Considerable research, articles, and fodder for politicians’ “business is bad” sound bites have originated from consumer companies shrinking their products while keeping prices the same. The theory is that if prices don’t increase but the product shrinks, consumers won’t notice or won’t be as upset. The price per ounce increases nonetheless, but creative packaging might mitigate the blowback. Just to satisfy my intellectual curiosity, I’d like to see how much this “creative” or deceptive packaging helps the companies’ profit margins compared with a really good study of consumer reactions relative to brand reputation.
But I don’t work in tangible consumer products. I work in the insurance world and is the same thing happening in insurance? Prices are not decreasing except maybe in workers’ compensation. But are the coverages remaining as robust? A consumer is more likely to notice they have less toothpaste than they are to notice that a carrier has nibbled away coverages.
Agents that do not notice the reduced coverage run a serious E&O risk, but I’m not seeing many agents notice what sometimes seems like what’s left after a rodent eats away the edges of some package.
I read a really interesting personal auto exclusion that eliminated collision coverage for a sober designated driver under specific circumstances. This is with a major carrier.
Many ways exist to increase profits. One way is better pricing. Another is better underwriting. Another is extremely intelligent marketing. But another is to reduce coverages without reducing prices.
We are seeing this in property. Huge deductibles (i.e., less coverage), but still large price increases.
I am definitely seeing it in cyber. Cyber may be the best (i.e. worst) example of reduced coverages.
Another example of reducing the product is insisting on better loss control/risk management but not reducing the price accordingly. The insured in these cases is spending more to reduce their risk. Remember, people can reduce risk with risk management or transfer of risk to an insurance company. The better the risk management, the less important insurance is. So when an insurance company demands better risk management, especially without much offset in their rate, they effectively become less important. They will not feel the blowback the first year, likely not the second or third year. But if the client is smart and the risk management is effective, they’ll move their account the third year, maybe even to a captive.
This is where a really good insurance agent, someone that sells coverage rather than just price, likely gets frustrated. The insured sees a lower price and jumps without understanding the lower rate is for even less coverage, and the new agent/carrier is likely not explaining this. (My favorite example is where a direct writer told the insured that they still had $100,000 liability coverage because their new policy was $25,000/$50,000/$25,000!)
Explaining to an insured what that coverage reduction really means, catching it early, and giving them options is invaluable. Also invaluable is notifying a family with a young, responsible driver, who might act as a designated driver, that they would not have certain coverage if the others in the vehicle were not sober.
The more carriers and rodents eat away at anything, the more important it is to contain the damage. And really good agents are invaluable in containing the damage and adding value back into the package.
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None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.
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