In our last blog we discussed the reality of insurance companies lining up to be in the “Google Exchange.” And we noted that when insurance companies enter into an “exchange,” they pretty much relegate themselves to competing on price and price alone. When you compete on price alone, all your differentiation goes out the window and you are now in the selling white paint business. And, for an agent, selling white paint is a losing proposition.
Ever since insurance companies decided to sell their insurance products through agents, an unusual business relationship has evolved. That relationship is largely symbiotic with a little bit of tension and animas thrown in. In short, agents are dependent on their carriers to provide them with products and services that are needed in the broad insurance market. And, carriers depend on their agents to represent the carrier and the carrier’s products professionally and responsibly.
The evolution of the agent–carrier dynamic is quite a bit different from what it might seem to the layperson. In spite of all the carrier websites and advertising, the agent remains the focal point for delivery of customer service. A question about a bill, claim, or coverage will likely be fielded by the agent. And for good reason: the agent has a personal relationship with the insured and that personal relationship, in many if not most cases, is much stronger than any relationship an insured has with the insurance company. And that relationship is what is at the crux of Google’s foray into insurance. The flip side of the relationship between agent and carrier is that carriers see the “exchange concept” as a way to reduce agent compensation; after all, it is the customer doing the buying, not the agent doing the selling.
The concept of an “insurance exchange” isn’t necessarily new. Numerous “dial-a-quote” marketing ploys in the past presaged many in the future as well. And these marketing efforts are okay for some coverage that is not that significant. But for most coverage, the buyer operating on their own seeks more in the buying process than merely getting the lowest price. The recent case of the Affordable Care Act (ACA) is illustrative. When the Act went into force, many people who were on small group plans found they would have to purchase their own health coverage. Most of the people who found themselves in that situation didn’t rely on the Act’s Navigators for information; rather they went to an insurance agent. Agents were inundated with service requests and calls from individuals who, for the first time, had to fully understand what they were buying. Prior to the ACA, these people were in a group insurance plan with a very understandable enrollment process. In short, they really didn’t need to know a lot about their coverage because they had an internal HR department, a PEO, or an agent who could help them. What many of these people found out is that health insurance isn’t as simple as it seemed in their old group plans.
There is an old adage that comes to mind: “When a physician decides to treat himself, he has a fool for a patient.” It is much the same with insurance. Insurance is a complex business and it is one in which the average person has little insight. I highly doubt that the average layperson can explain insurance coverage or how a particular policy will respond to a claim.
Many years ago, the direct marketing of insurance became popular. Mailers would be sent to prospective insured’s giving the prospect some simple hospital indemnity or term life insurance plans to choose. When the mail solicitations hit the mailbox, carriers were inundated with angry phone calls from their agents. Agents demanded to know what was going on. In no uncertain terms, they let the insurance company know that the company was taking away their livelihood, that they had contracts that gave them rights to a certain territory, and so on. The ensuing litigation gave way to recognizing that agents did indeed have a contract that defined their territory and that the carrier was violating the agent’s agreement and business. What evolved from the litigation was that whenever the carrier sold a policy through the mail, the agent assigned to that region or territory would get a “spiff” from that sale. The agent would then have an opportunity to contact that new insured and explain the coverage that was recently purchased, and begin to build a relationship with the customer.
Efficiency versus effectiveness is a common trap for carriers. Putting in an exchange process to buying insurance does appear to be a much more efficient way to sell insurance than simply relying on agents. Why wait for an agent to make contact with a prospective insured when the carrier can join an exchange and let the buyer be his or her own agent? That certainly does have the appeal of being more efficient. However, while efficient, is that approach effective? When the insured has an agent, that agent develops a professional relationship with the insured that will establish customer life-cycle management. The agent will be there to explain coverage, sell new coverage as the insured’s needs change, and help the insured at claim time. Smart insurance companies understand this and are investing technologies that will enhance the agent–carrier relationship.