This time of year, it’s always a fun time to share some good myths and tall tales. I don’t know what it’s like when you and your friends get together, but here at Talage, when we get together- especially in the fall- nothing beats a warm venti PSL and a few good myths about insurance. So, grab your hot cup a joe, a blanket, maybe some popcorn or marshmallows to toast, and settle in for three tales that haunt many agents.
Myth #1: Insurance is complicated
This insurance myth always gives people chills. It’s a tale as old as time and one that, like me, I’m sure the older kids used to talk to you about around the campfire. Everybody knows that insurance is a complicated contract written by lawyers that nobody understands and we’re all just buying a policy from a company that doesn’t want to pay if we ever have a claim. Heard that one?
Like a lot of myths, unfortunately, this one has some roots in truth. As you know, insurance can be complicated. Some policy types and coverages are inherently more complicated than others. And policies do include clauses that exclude certain events, so it’s important to read the fine print. So while, yeah, insurance might be complicated, it doesn’t have to be scary – for agents or your clients.
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There is some good news here though. Once you understand this myth, you can grow your business by simplifying insurance-speak for them. Plus, it will no longer give you nightmares, helping you to sleep easy at night.
- First, a lot of insurance companies are putting in work to simplify these policies. In their defense, much of the complication here isn’t really the fault of the insurance companies. It’s actually a result of a highly regulated industry controlled by 50+ state jurisdictions. It’s really hard to get approval for new policies in different states, so to work around that, insurance companies simply change the policy they have with endorsements, enhancements, and exclusions. So, they can be complicated- or at least intimidating, but work is being done to improve that.
- More immediately though, we have help from insurance agents or brokers, and they are absolutely the first line of defense against the lawyers and pages of policy fine print. Insurance agents and brokers are trusted professionals who are specifically trained in understanding and evaluating risk. Sure, they’re the unsung heroes of the insurance world, but if a client ever needs to file a claim, you know how much an agent who understands their client’s business can save them.
While I’d say there is truth to this rumor, I do want to stress that it’s not as bad it looks on the surface. With a little bit of homework, you’ll feel comfortable with some of the ins and outs. Plus, the more you understand, the simpler and easier you can make it for your clients.
Myth #2: Small business insurance isn’t profitable
This insurance myth always comes up when our insurance agent buddies show up and start to shine their flashlights under their faces and talk about unit economics. The rookies always believe this one too.
Insurance agents always talk about having to get the bigger hits. The conventional rumor is that it doesn’t take that much more effort to close a big account than it does a small one. I get the logic, it’s not completely flawed, but it misses a lot of critical pieces of the equation. Sure, let’s say it takes a few phone calls, a meeting, and some work with the underwriters to land a new small account. High level, yeah that’s the same as a mid-market account, and yeah the agent gets paid more on the big one. True enough. But now let’s look at that equation a little deeper.
How much work is that bigger account over the course of the year? Do you know how many meetings you’ll need to have? How many phone calls? What about the number of certificates? How many claims? Smaller accounts have fewer claims than larger accounts, they simply have less exposure. Think about it, if you have 3 employees or if you have 300, which one is more likely to have an employee who makes a mistake? If you have a 2,000 sq ft retail space, or a 50,000 sq ft warehouse, which one is riskier? So yeah, the first bump on new business is better on the bigger account, but the service through the policy year will also be more.
Next, let’s talk about renewals. How many agents in your town are going to call that big account and try to take it? Most of them. You’re a great agent though, and that client would never leave you for a cheaper policy, would they? Best case, they keep you but want that cheaper policy, so the jockeying for customers by your fellow agents just made your big account a little smaller the second year. And how many years can you hang on? At some point an agent will get in there- after all, you got in there and took it from the agent before you, right? And if that big account is a big piece of your agency or personal revenue, that’s going to sting.
Use this myth to your advantage. If every young agent gets sold the same line, guess how many are going after small businesses? Not many. Fewer claims, less service, less competition- all 3 are huge positives.
