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McKinsey, Commodities, and the Death of the Independent Agent

Author: Bill Wilson
A recent McKinsey report concludes that personal lines insurance, by and large, has become a commodity. It also questions the viability and value of the agent. This report has initiated several LinkedIn Discussions, including:
·         ACT LinkedIn Discussion
The second link to the Agents Council for Technology (ACT) LinkedIn discussion, includes this comment from Marty Agather, Senior VP of Sales at Project CAP:
“The only people who care about policy differences are agents and carriers. Yes, consumers should. But it's too complicated for a sound bite. And a typical customer isn't going to read a thorough analysis of policy comparisons. 
What Marty said is very true and, in a roundabout way, illustrates the need and value of an independent agent who DOES know the products he or she sells and hopefully the products his or her competitors sell. This lead to my edited response below from the LinkedIn discussion… 
Marty, and that's why the counsel of an astute independent agent is so critical in trying to match the individual needs of consumers with the right product. A well-informed agent knows his or her own product line. An outstanding agent knows that AND the shortcomings of the competition's products.

We need to get the message out that you can’t price-shop on an “apples to apples” basis without knowing the details of the policies you’re comparing…just knowing that you’re comparing the same liability, med pay, and UM limits, along with physical damage coverage at the same deductibles won’t tell you ANYTHING about the real and material coverage differences. You might be comparing “fruit to fruit” but not “apples to apples” and that difference is important if you like apples but not a fruit you’re perhaps allergic to.

I know of a lady who is a single parent who lost her job. She found another job at barely half the salary so she’s been delivering Papa John pizzas several nights a week to make ends meet. The “ISO standard” personal auto policy does not exclude pizza delivery, based on interpretations by coverage experts and a preponderance of court cases. On the other hand, some insurers either interpret their exclusions differently (so, if you had a claim delivering pizzas, you’d have to sue to recover) or they have specific exclusions like one carrier's “Food Delivery Exclusion” endorsement. Some nonstandard policies exclude any “business” use of an auto. No online quote is going to reveal this kind of policy detail. Both the ISO policy and one of these policies provide “liability” insurance but liability for what?

The friend of an agency owner had an auto policy on a vehicle his son was driving. The son got into a street race and wrecked, seriously injuring himself and a passenger. The passenger made a claim for substantial injuries and likely disabilities. The insured has high auto liability limits and a “following form” umbrella. The ISO personal auto policy has a racing exclusion but it only applies to accidents that occur “inside a facility designed for racing.” The policy in question had a much broader racing exclusion that did not limit it to racing facilities and the claim was denied. Fortunately, our “Ask an Expert” service reviewed the policy language and saw that it applied the exclusion only to “organized” racing events, so with that information, the agent believes he can help his friend get the claim denial based on the insurer’s interpretation overturned. Do you think “Jake in khakis” at the other end of an internet or phone connection on the other side of the country is going to advocate for coverage like this hometown independent agent? Good luck with that.
There was a 2011 state Supreme Court decision in Florida involving a company that says 15 minutes on their web site can save you 15% (hereafter referred to as "Insurer 15") that I was looking at over the weekend. Their insured rented a car while the transmission on her owned auto was being repaired. She loaned the rental to another person who then loaned it to another person who proceeded to have an at-fault accident that killed one child and seriously injured other children in the vehicle.

The "Insurer 15" named insured and the operator of the rental auto were both sued and sought coverage under the "Insurer 15" policy. Under the ISO personal auto policy, the rental would be a “temporary substitute” auto and covered for liability on the same basis as the named insured’s auto. As a result, both the named insured and permissive user (as ISO defines permissive use) would be insureds and covered by the ISO policy.

However, "Insurer 15" defined both “temporary substitute” and “permissive use” differently from ISO and denied the claim. The Florida Court of Appeals upheld the denial but it was reversed by the Supreme Court based less on policy language and more on a rather unique Florida “dangerous instrumentality doctrine” so there was ultimately coverage, at least for the named insured. However, to get that coverage, the insured had to take the claim denial all the way to the state Supreme Court. Under an ISO policy, the claim should have been paid without argument. A good independent agent would see to it that this happened. Lizards, cave men, and discount store clerks might not be as helpful…in fact, you might find them hiding under rocks, in caves, or on Aisle 17 when you’re trying to get their assistance.

These are just a few examples of dozens of differences between auto policies being sold in the marketplace. So, when an advertising icon says, “SAME COVERAGE, Better Value,” s/he’s just kidding. While a lower price doesn’t necessarily mean lesser coverage, it often does. As Morty Seinfeld said, “Cheap fabric and dim lighting. That’s how you move merchandise.” Try to get a copy of the auto policy you’re being quoted online in advance of buying it…you can’t. Logic would say there’s a reason they don’t want you to see the contract you’re about to enter into. They only want you to see the price.
Recorded Webinar:
Two hours presented live on March 12, 2014
This webinar is designed to assist insurance agents in explaining to insureds why insurance is not a commodity, why price should not be the determining consideration in choosing an insurance company/policy, and why they cannot rely on insurance advise from consumer websites and publications and, in all too many cases, from within the insurance industry itself. Here is a review of the webinar from The Standard.
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fax: 703.683.7556

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