American Association of Insurance Management Consultants

COMPETITION COMMODITIZATION VS. DIFFERENTIATION WHICH WILL PREVAIL? IT DEPENDS ON YOU!

Summary: 

Do you want to be different than your competitors or do you want to sell a commodity?  Click here to see the difference and how competition can be healthy for you.

Full article: 

Every day we are bombarded in our professional trade press with the Prophets of Gloom and Doom indicating the “TEOTWAWKI” (pronounced “tedowaki” --The End of the World as We Know It) for the insurance agency industry.  Commoditization is the ‘Boogeyman’ and, like global weather change, the claim is that it is inevitable and irreversible. 

But global weather has been changing regularly for billions of years and many historical single events like Mt. St. Helens, the ancient explosion of the volcano at Santorini and several other earth shattering cosmic events have each impacted the earth’s weather more than all of the cars and all of the other emissions ever made by man -- combined.  Yet the earth continues to spin on its axis.

Similarly, “Commoditization” and the competitive atmosphere that has swept through the insurance industry since the advent of automation will only permanently affect those of us who surrender our ability to think and act independently in favor of ‘drinking the Kool-Aid’ to relinquish our free will to the feeling of inevitability.  It’s easy to lay down and die when you assume there is no other option.

COMPETITION – This is real.  There was much less competition in the days before the Internet, automated rating, predictive modeling and the expansion of non-traditional businesses into the realm of the old-line insurance companies.  But competition isn’t scary – it’s challenging. 

All we need to do is look at the eroding state of the airline industry as, one after another, the weaker airlines are swallowed by the ever-growing larger airlines.  The loss of competition has driven prices up and quality down while benefitting the airlines, not the passengers the serve.  And, eventually, some smart capitalists will figure out there is a vacuum in the industry and an upstart company will enter the fray to cause more, rather than less, competition – good for the consumer and needed to trim the fat from the rest of the industry.

We, as independent agents, should be welcoming competition because we have several advantages related to our knowledge base and the fact that we are residents of the communities that we serve. 

Historically, we have been better insurance professionals than ‘Tex from Mumbai’ or the faceless voice on the other end of the phone a thousand miles away representing the ‘big-box’ companies.  The training that they get leans much heavier on customer service and public relations than the training we give our staff – that’s a problem.  Our behavior to our clients is built on relationships while theirs is drilled into them by PR specialists.  While we could certainly use some of the skills they learn regarding customer relationship management, we are friends with our clients, something that a faceless voice will never become.    Yes, it would benefit us to learn how to better treat our customers.  But their relationship management is simply rote – it is based on training and conditioning while our relationships are sincerely based on actually knowing our customers.  If they do, it wrong they lose a customer and never notice.  If we do things wrong, we lose a customer and it takes money out of our pockets – we notice.  Their knowledge is like that of a college graduate before they become seasoned by actually working in their selected industries – all content, no substance.  Why don’t we use that point of differentiation in our marketing?

But where independent agents have always shined is in technical competence.  The independent agent has been much more technically competent than the direct writing competitors and even more knowledgeable than many of the non-traditional businesses that have entered the insurance marketplace.

We take our knowledge for granted and never use it to our advantage.  We should be marketing our knowledge base as if it were the difference between a trained and seasoned doctor, a clinic nurse and WebMD.com.  The “nurse practitioners” that are used in many medical practices have more knowledge than an administrative nurse but not nearly the training and experience of the supervising doctor.  The medical search engine has scads of data and information, but if you go there to diagnose your own medical problems you are likely to misdiagnose yourself.  If you had a potentially serious condition and had the choice of a trusted, experienced specialist, a nurse practitioner or WebMD, which would you use?  After all, it’s only your life

Why aren’t we marketing that difference in our own industry?  We are the ‘Pros from Dover.’  We have many years of experience, constant continuing education and training and we actually know the client, the market specialties and the geographic area.  The reps (if they are even agents) on the phone are the nurse practitioners that never even met the client or stepped foot in your city and the Internet insurance portals are the WebMD of the insurance industry. 

