Professional boutique agencies are the solution, the only real solution, for all those producers who compete against big shops, insurtechs that use bots rather than humans, and those with low price/low quality commodity price distributors.
My light bulb moment, when everything became blindingly obvious, was when I first read Carl Shapiro’s Theory of Mediocrity (my title, not his). The theory holds that all products and services will become mediocre under the guise of previous higher quality, or the consumers’ inability to distinguish quality because the price point will be slightly elevated while the costs will be less, enabling greater market share, greater profits, and the elimination of competition. The only alternative is to create a boutique business.
I was watching Stumpy Nubs, a woodworking and tool channel on YouTube, (i.e., Stumpy Nubs may have something to do with losing fingers). He presented the history of three great tool brands and how the quality of each brand deteriorated after each was sold to a large consolidator of tool brands. On a different tool channel, the host tested the quality of the old and new versions of these brands. Guess which tools did a better job, the old or the new?
Was the price reduced in relation to a decrease in quality? This question sums up Shapiro’s theory as it works in today’s world. Fool the consumer into believing the brand (or rating of companies/securities/whatever) has maintained quality while actually cutting the quality and expenses (something must be cut to pay for the acquisitions), but do not cut the price any more than is absolutely necessary to cause your competitors’ pain. That is how the strategy works and it works well.
I searched and found a high-quality boutique tool company. I paid more for their products, but the extra quality was immediately obvious and well worth the extra dollars. Unfortunately, the company cannot afford advertising so I, as the consumer, had to find them. What are you doing, if you are a reader who believes in quality, to help consumers like me find you? All the website hits in the world are meaningless to you if the hits originate with price shoppers.
In a less intelligent moment, I bought the cheaper tool. It broke quickly. The company sent me half a new machine under warranty, 60 days later, and then I had to complete major repairs three more times over the next 18 months. I junked it when it broke again. I bought a new machine, a brand I had never heard of before, that was twice as expensive and works like a charm. I was suckered into thinking the lesser machine, but better-known brand, was sufficient. Shapiro’s theory in action once again.
What happens when a person buys a junk insurance policy? It happens daily. Sometimes the carrier is a junk carrier (let’s not pretend junk carriers do not exist). Sometimes it is a junky form (i.e., many cyber forms). Sometimes it is a junky agent (whether they are a good person may or may not be a factor because sometimes there are good people who simply have no clue what they are doing). Sometimes it is a combination of all because birds of a feather flock together.
Agencies also have poor results when staff must service too many clients, the practice of policy checking is eliminated, and/or customers are stuffed into customer service centers, especially when the centers’ employees are not licensed. It is a lot cheaper to service clients using employees who are not licensed. However, an entity cuts corners, its expenses decrease and the resulting lower rates, under the guise of a better brand, often allow the agency to achieve significant success. In industry after industry after industry this result has proven to be true.
For those of you who care about the quality of your product, you cannot sell similar tools with higher expenses and win. To win, you must convince clients of the true advantages you bring to the table, including that they will be working with professionals who do not cut corners.
Anyone can sell insurance. Sure, it is difficult to build a quality book, but lots of people who can barely spell the word insurance make a decent living selling inadequate coverage at lower rates — a rate that is lower because the coverage is inadequate at best. This point is proven through carrier commercials populated with half-wits, animations and comics pitching something resembling insurance. Whether what they sell would enable a person to fully recover a financial loss is anyone’s guess — including most of their clients, I suspect.
Any company can forge a wrench for a dollar or two. But will the wrench grab the nut and not round off the corner or break or slip busting your knuckles when you’ve been stuck freezing on the roadside trying to loosen the nuts for the last two hours? A working wrench is important if your agent did not sell you tow coverage, or the tow trucks are hours behind, or you don’t have cell service where you are stuck.
‘What are you doing, if you are a reader who believes in quality, to help consumers like me find you?’
When you are sitting dazed and confused after a UM broadsides you, the relatively small price difference between $300,000 and $500,000 in UM coverage is obvious, too. Are you selling insurance or are you selling quality protection? An agent who cares will not win trying to sell the former, however there are few competitors that truly exist in the latter class.
It costs more to sell the latter. It costs money to become truly educated, to take the extra time to talk to the insured, to take the extra time to build the coverages they need, to employ better qualified staff, and so on. Insurance commissions are inadequate for true professionals and excessive for amateurs. If you are a true professional and think that carriers will eventually figure this out, I hope you are close to retirement, so you do not waste too much time waiting.
Deliver Real Protection
Many opportunities exist to deliver real protection. Each option demands more education, more time, and more care. People try to mediocritize the following tools, so you need to be aware that the following are upper-level tools.
Simply caring and writing private passenger auto policies correctly is a great start.
At a higher but extremely basic level, use coverage checklists. Not only do clients typically get better coverage but your E&O exposures will decrease. Your sales will increase, too. Imagine that! Better coverage results in more sales.
Risk management is incredibly valuable because people generally want to avoid incurring claims. Risk management can be as simple as, “Here’s a basic safety plan for your family to evacuate your house,” or as complex as providing cyber risk management. Once complete, you have Total Cost of Risk or TCOR, a concept that has been around for decades and is used incredibly successfully by a tiny number of producers. I have always found it interesting that so many people advise TCOR does not work, and they are right, it does not work for them.
A complex solution that is gaining traction faster than I have ever seen, and also going in directions I never anticipated is the Alternative Risk Transfer (ART) market. ART is gaining so much traction that the corner cutters are entering this market too, but with some alleged fraudulent activities so, again, become educated. These complex tools are not to be wielded by untrained people. Solid and continual training is required to sell insurance correctly.
Other human benefits accrue when one takes care of customers’ true exposures. One is that you should find it easier to hire young people who are searching for meaning in life. Taking care of a customer’s needs provides a lot more meaning to a person’s life — more so than just selling insurance policies.
Another benefit is that your clients will become advocates and often your friends, especially when they are covered for a bad loss. Best of all, you can sleep well knowing you are doing good for the world, or at least for your clients. Nothing mediocre exists in making the world a little better one client at a time.
Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: [email protected]