March 15, 2020
The P&C insurance industry is in crisis today. Though you would hardly notice it. For the past 30 years, the numbers don’t lie, OSFI’s Aggregate P&C Industry data shows that the industry expense (acquisition) remains at 30%. Amazing that with all the advancements in technology, since I started in 1987, that needle hasn’t moved.
In the 80’s insurance buyers went to an insurance broker or agent, gave them their risk details and walked away. A few days down the road, you would get a call for more information, or get a quote or multiple quotes. If you thought it was too high, you went to another broker and did the same thing all over again, or perhaps multiple brokers on the same insurance shopping day.
Did you get a good price with the right coverage? One would hope so, but that becomes less likely with every passing year and renewal. The alternative is going through the same process as when you originally had to purchase insurance.
With all the advances in technology and ubiquity of the internet, better consumer solutions should exist. A simple measure is comparing the OSFI acquisition expense; what the customer pays to acquire their insurance annually. The numbers show no improvement there. Statistical facts are easy, without considering price, is the average insurance customer better off today than 30 years ago?
Today, I go to a comparative rating website (the alternative is to go to multiple direct writer websites – pick your poison) and get multiple quotes from different insurers. Here the customer is pretty much on their own for coverage choice (maybe with a choice of Good, Better, Best) but most comparative raters suggest that price is your obvious comparison tool. As a former underwriter and independent broker, I don’t think price is the best indicator of good coverage and most people could use some advice.
On a recent home insurance shopping trip to a well-known comparative rating website. I got 3 quotes, hoping for more, and they ranged from $1,190 to over $2,000. I selected the $1,190 because I was under the impression this was an apples to apples quote comparison AND the promise of “purchase instantly” intrigued me. I then had to go to the insurers website and now (re)fill out their application, which repeated a lot of information I had already given at the rater’s website. After that I went through coverage confirmation, one question completely jumped out at me. Do you want to insure your contents?
Sure enough, this “insurer” did not include contents of any kind until I selected it (where the others had). I selected contents coverage and BANG! I was around $2,000 like the other quotes. I wish I was making this up because this type of “bait and switch” makes the industry look bad.
So where are we now? I would say that the industry, from a customer perspective, hasn’t changed at all. Customers still have a painful process to go through, have no guarantees that they have good coverage at a good value and, if they want to shop, they will go through the same painful process again.
So, it seems like 1987 all over again. One thing has changed, though, customers. They are savvy and have become accustomed to much better experiences elsewhere AND PRICE IS ALWAYS A CONSIDERATION! With that big fat 30% acquisition ratio it is only time before someone gets their lunch eaten.