Posted On: January 24, 2005, 11:03 am CST

Posted By: RNR_Risk

I suspect part of the disconnect here is that a lot of insurance brokers/agents view insurance as a commodity. Glenn illustrates this by listing a set of commodities where we often don't know the retailer's margin (furniture, cars, groceries, etc.). If insurance truly is a commodity, then the driving factor in insurance transactions becomes marketing and salesmanship. This seems to be the view of most of the respondents here. In my view, to the extent that insurance contracts truly are commodities, there's no need whatsoever for an indempendent sales force. Commodities are best bought/sold in efficient auctions. In this case, you won't have to explain all those onerous "technical insurance details" to your BOP clients.

Another view is that insurance is a complex financial instrument - not a commodity. In this case, buyers do NOT need sales people - they need highly competent and honest technical/financial/risk advice. This advice has or can have a major impact on asset/liability valuation and cost of capital. Consumers are then buying a service, not a commodity and they have every right to know in advance what the service provider is charging or being paid and they have the right for all potential conflicts of interest to be disclosed.

I supposed that ultimately (soon?), available insurance contracts will fall more and more to one limiting case or the other - i.e. true commodity or highly customized financial instrument. And the two cases will likely be transacted in completely different ways.

My grandfather and father both worked most of their adult lives in the insurance business. But the method of doing business that worked for them will probably not continue to work in the future.