The Commoditization of Insurance: The Common Enemy of All Insurance Agents

Whether you’re a captive agent or an independent agent, regardless of the company you work for, no matter how long you’ve been in business or the geographical region you work in, all insurance agents are facing a common enemy.

This enemy has emerged over the past decade and is turning confidence in a stable business model into uncertainty in a volatile market. This enemy is the commoditization of insurance.

What is the commoditization of insurance?

One definition of a commodity is a good or service that has become widely available and is not differentiated by factors other than price. Things like brand name become unimportant because the good or service is essentially indistinguishable for an alternative option.

The commoditization of insurance, then, is the idea that insurance has become so widely accessible to consumers that they are able to place a heavy emphasis on price over other factors. For example, if someone is looking for car insurance and is able to find identical coverage in multiple locations, that person will usually choose the cheapest option.

Recently, aggregator tools and internet shopping have been the key factors leading to the commoditization of insurance. Aggregator tools allow insurance shoppers to get a quote from different carriers in one place. This forces carriers to compete on price and trivializes quality. These tools allow consumers to quickly look past things like agent experience and customer support while focusing their attention on price alone.

The Implications of Insurance Commoditization

If proactive steps are not taken by insurance carriers and agents, they are destined to watch as customers sign up when premiums are low and jump ship as soon as they rise. It takes 15 minutes to sign up for insurance online and customers are more eager than ever to save a few bucks.

Average customer lifetimes will drop as turnover rates rise. The figurative buckets of an agency’s book of business will become perpetually leaky. More and more potential clients will adopt the mindset, “Why do I even need an insurance agent”? This is a killer of insurance agency value. Customer retention is one of the most important variables in the overall value and profitability of an insurance agency, so when customers are not likely to stick around for very long, the value of a book of business will be diminished.

For many agencies, sales will be limited because they are simply not able to compete on price with the variety of low-cost solutions that are emerging in the market.

How to Make Your Insurance Agency Stand Out

If the commoditization of insurance makes consumers forget about factors other than price, how do you show them that there are more important factors to consider? How do you keep your current customers from leaving you for cheaper options?

One thing that low cost insurance can’t replicate is a personal relationship and quality customer service. To fight the effects of the commoditization of insurance, you have to implement practices to help you build a personal relationship with your customers.

You must start with your current book of business. Dig in to the customers you already have to maximize your efficacy. Internet leads are not the leads that will add value to your agency. The way you can differentiate yourself is through the relationship and service you provide, not price, and internet leads are micro focused on price and care little about quality of service. Start with building a personal relationship with your current customers.

Building a personal relationship doesn’t mean you’re best friends. You don’t have to play golf together or go out to brunch every sunday morning, but your clients do need to know who you are and be aware of the value you provide to them through your products and services. You will build trust the most with your clients when they know that you have the skills and attention to take care of their insurance needs. Clients want to know that they have sufficient coverage and that you are seeking their best interest to protect them from potential risks. They want to know that you are a trusted advisor, not just an insurance salesperson.

The single most effective method for building this kind of relationship is to implement a fundamental customer insurance review program into your business model. Basically, you need to meet with each customer in your book of business about once per year to review their policies. Use your expertise to make sure their coverage is adequate and help them avoid risks. Asking the customer to come into the office allows them to see for themselves the value you add and also helps them get to know you. These meetings provide unparalleled opportunities to improve retention, obtain referrals, and uncover cross-selling opportunities. Read more about the specifics of a customer insurance review program here.

Other Suggestions for Differentiation

Bundling - If you can cross-sell your customers, you will be able to differentiate yourself from some competitors. When you provide a single line of insurance, it is easy to price shop and find another provider. When you provide 3 or 5 policies, it becomes more difficult. You are no longer just a car insurance salesperson, you are now the central source for insurance.

Loyalty Programs - People like to feel important. Give gifts to you customers when you’ve done business with them for a notable amount of time (1 year, 5 years, 10 years, etc.). You can also implement a referral rewards program. Provide incentives when they refer a friend to your agency. This strengthens their conviction to you as a trusted advisor.

Education and Empowerment - Teach your clients about their insurance. When you meet with them, explain what each policy does and why they would want or need it. Explain the numbers associated with their policies. When people feel smart, they feel comfortable and confident. Make your customers feel smart so they can make educated decisions.

Provide an Experience Based on Your Skills - You know what you are good at. You know what your staff is good at. Have a brainstorming session and determine how you are really different and better than the competition! Provide products, services, rewards, or perks based around what your agency is really good at.

The bottom line is that to avoid the effects of the commoditization of insurance, you need to do more than just provide insurance. Customers can get insurance anywhere. You’ve got to provide an experience they can’t get elsewhere.

Questions? Chat now!