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So let’s go back to the acquisition, because yeah, I agree that it’s arguably the same amount of work to get the bigger account as the small one. What if I could tell you there are tools to make acquisitions easier? If you could acquire more small accounts for less, then all of a sudden the equation starts to make sense- in fact, it starts to not make any sense to go after anything but small accounts.
Reduce the acquisition costs and you can build an agency and a book that is more resilient, more profitable (more contingency payouts), and more predictable. If you are looking at ways to build real lasting value, I’d argue that small business is the only way. Do a little homework on the new tools in the market and coming to the market to ensure that the return on investment on these small accounts stays high.
Myth #3: Insurance innovation is way behind
Every time we get together and after the cider gets passed around a few times, somebody always brings up this gem. Talking about the progress FinTech has made and how the last real innovation in insurance was the fax machine. It’ll scare a few people enough that they’ll peel off for the night, but if you aren’t following this space, you’re missing an opportunity.
Technology in insurance is always a big joke. It’s an old industry, for sure and yeah, its workforce has an aging problem. You know what’s not a joke, though? InsurTech. InsurTech is the hottest sector in financial technology right now and some of the best and brightest are flocking to insurance. It’s a trillion (with a “T”) dollar industry and because of its highly regulated nature, it’s ripe for innovation.
People ask why insurance is behind. I can tell you that it’s not because of a lack of intelligence in the industry. Insurance actuaries and underwriters are among the brightest I’ve ever worked with. In my opinion, insurance is behind for two reasons.
- The first is regulation. I mentioned this already, but operating across 50+ jurisdictions is difficult and time-consuming. Dealing with that many government divisions- each with their own objectives and politics is a nightmare. Some insurance commissioners are elected and looking at moves to protect or enhance their own careers. Others are appointed and could be gone if the gubernatorial race doesn’t go the way they hope. Oh, and by the way, the nightmare I’ve been describing only applies if you are exclusively working in the US. For the multinational insurance companies out there, good luck to you! Regulation in insurance, while well-intentioned to protect consumers, has stifled innovation and creativity in the space, and ironically, consumers are paying the price with complication, painful processes, and arguably higher costs.
- The second issue with innovation in insurance is culture. Think about this: an insurance company exists to mitigate and minimize risk. That’s literally what they do for a living, so to expect that same company to make huge leaps of faith on unproven technology is unthinkable. The “fail fast” motto of Silicon Valley doesn’t work here, because, for hundreds of years, the way you win in insurance is to just not lose. Insurance plays for a tie and that’s good enough. Insurance companies are cash flow mechanisms and they don’t need to make a ton of money on operations- they just can’t lose it.
As we’re reminded towards the end of every one of these hangouts when the PSLs are almost gone and someone pulls out the guitar and starts playing poor renditions of Dylan, my friends, the times they are a-changing. Insurance and InsurTech have made up ground on FinTech and while Finance had its renaissance a decade ago, insurance is moving faster.
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In the last 5 years insurance has done what took finance 10 years and insurance is picking up momentum, not slowing down. Every facet of insurance is being re-examined and looked at through a technological lens looking for efficiency. When it’s all said and done, insurance innovation is going to be huge and there is an opportunity today for those that want it.
If you’re an insurance company or an agency- embrace this time. It’s going to be an inflection point as people look back. Tomorrow’s winners will be decided by the decisions they make today. There is nothing to fear about InsurTech- unless you do nothing at all. For entrepreneurs and investors, there are few markets as big, as impactful, or as hungry for innovation. It’s going to be a wild ride.
So, you can’t believe everything you read and you certainly cannot believe everything you hear around the water cooler or the campfire for that matter. Like all myths, it’s important to get to the root to see where the truth lies, but I personally would love to put a few of these common insurance myths to rest and get to work on debunking some others- like have you heard that commercial insurance uses at least 5 sets of “standard” codes to identify business operations? Honest. It’s crazy, but I’ll save that one for next time…
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