Recently NY agent and VU faculty member, Ed Higgins, and I were interviewed for an article about the entry of Walmart and Overstock.com into the insurance marketplace by MyNewMarkets.com. Here is the full article from their website:
At about the same time, I was interviewed by another reporter for a different publication on the same subject, with a particular focus on the alleged “commoditization” of personal lines. The following is the Q&A from that email exchange.
“Retailers like Walmart and Overstock.com have recently announced that they are entering the insurance market, treating insurance as if it were a commodity. What are your thoughts on the subject? Do you think that that is how customers view insurance?”
Insurance is NOT a commodity. Anyone who has ever compared two or more auto insurance policies knows that. The “ISO standard” personal auto policy is 13 pages long. I recently reviewed an auto policy from Florida that was 76 pages long. The only distinction between true commodity products is price. I’d say a 63-page differential between two complex legal contracts suggests that they are not the same product. After filling up two printed pages of differences between them before getting to the third page of the 76-page product, it was pretty obvious I wasn’t examining commodity products.
However, given the price-focused insurance advertising that dominates the media, it is certainly how most consumers view auto insurance. One insurer advertises “SAME COVERAGE, Better Value.” Having examined their auto policies, I can tell you what they’re selling is NOT the same coverage as is available from other auto insurance products in the marketplace. Just because one product is cheaper than another doesn’t necessarily mean that the coverage provided is lesser, but it often is. To quote legendary salesman, Morty Seinfeld, “Cheap fabric and dim lighting, that’s how you move merchandise.”
Need examples?
- A Florida insured’s auto was in the shop so she rented a car and later loaned it to someone who loaned it to someone who had an at-fault accident that killed a child and seriously injured other children. The claim against the operator and named insured was denied by the insurance company on the premise that the vehicle was not a “temporary substitute” and the operator was not a “permissive” user, as defined in this insurer’s personal auto policy.
- The son of a friend of an agency owner was street racing when he crashed, seriously injuring himself and his passenger. The claim was denied by the insurance company based on their interpretation of their personal auto policy’s “racing” exclusion.
- A “boomerang” child lost his job and moved back home with his parents. While driving his mother’s auto, he negligently struck another vehicle, fortunately causing “only” several thousand dollars in property damage. The insurer denied the claim on the basis that his residency was not reported to the carrier within 30 days of his return home.
- A North Dakota church allowed a member to park his car in their heated ‘bus barn.’ While exiting, he wrecked and caused structural damage to the building. The claim was denied by the insurer, citing the “care, custody or control” exclusion in their personal auto policy.
What do these four claims have in common, other than being denied by each insurance company? Every one of them would have been covered if the policyholder had purchased an “ISO standard” personal auto policy rather than the policy in question. Has a family member lost a job and is temporarily delivering pizzas? Some auto policies cover this, some don’t. Do you ever run to the office supply store or post office for your employer? Some auto policies exclude ANY business use of a vehicle. The TV and internet advertisers don’t tell you this. In fact, if you get an online auto insurance quote, tell them you’d like to read their policy before you buy it. They won’t let you.
“Do you think that customers are looking away from the traditional agency system and more toward the digital space?”
They’re looking for information and some are looking for a bargain because they don’t understand that “saving 15%” today may cost you $15,000 (or more) tomorrow. Walmart is advertising locally since I live in one of their pilot states. They caution consumers to compare “apples to apples.” What they mean is to make sure you’re comparing the same limits and deductibles for liability, medical payments, uninsured motorist coverage, physical damage, etc. They mention NOTHING about examining the “fine print” in each policy, that is the specific coverage grants, exclusions, conditions, etc.
There are DRAMATIC and potentially catastrophic differences between auto policies. I gave some examples above. For more information and many other examples, take a look at my "Price Check" article in the July issue of Independent Agent magazine. It includes a list of differences found among auto insurance policies, including this Dirty Dozen:
- Undisclosed household residents are excluded. How many of your insureds have “boomerang” kids living at home that you’re not aware of?
- Business use of nonowned autos is excluded. Have you ever borrowed a neighbor’s car or had a dealer loaner auto and made a business stop?
- Business use of ANY auto is excluded. Do any agency employees ever run to Staples of the post office on agency business? What if they have one of these policies?
- Use of ANY nonowned auto is excluded. Better not drive anyone’s car but your own.
- Vehicles over 10,000 GVW are excluded. Have you ever rented a U-Haul truck or an RV thinking your liability coverage extended to the rental?
- Any type of delivery is excluded. Denied claims include pizza, newspapers, Mary Kay cosmetics, and, yes, even the delivery of insurance policies to customers by an agency producer.
- Permissive users only get minimum limits. This can apply to those you loan your car to or even unlisted household drivers.
- “Street racing” is excluded. Google “street racing” and see how often people are killed or critically injured while street racing.
- Criminal acts are excluded or limits reduced. DUI or even speeding tickets may preclude coverage.
- Medical payments only include licensed physician fees. One insured incurred a $25,000 “Life Flight” helicopter fee that would not be covered, even in part, by a policy with this exclusion.
- Theft without evidence of forced entry is excluded. One insured had a four-figure vehicle theft loss denied because he left his keys in the car.
- Sales tax is not covered under loss settlement. This cost one “same coverage” insured over $2,000 out of pocket for sales tax on a replacement auto.
“What are the benefits of having a customer having a relationship w/a local insurance agent versus a retail giant?”
One online auto insurance company says they can save you 15% in 15 minutes. Competing now on price AND time, another online insurer says they can give you a quote in 7 ½ minutes. If you had an abscessed tooth, would you base your choice in dentists on who can get you in and out the quickest? There’s no way someone can quote your insurance premium in 7 ½ (or 15) minutes and exercise due diligence in matching your exposures to loss and the proper policy coverages. A good agent will help you identify your exposures to loss and make sure you have the opportunity to purchase the proper types of coverages to meet YOUR individual needs.
An independent agent represents multiple insurers. A good agent knows the products of each of these insurers and which ones best fit your individual needs. Your hometown agents can make sure you’re getting all the premium credits you can, but most importantly, he or she will do their best to make sure you have the best product.
Perhaps most importantly, a good independent agent will advocate for you at claim time. Not every insurance claim is black and white. Even where policy wording between insurers is identical, it can be interpreted differently. If a claim is denied in whole or in part, the agent can work on your behalf to get the claim paid.
I literally see this every day in our Virtual University “Ask an Expert” service. Last week an agent contacted us because he believed the adjuster was incorrectly interpreting a policy provision. We agreed and the adjuster reversed the denial, resulting in a payment of $27,000, a thrilled customer, and an appreciative agent. I can promise you that “Jake at State Farm in his khakis” can’t do that for you. Nor can lizards and box store clerks.
Last Updated: June 2014