinterest in the organization’s goals, they pursue their own. People who freely appreciate the organization’s goal and provide a valued contribution become more valuable and experience more joy. They freely join and consequently require less energy to manage. They bring their best energy and manage their own engagement as long as the organization holds up the other end.

Myth No. 2: People are generally selfish

This myth treats engagement as a transaction where leaders feed worker selfishness in exchange for workers feeding the leaders’ goals. I often hear that everyone is just working for the weekend or for a paycheck. Sure, based on the Gallup poll, seven out of 10 people are pretty much consuming more than they produce. So that must be the rule. Or is it?

People engage when they believe a goal is compelling. Many, maybe even most, people will sacrifice for what they believe to be noble causes. In the book “Delivering Happiness” by Tony Hsieh, you can learn how the company evolved to be the best customer-service organization on the planet. People who want to take part in providing WOW and giving people an exceptional customer experience make it happen. They are creative in the ways they solve for that goal. People are family there. Turnover is low, and engagement is very high. Zappos is just one example of what happens when you give people a chance to be part of something bigger than themselves.

Myth No. 3: What works for one person will work for others

There are people who have no interest in your cause. They’re not motivated by your rewards. Sure, we’d like to engage them. But they must fit. If we’re engaging people we like and we’re growing our team, don’t let the people who fail to engage slow you down. Remember the quote from Vince Lombardi, “If you aren’t fired with enthusiasm, you’ll be fired with enthusiasm.” Zappos pursues culture at all costs. It famously pays people to leave. Find people who engage with your goals and culture, and you don’t have to work on engagement.

Please, let’s stop the mechanical “do this, and they’ll do that” discussion about employee engagement. Create a compelling vision. Equip, energize and empower passionate people to pursue a vision they consider worth the effort, and give everyone else a chance to find their passion elsewhere. Those are the keys to creating an environment where people volunteer engagement. You can’t pull it out of them. You create a place where you’re engaged, and, if those reasons appeal to others, they will engage and grow, too.

This post originally appeared on Smartblog on Leadership.