Agents: How to Avoid Traps of Selling on Price

The standard homeowners policy is increasingly a trap for consumers.

Low rates!” “Lower your premiums!” “Compare and save!”

Turn on the TV or search the Web on the term “homeowners insurance,” and you’ll be inundated with offers like these. To the casual observer, it would seem that price is the only criterion that matters when purchasing homeowners insurance.

But as an insurance agent, you know that’s far from the truth. Selling on price alone is dangerous, for several reasons.

First, a comparison of policies on premium alone isn’t a comparison at all. All forms aren’t created equal, nor are companies, nor are policyholders’ levels of risk tolerance. Consumers who buy on price alone often find this out too late, when they get hit with an uncovered loss or a big out-of-pocket bill for a covered loss. And they may blame their agents.

Second, a consumer who switches to you for a lower price today is likely to switch to someone else tomorrow.

Third, the direct writers would love to compete with you on price. They may have an unfair advantage because they have significant advertising budgets and have different cost and commission structures.

So what’s an agent to do?

Four Common Traps

In delivering the best value, independent agents can help clients avoid falling into four common traps when buying homeowners insurance.

Trap #1: All policies are created equal. The truth is, there are wide differences in forms: what is and what isn’t covered. You can help the client cut through the jargon and make an apples-to-apples comparison.

Trap #2: All carriers are created equal. They aren’t. Although it’s typically illegal to mention a carrier’s financial condition or claims handling, you can use your personal experience to compare strengths and weaknesses as they relate to your client’s needs. A wealth of information is on the Web and in other media. Best of all, you can use your local references to help guide your client toward the right coverage.

Trap #3: To save money, cut coverage. Yes, that’s one way. But how much will the policyholder really save? And, if the policyholder cuts the wrong coverage, or cuts too deeply, it can be false economy. He may be able to get more coverage for less, on the nuances of his risk profile.

Trap #4: To save money, increase the deductible. Probably the most dangerous trap. A policyholder can easily save 15% – 25% on premium per year by increasing the deductible. However, one loss – or multiple losses in a year – can often wipe out years of savings. Plus the client could experience emotional and financial distress.

Business Opportunity

By helping the client define his risk profile and tolerance in an unemotional, realistic way, agents can ensure that the customer ends up with the right coverage and deductible.

Since independent agents aren’t limited to one carrier’s products, you are in a unique position to provide innovative approaches to risk management. Supplemental coverage is becoming increasingly important; this includes deductible buyback policies, pet coverage, and wedding insurance in addition to more traditional products such as liability umbrellas, flood insurance, and earthquake coverage. The standard homeowners one-size-fits-all policy is increasingly a trap for consumers – one that you can help them avoid.

Some agents may view selling value versus price as risky; after all, consumers are asking for price. But selling value is almost always the best option, because it can protect the consumer better and create long-term customers.

As a risk manager, you provide a complete picture. You can help identify the best value for a client, based on his needs, budget and risk profile. You can help him understand the consequences of a lower price, including less coverage, more risk, and potentially less service. He will begin to perceive you as a valued consultant, just as he perceives his financial planner. He will see you as a provider of value – not as a commodities salesman.

Topics Agencies Homeowners