Personal Risk Management: Go Beyond the Product Pitch

Our Biggest Challenge: the Commodity Shell Game

It seems more than 90 percent of the consumers I speak with are focused solely on examining their coverage limits and the cost of their insurance policies, and not the actual risks that are and are not covered by their many policies. Various iterations of the "Save X % in Y minutes" advertising ploy have falsely framed personal insurance as a commodity, causing many consumers to focus solely on the cost of coverage. As a result, many consumers learn at the worst possible time—after an uncovered loss—the words used by product peddlers to lure them into buying a "low cost" insurance policy mean just what the peddlers intended them to mean: save money now/never mind the protection, just as Humpty Dumpty explained to Alice over 150 years ago.

Of course, consumer obsession over the search for a "good deal" is not unique to the insurance industry. Carl Richards, contributor at The New York Times Bucks Blog and the author of Behavior Gap, reminds us that in the financial services industry, consumer focus on product is exploited by those who are paid to sell product. (Sound familiar?) Mr. Richards is well known for using simple yet profound sketches to illustrate and clarify financial matters that many consumers do not understand. He explains, "Most of us are trained to think 'What' first, because it's what you hear about all day long. It's the message you read in financial publications and see on CNBC. But 'What' questions should come after we think about 'Why' and 'How' … Starting with 'Why' means achieving clarity about your personal financial goals and creating a plan." Mr. Richards offers this simple yet profound illustration to depict the proper sequencing behind all successful strategic plans:

While the lessons to be gained from his sketch are intended for investors, they are just as relevant to those seeking the right way to insure their homes, cars, and other assets from unforeseen loss.

For those who need additional information and insights to overcome the myth that insurance is a commodity, Bill Wilson of the Independent Insurance Agents and Brokers of America (IIABA) is on a mission to expose the ill effects of those in our industry enticing consumers to look no further than cost when selecting their insurance protection. Check out the IIABA Virtual University site for great content from Bill Wilson and others on how we can combat the commodity myth. Additionally, an article in this IRMI column 2 years ago provides these 7 recommendations to help de-commoditize insurance.

Start with Why (the Plan)

Advertising gimmickry that frames cost as the only factor in insurance product selection has robbed many consumers of the ability to ask the larger, far more important questions. Even simple questions like, "Why am I buying this insurance policy?" "Why buy insurance for your home, for your car, or to protect your assets from lawsuits brought by third parties?" Should you insert these very fundamental questions into your discussions with clients as I have, expect responses suggesting puzzlement, annoyance, or both. To ease these emotions, ask if the reason isn't to transfer the responsibility to pay for an unexpected loss to an insurance company. The most common answer, naturally, is "Of course!"

By starting with an agreement that the primary objective for buying insurance should be to protect our assets from unforeseen losses, agents and brokers can begin to elevate their conversations with consumers toward one in which real risk management value can be introduced. To have any chance of moving beyond insurance as a commodity, it is critical to gain agreement on the plan by first establishing the client's protection objectives. All strategic planning efforts begin by establishing clear objectives.

When attempting to properly frame insurance as a strategy to transfer specific risks, it is important to remind consumers that no insurance policy protects them from all possible losses. Asking a few questions at this stage can help convey to consumers why it is important to closely consider the level of insurance protection that is desired and help them begin to see how widely protection can vary between providers. Following are just a few questions that can help accomplish these objectives:

• If you had to rebuild your home after a devastating loss, would you care if your policy allowed for materials of similar kind and quality, or would you want a policy with coverage to rebuild using the same quality of materials and workmanship?
• If your car could not be repaired after a loss, would you want to know in advance what the insurer will pay to replace it, or would you be open to a negotiated settlement using the insurer's depreciation schedule?
• Changes in local building codes require that repairs to damaged homes comply with the current code. Would you want your coverage to pay the full cost to upgrade your home to comply with any changes in zoning laws or building codes?
• Some auto insurance policies will not pay for the use of original equipment from the manufacturer, while other policies will pay for the full cost to make repairs with original parts. Do you care whether your auto coverage provides for the use of original parts from the manufacturer?
• Should a catastrophic loss damage your home and many others in the area and cause a dramatic rise in the cost to rebuild, would you want your policy to guarantee the full cost to rebuild your home no matter what the cost may increase to?

Move to How (Your Process)

Having represented several insurers over 12 years in a marketing and underwriting capacity, I had the opportunity to interview over 800 independent agencies in 6 states. In most of those agencies, I have asked key representatives to describe the process they use to assess their clients' risks and tailor solutions to address those risks. In more than a few instances, I received varying descriptions of a risk identification and coverage alignment process that was logical and well organized. In many more instances, however, it was evident the agency had no real process to identify the risks facing its clients or align coverage recommendations with those risks. Absent any real process to align risks with solutions, such agencies join the ranks of those peddling the myth that all insurance products are the same.

