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Is Insurance a Commodity Doomed to Be Sold on Price Alone?

Let’s start this out with Merriam-Webster’s definition of a commodity: An economic good, a mass-produced and unspecialized product. A good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors other than price. Couple that definition with the numerous television commercials from multiple insurance companies, each pitching how many hundreds of dollars one can save if they switch, and it is no wonder our industry is looked upon as nothing more than a commodity. Certainly, it is easy to sell insurance solely on price, but in doing so, are we doing a disservice to the insurance buying public?

Some of us may remember the term “Contract of Adhesion” from the days we studied for our insurance licenses. It was one of the terms used to describe how an insurance contract (a policy) is unique from a typical contract. With a typical contract, the buyer and the seller have the ability to read, review, and negotiate the terms of the contract. For example, in a real estate contract, if the home buyer wants the seller to include the refrigerator with the sale of the house, the buyer can write “include refrigerator” into the real estate contract. The seller then has the opportunity to accept that term and leave the refrigerator, negotiate an alternative solution such as decreasing the cost of the house by the cost of the refrigerator, or simply refuse to leave the refrigerator and hope it isn’t a deal killer. So as mentioned, in a typical contract, the buyer and the seller have the ability to negotiate the terms prior to accepting the contract.

With an insurance policy though, the buyer must simply adhere to the terms of the policy. For example, insurance applicants do not have the luxury of negotiating the definition of the "Covered Auto" listed in an a personal auto policy to include coverage for semi-trucks or change the “Duties After a Loss” condition to allow the insured to have an unlimited time to report the loss. The policyholder must follow the terms of the policy as the insurance company has laid them out. A Contract of Adhesion means the insurance applicant must take it or leave it when it comes to the terms of the insurance contract. 

Without an agent explaining the specifics of the policy and the coverages available, insurance applicants are not really sure what they are getting into. Add that to the fact that more states are allowing insurance companies to modify the language of their policies, it makes it all the more difficult for insurance shoppers to know what exactly is covered and what is not prior to purchase. 

It is this unique contractual characteristic that eliminates an insurance policy from being a commodity. Insurance is not a one-size-fits-all product. Even in states that require insurance companies to provide standardized policy forms, therefore mandating that all insurance companies have the exact same policy language, the insurance shopper is still left with the burden of deciphering what specific coverages are required to adequately cover their specific needs and risks. 

It is critical that insurance agents communicate the true value of the policies they offer, their agencies and the carriers they represent when providing quotes to prospects. The true value of insurance is proper coverage, great service, and most importantly, the ability to rest easy knowing in the event of an unforeseen loss, everything they have worked so hard for is protected.

Yet all agents recognize the time is of the essence for insurance shoppers.  As one of my colleagues recently said, shopping for Insurance is not drool worthy like shopping for the latest smartphone or car. People want to get in and get out. Balancing the need to educate consumers on the value you bring to the table along with providing a quote quickly and accurately can be achieved though, as long as agents have the right tools.  One of those critical tools is a comparative rater.  With a comparative rater, such as TurboRater, an independent insurance agent can quickly gather and input the prospect’s risk information and shop multiple carriers’ rates in seconds.  Saving time on the quoting process leaves time for the agent to promote the true value of insurance and why the prospect should should their agency.





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