Expense savings enough for customers to learn insurance principles?

They say a happy customer is the best customer.  It applies to all businesses, business models, etc.   In the insurance world, an educated customer is also one of your best customers.  Stereotypical example but educated consumers understand risk, take less risk, and tend to be in top tiers of rating.   The premise that InsurTech will allow customers to ditch their agent or broker and return that savings into the customers pocket  – might have some challenges to the theory.  One of the main challenges: is expense savings enough for customers to learn insurance principles?

The underlying theory makes many assumptions.

One assumption is that the best customers are only focused on cost.  Different than the two best customers above (Happy and educated).

The savings of 10-15% commissions from agent or broker is enough incentive for customers to learn basic insurance principles.   However, based upon product line and agency, many agents commissions actually diminish over time if you stay with same carrier.   As an insurance professional, I am embarrassed to say it – but I struggle to believe a nonprofessional will be wiling learn insurance to save $300 – but that’s because I have read many of the insurance textbooks and have experienced the pain.

Happy customers do make the best customers.  Insurance companies and agents realize this at the time a claim is paid.  If you have ever been on the end of a phone call notifying a customer of payment, or cut a check directly for customer after a loss – with a good claims experience – you will see what a happy customer looks like.

This is the value and promise of the policy, the front end purchasing of a policy is nice to have good customer experience, but the time of claim payment is the most memorable time for the customer.  

The front end is important, but rarely is buying insurance a happy or memorable experience.  It is a one time a year, non engaging experience.  Where the buyer doesn’t realize the ultimate satisfaction of the experience until time of claim payment.  This may change over time – but consumers will not have the same user experience and satisfaction when buying insurance as using Uber, Facebook, Twitter, etc.

As insurance consumers become responsible for their own purchase – does this change?

Does all this time spent learning, anxiety around mispurchase or under purchase of limits, and possible decrease in peace of mind – violate premise #1 – that a happy customer is the best customer.  Do insurance customers want to sacrifice piece of mind or utility value of insurance to save 10%?

It may depend on the sophistication of the consumer and complication of the products involved.

For some products that are standard forms and coverages, it may make sense.  But customized and unique coverage for an individual or business will still require agent or some customer service rep.  If so, and an InsurTech firm is offering – is it a ChatBot or human?  If human, what’s the difference than current model?  If Chatbot, can’t incumbent brokers/agents utilize the same technology to save time and resources?

Technology helps the transaction execution but also blurs the lines of ownership in the sharing economy.

Changing ownership and Shared economy model has different legal ownership and liability responsibility.   Autos, homes, property, etc. are all being shared and utilized across many users/customers in a shared and community resource platform.  As this is evolving, the laws and legal responsibility landscape is still evolving – will customers be required to stay abreast of legal landscape and judicial rulings to protect themselves?  Isn’t this one of the great values of an adviser, to guide you in this area.

Will customers have to follow legal landscape of Uber driver liability, AirBnb owners liability, independent contractors, and other shared economy cases?

There are many questions and ways to pick apart any new products and disruptors.  The good news is customers will ultimately be the decision makers of winners and losers in this space.  A greater percentage of the insurance dollar will go to paying claims.   Transparency of costs and expenses to agents/brokers will improve.  Transparency about your data and risk profile will improve.  Customers will win regardless of distribution channel.  The bar has been raised and the pivot to value has begun.

See also…InsurTech pressuring the system: who is winning?

There may be an user experience that is so undeniably pleasant that changes the game.

But right now, insurance is still an omnichannel product.

Comment below with your thoughts.  

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Arnold Smith

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