Years ago, a memorable Mercedes Benz advertisement reminded
readers that, in order to determine the true
value of a car, consumers
should focus not on what a car
costs but on what the car is
worth. If distinguishing between cost and worth is
challenging for an industry with products so tangibly different,
is it any wonder why the insurance industry finds this challenge
even more difficult?
Insurance Value—Cost or Worth?
Though the concept of cost requires no explanation,
understanding the worth of a
product is quite challenging. A quick search for a practical
definition of worth yields these two offerings: "the quality
that renders something valuable or useful" and "the
value of an object in relationship to a purpose."
Understanding the true worth of most products requires an inside
perspective that is often beyond most consumers. The extra
difficulty in discerning the worth of insurance products may
explain why so many insurance marketing campaigns are singly
focused on cost. Sadly, our industry appears to have little
interest in helping consumers to examine the actual worth of the
coverage being offered.
Think of the insurance advertisements that quickly come to
mind. Exhibit A in the advertising shell game that instructs
consumers to focus on the cost rather than the worth of the
policies being offered is the "name your own price" advertising
campaign. This theatre of the absurd inspired campaign
encourages consumers to buy insurance protection by simply
deciding the price they are willing to pay, with the aid of a
magical price gun and sage counsel of America's new insurance
adviser, Flo. Those crafting this campaign have perfected the
black art of framing insurance as a commodity with this simple
offer: Tell us how much you want to pay, and we'll tell you how
much coverage it will buy (if you
even want us to bother you with this detail).
There appears to be an ever-growing list of insurers that seem
quite proud to describe their value proposition as "we're the
cheapest." Although such messages encourage consumers to
virtually ignore the worth of the protection being offered, we
all know this approach is very effective at attracting new
policyholders. To really understand why, let's briefly examine
the psychology that is employed by marketers.
What Is a Heuristic Anyway?
The advertising executives who craft insurance marketing
campaigns are armed with an expert understanding of behavioral
psychology. As a result, they understand that, when consumers
make buying decisions requiring careful analysis, our actions
are more heavily influenced by emotion than logic. The emerging
field of behavioral finance explores the many mental shortcuts
that cause otherwise rational consumers to make predictably
irrational buying decisions. Not just irrational buying
decisions, but predictably irrational buying decisions.
Heuristics is the term
psychologists use to describe the many mental shortcuts that
influence our subconscious minds to arrive at such predictably
irrational decisions. Advertisers use their knowledge of
heuristics to craft marketing campaigns that subtly steer
consumers to make quick decisions without carefully considering
the implications. In an article titled "Geico
& Psychology: This Gecko Has Some Venom" published by
Psychology Today in 2010,
author
Ted Cascio, Ph.D, explained in lay terms the behavioral
psychology and shrewd marketing genius of the amiable gecko.
Cascio revealed the Gecko is "meant to distract consumers from
the business side of the equation; the side that impels
companies to exploit consumers' ignorance and emotions in order
to generate revenue and assure stockholders."
Summarizing the Issue
It escapes no one with a radio, newspaper, television, or
Internet connection that insurance advertising is big business.
How big? Four billion dollars a year big, and increasing
annually. Entertaining and often comical advertisements have
been cunningly crafted to exploit the human tendency to simplify
our buying decisions by promoting this false and dangerous
message: "All insurance is the same; just buy the coverage that
costs the least." In one of the early discussions on the IRMI
Personal Lines Insurance Forum, one prominent industry leader
offered the provocative observation that, in essence,
all of us are responsible for
insurance being regarded as a commodity.
Seven Ways To Help De-commoditize Insurance
While some may argue they are not part of this problem, we
should ask ourselves whether we are doing all we can to be part
of the solution. How can we better assist consumers to make
well-informed decisions when buying the important insurance
protection they may one day need to rely on after a loss?
Especially for those in a consumer-facing role, I offer seven
suggestions that can be used to help consumers more closely
consider the real worth of the insurance products they are
buying.
#1: What Would Jack Hungelmann Do?
Insurance coverage is confusing, and no one in our industry
is better at making confusing concepts clear than the previous
author of this column,
Jack Hungelmann. All who interact directly with consumers
should own a copy of Jack's book, "Insurance for Dummies," and
use it to improve their ability to help consumers better
understand how to buy the protection they truly need. Further,
the 37 columns
authored by Jack and made available to
IRMI.com readers are a treasure trove of practical solutions
on how to differentiate and strategically structure insurance
coverage to meet your clients' protection needs.
#2: Start
with the End in Mind
In his book, The 7 Habits of Highly
Successful People, author Stephen Covey reminds
readers of the importance of starting any endeavor by first
focusing on the desired end result. The Chubb Group of Companies
has a pithy advertising campaign aimed at focusing consumers on
seeking value and considering the future implications of their
buying decision that uses just eight words: "Who insures you
doesn't matter, until it does."