COMMODITIZATION – The insidious enemy of our continued success is the mediocrity hiding behind the commoditization of the industry and of the products that are provided to protect our clients. 

If the competition drives us to concede the commoditization of the products, from personal auto and homeowners insurance to workers compensation, GL and BOP policies, we yield our greatest source of strength, the knowledge-base that separates us from the remote, price-driven solicitations of our competitors.

We could never imagine shopping for a medical procedure to find the lowest priced provider.  We know that our bodies and our lives are sacred to us and can only be entrusted to the most knowledgeable and trusted professional we can find.  We trust the physicians that we choose to protect our physical well-being.  So we yield to their recommendations when a procedure needs to take place without consideration of cost. 

Realistically, most experienced independent agents know that policy terms still differ among carriers and products, even for the most basic product lines like auto insurance.  They differ radically in the more complex lines of insurance, personal and commercial.  Yet if we yield to price being the only consideration between one carrier and the next and between one product and the next, we choose to ignore the coverage differences and, more importantly, the underwriting and claims attitudes of the various carriers that require the experience and knowledge of skilled agents to differentiate on behalf of our customers.  It would be very much like choosing a surgeon based on lowest price only.

And, don’t fool yourself by suggesting the insignificant differences between products and carriers.  Terms and conditions and claims and underwriting attitudes could spell the difference between an acceptable resolution to an unfortunate incident or claim and a disastrous resolution when property and the lives of clients are disrupted for months or years due to carrier resistance and disruption.  And your E&O doesn’t cover “stupidity”.  There is no likely good solution for the client if they or their agent placed them with the lowest priced insurer instead of the one that was best suited for the exposure involved.

DIFFERENTIATION – is the tool that agents can use to show their clients how important it is to have a relationship with a professional insurance agent who knows the client’s needs instead of shopping for simply the lowest priced coverage, the cheapest car, or the least expensive clothes in the right size.  The problem lies in the fact that we have become lazy and find it easiest to promote free quoting instead of finding the best coverage at a fair price.  The customer is not always right.  They will always seek the lowest cost to preserve their cash.  They won’t recognize the difference in expertise until and unless they encounter a difficulty resulting from shopping for the lowest price alone.  So if they insist, we generally yield and quote to find the lowest competitive price.  If we do it at the cost of the right coverage with the right carrier, we have done the customer an injustice in order to earn a commission.  Happily, most of the time nothing happens and the insurance year expires to be replaced with another round of price shopping for the lowest price renewal. 

If, instead, we found several areas of differentiation in our treatment of the client and convinced the client that our services were so much better than the competitors that he isn’t even tempted to seek alternative quotes and proposals, we would gain a customer for life and would be properly protecting our clients from asset risks. 

Many agents already have points of differentiation that they simply don’t advertise or stress.  Others need to seek products, services and attitudes that are so different from the commodity-agents that the clients wouldn’t ever consider moving, knowing that the benefits they lose will be much more important than the few dollars they might save by buying the lower cost generic coverage. 

Ask yourself a simple question, “Why should someone insure with me instead of with someone else?”  Make sure that you exclude answers that are common to all of your competitors as well as to you.  For instance, “We provide great service and we answer the customer inquiry on the same day” are examples of the minimum services that are required and expected by your customers, not examples of things that make you different.  The results will be the points of differentiation that separates you from your competitors, that you should stress in your marketing and build upon to further strengthen your relationships between your agency and your client base.

The Point of Differentiation between Agency Consulting Group, Inc. and its competitors is our constant search for cutting edge tools available to our client agencies to differentiate themselves from their competitors.  We train the Asset Protection Model (APM) of Relationship Selling to steer away from price-driven sales and we stress value-added services that your competitors can’t provide your or their clients, giving you the advantage in building and keeping strong client relationships every year.  Call us 800-779-2430 to become an Agency Consulting Group, Inc. client and enjoy the renovation of your agency into a relationship business.