IRMI readers likely reflect that growing segment of the agency universe that provides consumers with some form of risk identification/coverage alignment process. More important than the precise details of your process is simply having and using a process to diagnose and address the risks facing your clients. For those who see value in examining their process for possible improvements, consider the following questions.

• Does the process first require you to address the "why"—to achieve an agreement with the client on the plan or the protection objectives?
• Is the process carefully focused on understanding your clients' exposure to the wide range of personal property and liability risks, both insurable and uninsurable?
• Is the process sufficiently flexible to be of value to all clients?
• Are the staff members who interact with clients familiar with the process?
• Are there checks and balances in place to keep client information updated?
• For fresh ideas, do you consider borrowing from the best practices orientation deployed by those in our industry who are engaged in the more established practice of commercial risk management?

To help answer these questions, consider the following resource.

• Ten years ago, Jack Hungelmann offered IRMI readers this timeless article with practical insights on how to provide a wide range of personal risk management services. He summarizes 16 personal risk management deliverables and explains how he provides them for a fee to those clients when commission income is insufficient to fund the expenses associated with the services provided.

Then Determine What (Your Product)

As a reminder, the "product" we have to offer is not limited to the insurance policies we provide. Contrast the real value of the planning process we provide to help consumers understand and address their many risks against the artificial value consumers receive from save-money-now product peddlers. Those offering a personal risk management process should also embrace and advocate the benefits of the many valuable risk management services available through many insurers and other third-party providers, as explained in this IRMI article. Given that the cost for many of these risk management services is factored into the cost of coverage, policyholders are arguably paying for these services whether they are used or not. Every effort should be made to ensure consumers understand and benefit from the available services that can help reduce the risk of many different losses. Our "product" includes much more than insurance policies.

With the wide range of insurance coverage available in today's competitive marketplace, our ability to tailor coverage to meet the protection needs of most clients is an essential step in the personal risk management process. Those who have ever been entangled in the aftermath of an uncovered claim know there are many pitfalls in structuring a program that responds to all possible losses. Knowing full well policyholders do not read their policies, what can we do to better inform those we serve of the risks that are not covered by their policies? Insurers require state approval for any of the communications sent to policyholders. Agents and brokers do not. While this does not suggest agents/brokers can be inaccurate in their representations, there is a significant opportunity for agents/brokers to help consumers understand the exposures to loss that are commonly overlooked without reprinting contract language verbatim.

Declarations Pages: Consumers Need More

However unintentionally, what could be more misleading about the actual protection that is and is not provided by an insurance policy than the policy declarations page? Many consumers I speak with regard the policy declaration pages they receive with each renewal as their actual policy! Policy conditions? Exclusions? Contract language? Having a process to provide consumers with a basic understanding of the important policy provisions that determine the risks that are and are not covered is an essential component of any personal risk management process. Providing consumers with the declarations pages of a policy offers few valuable insights to help them understand the scope and limitations of their protection. Does taking the extra step of providing a supplemental schedule of insurance add any real clarity?

The schedules of insurance I have reviewed provide little more than the very basic policy information and coverage limits shown on a declarations page and serve to perpetuate the ill-advised practice of focusing solely on a policy's coverage limits. We can do better.

What tools are available to help consumers gain a better understanding of their insurance coverage, especially the limitations of their coverage? Fortunately, our industry has a great deal of information to help illuminate the protection provided by virtually all forms of insurance, including valuable content through IRMI. As a reminder, it is essential to comply with the terms of use established by any content provider before making the work of others available to consumers. Many insurers provide informative summaries of the coverage features of the policies they provide, and several offer consumers the ability to compare and contrast the insurers' coverage with the coverage provided by other coverage forms. Following are links to examples of such coverage comparisons.

• ACE Private Risk Service Coverage Comparison
• AIG Private Client Group Coverage Comparison
• Chubb Masterpiece Coverage Comparison
• Encompass One Coverage Comparison
• Fireman's Fund Prestige Excess Comparison
• MetLife Grand Protect Worksheet
• PURE Auto Coverage Comparison

Meanwhile, readers should understand that these comparisons are intended as marketing tools and often showcase the coverage that is provided by that insurer, with few valuable insights on the risks that are not covered. To provide consumers with more independently prepared comparisons, a few state insurance departments provide easy access to interactive coverage comparison tools. This tool by the Texas Office of Public Insurance Counsel is a great example, though it also has serious limitations. IRMI subscribers have access to a wide range of coverage comparison tools that are even more comprehensive, with many details and insights that can be helpful to insurance practitioners seeking to guide their clients.

Conclusion

Exposing the false and dangerous perception that personal insurance policies provide the same level of protection requires risk practitioners to think and act differently. How can we help the consumers we serve think differently, to understand their risks? To examine solutions that properly address their risks? These are the practice management challenges we should be collectively focused on solving. IRMI readers represent the best and brightest risk practitioners in our industry. What tools have you discovered or developed to help consumers better understand their risks and discern the differences between the many protection options available to them? What strategies or processes have been particularly effective? Share your thoughts and solutions on the IRMI Personal Lines Forum on LinkedIn.