Isn’t price the most important auto insurance buying point today?

By | February 11, 2014

Prepare yourself for a long answer.  Price is a very important buying point, as always, but it should not be the only consideration when buying insurance, even though the insurance direct marketers would have you believe otherwise. Most direct marketing schemes are based on price.  The continual emphasis of this tends to make the insurance product a price inelastic (all or nothing) commodity like common table salt. It isn’t!  Viewing insurance as a price-only commodity can lead to serious negative consequences for an uninformed insurance buyer.

Nowhere is the potential for harming the buyer more evident than in the Progressive Insurance “Name Your Own Price Tool.”  As you would expect from a tool that has both ‘price’ and ‘tool’ in its banner, the software is designed to make it easy for you to choose a price buying point.  The ironic truth is that naming your own price can quickly produce an undesirable insurance claim experience that will cost you much more over the long run.  Permit me to explain.

The price tool is a sales gimmick that can lead to inadequate coverage limits and gaps, the negative cost of which can be many times any premium saving.  When you are focused only on obtaining an arbitrarily low premium, problems can arise. These can become serious when lower premium is achieved at the expense of what we shall simply term insurance ‘service.’  I’m not criticizing the insurance buyer here, for the industry needs to do a better job of explaining the insurance mechanism to the public.  But if you think about the purpose of the price tool for a moment, it should come as no surprise that direct marketers generally avoid talking about the important role service plays as a legitimate buying point.  Service may be available from them, but it is not visible.

We use the term service as a catchall for the tangible and intangible inputs required to construct a professional insurance program for a client.  E.g., the identification and evaluation of all your risk exposures to economic loss; the determination of breadth of coverage required and desired; the attention to specific types of property you own; the discussion of contract coverage limits and limitations; the tailoring of coverage through endorsements; the consistent use and size of deductibles and so on.  These are necessary essentials when the goal is to protect all of your assets and earning power and not just save premium.  Otherwise, why buy insurance in the first place?

There is an old but important risk management rule that can easily be broken here:  Don’t risk more than you can afford to lose (… to save a few dollars in premium.)  Just as you would consult a medical practitioner for medical treatment, you should consult an insurance professional for insurance needs.  Service and price will then become co-equal buying points for you.