October 21, 2014

Insurance Policy Forms: Ignorance of The Commodity Perception

The idea that insurance is in any way a commodity is offensive to me as an insurance agent. The very common misconception that insurance is a commodity stems from general public’s gross ignorance that all insurance policies are created the same.

The subsequent inference made by most insurance consumers then becomes that price is all that matters when in comes to purchasing an insurance policy.

If this is your belief, (please understand that I say this with all due respect), your ignorance is a detriment to both you and your family and/or your business and could someday ruin your life.

Harsh… Yes.

But my primary goal in writing this article to bring to your attention the utter FAIL that is – believing insurance to be a commodity.

Insurance Policy Form

What the Heck are Insurance Policy Forms?

When you buy an insurance policy, approximately 7-14 days later you receive in the mail a physical copy, correct? (Some carriers send a pdf version now.) I’m going to assume you’re nodding.

Have you ever taken to time to look through all those pages of black type legal-looking documentation that follow the page with your premium on it?

Its okay to say no, 999 out of 1,000 people reading this post don’t flip past the page with their premium on it.  So you’re not alone for skipping the insurance policy forms.

All that legal print that you don’t read, that’s the Insurance Policy Form.  The insurance policy form, or policy language, outlines who is an insured, the insuring conditions, what type of loss(es) are coveraged, and what type of loss(es) are excluded.

Seems like pretty important stuff doesn’t it?

A company called ISO provides the baseline policy language that most insurance carriers in the US use for their insurance policies.  However, many carriers will make changes, tweaks, and adjustments to the standard ISO Policy Form to meet their underwriting appetite (that means what type of losses they want to coverage and what type they don’t).

Additionally, individual states will mandate certain changes to the standard ISO Policy Form which all admitted carriers in that particular state must abide by (for purposes of this discussion you do not need to know what an admitted carrier is).

So what does all this mean?

Insurance Carrier A sells a product called “Tech Liability” for X dollars.

Insurance Carrier B sells a product called “Tech Liability” for X – $100 dollars.

If insurance were a commodity, then all that would matter is price, and you would have to be remiss to not take the policy from Insurance Carrier B.  Right?  (Its cheaper.)

But Insurance Isn’t a Commodity

Wait a minute…

Didn’t I just say that many carriers will make changes to the baseline ISO form to match their specific risk tolerance?

Why Yes… Yes I did.

Could that mean that every carrier’s policy is different, and may uniquely include or more importantly exclude coverages that you need to protect yourself, your family or your business?

Again Yes…

So it is within the realm of possibilities to assume that insurance policies ARE NOT COMMODITIES and should be examined in a coverage to price – Value Analysis, (I just made that term up. I like it and will start using it)on each insurance policy’s unique ability to cover your specific risk needs at the most competitive premium?

Yes!

This post ended up way more snarky than I had originally envisioned it.  However, I’m hoping that you read through the sarcasm to my point.

The insurance policy form matters, the coverage matters, one insurance policy is not going to cover the exact same risks to same extent as a policy from another carrier even if they call the policy the same exact name.

Protect yourself and your business… it’s a jungle out there!

Insurance Policy Photo via Shutterstock

12 Comments ▼

Ryan Hanley


Ryan Hanley Ryan Hanley is Founder of Hanley Media Lab, an advanced digital marketing agency helping companies grow their audience to grow their business. He also produces one of the fastest growing content marketing podcasts on iTunes, Content Warfare TV.

12 Reactions

  1. Nice article Ryan. People are shopping on price these days especially in the Homeowners market but often times they are not aware of certain minor details, ie. Hurricane Deductibles. Also, as you have indicated in the past, comparing “apples to apples” is not a good way to do business. Each circumstance is different and needs to be fully reviewed regardless of a person’s prior coverage and carrier.

    • Keith,

      It’s all about how we sell ourselves. Small pieces of knowledge can go a long way in developing a valuable relationship with our clients!

      I know you get that brother!

      Hanley

  2. Great article. You are absolutely right about people looking only at the cost. Whole life is a great example as something that should be viewed as an asset class.

    Once a client is able to step back and see what the policy does versus what it costs…the objections begin to fade away.

    • Clint,

      I could not agree with you more and the Whole life example is perfect. An amazing product that consumers see as a “Luxury” versus an asset they will carry with them their entire lives…

      Keep fighting the good fight!

      Hanley

  3. Well, I guess I am the only contrarian here, but IN GENERAL, insurance is becoming a commodity. Especially life insurance. There are gazillions of dollars in life insurance being purchased online. There are on average 5 million searches per month for life insurance online. I can see that P&C insurance would be tricky without an agent. But make no mistake that the relationship between customer, agent and insurer are changing.

  4. Price it the one line item that is easily compared and understood.

    Insurance coverage options are highly complex. As a licensed agent, I focus on a narrow niche, and still feel overwhelmed at times with all the options, and policy variations.

    The typical consumer does not have the time, or the depth of knowledge and understanding to wrap their heads around all the differences in policy contracts.

    That is why working with a trusted agent remains important.

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