In my former years as a captive agent in the Personal Lines property and casualty world, price was not just the main thing, it seemed like it was the only thing. It was in fact, the elephant in the room and sadly the only thing that was discussed amongst prospects, “How can I get more discounts and a better premium”.
Price Versus Cost: What Is The Difference?
Don’t get me wrong, I didn’t sell a successful captive agency to move over to a brokerage independent agency because price didn’t matter. In fact, I may sound a little hypocritical to some because I did just that, but you’ll find there was more to it than price. My point is, of course, price is important but it’s not what I like to call it. The more accurate term is cost. Price is specifically talking about premium in the insurance world, but cost is what actually drives us to pay the price.
How Buying Insurance Is Like Planning A Vacation
Let me explain, insurance is like most things in life, “You get what you pay for.” Have you ever gone on a vacation where you really didn’t have the budget to do so? From the cheapest airline to the lowest hotel fares, and fast-food joints, everything was done with one thing in mind, PRICE. Then, take that the other route which is to set aside money a year in advance allowing yourself time to really plan the perfect vacation for your family or yourself. You are still looking for value (notice I didn’t say price), but you are willing to get a little or a lot more out of what you pay for. No longer are you dealing with hotels and fast-food joints. Instead, you are in a luxurious resort with all inclusive food and drinks and a staff constantly waiting on you to ensure the time you spend there will be remembered forever as a great vacation.
Insurance Cost Versus Price Example
The same can be said for insurance and getting what you pay for. Was it really worth going to a 2% deductible and, instead of paying out of pocket $2500 on a $250K dwelling, you are now on the hook for $5000 before insurance kicks in? Considering the difference in premium was about $250 annually, it just cost you $2250 more for that 2% deductible. You just made a bad and costly decision. More accurately, you made that decision based on price and not cost. What you forgot to ask yourself was “What will be the cost if something does happen or if I don’t have that additional water coverage that cost at most $100?”
At the end of the day, this isn’t the insured’s fault. It’s our fault as agents when all we do is talk about saving money and forget to discuss cost. One thing I will never forget was when I was working at Marsh McClennon. There was a claims advisor speaking to my sales team and he said that premium only represents 10% of the total cost of insurance. The other 90% is wrapped up in claims, loss prevention, servicing, etc. That was always amazing to me because we talk about premium as if it were 90% of the cost and claims like it was 10%.
Eric Arredondo Can Help You Focus On Cost Versus Price
In summary, I guess the old saying, “you get what you pay for,” is a cliché’ for a reason. Yes, price is important and part of the equation. In fact, it’s 10% of the equation, but cost is where the conversation needs to start and end before binding that policy. So why did I sell a captive agency and move to a brokered agency? The answer is that not only did I want to be competitive among the other agents out there, but I wanted to have more coverage options for my clients. It was never about representing a carrier that made me want to start my agency. It was about representing my clients over representing a carrier and being a trusted advisor in the process.
Do you have insurance questions that we can help answer? Would you like to take a look at your policies with a cost versus price focus in mind? Please give us a call at 281-566-2583 or simply click here and we will be in touch soon.