Help consumers understand the
possible future implications of their decision by reminding them
that, in the event of a large loss, the insurance coverage they
are purchasing will likely become the most important item they
own. Why not use Chubb's clever words to remind consumers that
who insures them, and how their coverage has been structured,
will matter greatly after a loss.
#3: Fixing $6 Haircuts
A popular
television advertisement a few years ago featured the owner
of a local barber shop who was losing customers to a new
national chain barber shop that had moved across the street and
was attracting customers with a big banner announcing "$6
Haircuts." Several weeks later, the local barber went to the
office supply store and hung his own banner, proudly announcing,
"We Fix $6 Haircuts."
I have had the chance to meet with and
interview many in our industry who are very effective at helping
insurance consumers to fix the equivalent of $6 haircuts. Among
the shared characteristics is a passion for providing their keen
insights about the value and worth of different insurance
products. They are also quite direct and assertive with
consumers about what they know to be true and offer a refreshing
contrast to those in our industry who are either passive or
pandering. The very best interact with consumers
as if they are
on a mission—a mission to correct dangerous
misconceptions about insurance, bad advice from well-intended
but ill-informed friends, and the wrong-minded messages conveyed
by many national advertising campaigns.
#4: Watch Your
Language
After working to secure a coverage offer that
meets a consumer's protection needs, referring to it as a
"quote" or "bid" only serves to place all of the emphasis on the
cost of coverage. When a consumer asks for a quote or bid,
explain that you will provide them with
an entire coverage
offer, and that as part of reviewing all of the
terms of the coverage offer, you will of course clearly identify
the annual cost as well. This is more than mere semantics. To
change the discussion, we must use words that describe something
more substantive and meaningful than the "quote" that was asked
for. We also need to avoid arcane insurance terms and acronyms
and the use of glib bromides when speaking with consumers.
Advising consumers that a policy provides ACV, extended
replacement cost, APIP, or "all the bells and whistles" imparts
little insight on the protection being offered and causes
consumers to focus instead on what they do understand—the cost.
Using words that are clear and specific that consumers can
relate to will help promote a meaningful dialogue.
#5: Document
the Differences
Although insurance consumers have been
preconditioned to focus on cost and not protection, they also
appreciate the need to be wary of offers that look too good to
be true. To help consumers see through the often protection-poor
coverage provided by save-money-now policies, take the extra
time to document the coverage that is—and is not—being provided
by different policies. Average agents focus merely on the
coverage limits on a declarations page. Agents who are on a
mission to help consumers make well-informed decisions take the
extra step to document the actual types of losses that are and
are not covered by different policies, while also explaining how
variances in the loss settlement provisions of policies will
determine how claims are actually paid. When doing this, strive
to be concise and clear, and avoid jargon.
#6: Provide a
Process Focused on Risks and Solutions
The common theme
behind most insurance advertisements and sales strategies is to
convince consumers that the policy being offered is a "better
deal." The better deal focus prevents consumers from examining
their risks and developing a worthwhile protection plan. Knowing
what you know about insurance, would a better deal product pitch
appeal to you if you were suddenly employed outside the industry
and in need of insurance? Not me.
What would interest me?
Someone who offered me a well-designed process that helped me
understand and examine my exposure to different losses. Once I
understood my risks, I would greatly value guidance in selecting
solutions that protected me from the risks that concern me the
most. Instead of pitching better deals, shift the focus from
cost to protection by providing a "best practices" inspired
process that helps consumers to understand their risks and
select solutions to manage those risks. Those consumers will
become clients.
#7: Offer More Than Just Insurance
Although buying insurance coverage is not the only strategy
available to help consumers manage their many risks, insurance
professionals rarely present other risk management strategies
that are not risk transfer oriented. This insurance bias is
particularly frustrating for those insurers that offer
policyholders a wide range of valuable but often underutilized
services to help consumers avoid or reduce certain risks. Among
the reasons select insurers offer an increasingly wide range of
valuable risk management services to policyholders is to further
differentiate the value of their offer from the many insurers
that offer only low-cost coverage.
Shouldn't insurance
professionals do all they can to make consumers aware of the
noninsurance strategies that are available to
help prevent or minimize losses? When available, these services
are yet another way to demonstrate that the value of insurance
policies differs by more than just cost.
Conclusion
Insurance professionals should recognize the many reasons why
consumers view insurance as a commodity and become more vigilant
in educating those we serve that the protection provided by
insurance policies varies greatly. To do so, we need to work to
shift the conversation away from merely focusing on the cost of
a policy and toward a more meaningful discussion of the harder
to discern worth of a policy. Those who view their role as both
a true consumer advocate and personal risk manager should feel
empowered by the critical importance of this mission and will be
rewarded by the many consumers who seek real insights and
professional guidance in managing their risks.