Insurance is a Scam

“Insurance is a scam.”

One of my client’s sons lamented to me in our pre-renewal strategy meeting.

I didn’t agree with him, but man, I understood it.

How many of you have felt this way?

I know I did, for a split second, when I received my auto renewal this year. No accidents, no tickets, and a big, fat 30% increase.

But then I realized, my frustration was misdirected.

The entire purpose of insurance is to indemnify you – to make you whole in the event of unexpected, catastrophic loss.

Without insurance, how could a business owner sleep at night knowing a tornado could blast through his town the next day, demolishing a 15M building he spent the last 40 years pouring his blood, sweat, and tears into.

This is not to say that insurance is perfect. It is FAR from it.

But let’s consider what insurance actually IS and what it isn’t.

Insurance is an aleatory contract, meaning the parties in the contract do not have to perform a particular action until a triggering event occurs.

The amounts exchanged under an aleatory contract structure are unbalanced.

Until the insurance policy results in a payout, the insured pays premiums in return for coverage.

But when the payouts do occur, they can FAR outweigh the sum of premiums paid to the insurer.

This is the point of insurance, to reduce an insured’s financial risk.

So, back to the frustration.

A local business owner whom I highly respect just yesterday said this when referring to his frustrations with insurance –

“don’t hate the player, hate the game.”

And I couldn’t agree with him more.

But from my perspective, the “game” in this statement isn’t insurance itself. It is HOW insurance is procured.

For decades, brokers have acted as a delivery service. A middleman between you, the insurance buyer, and the big, bad insurance companies. (Underwriters, I hope you sense my sarcasm here.)

In a soft market, this process worked.

Gathering data, putting it in a nice submission, flipping it over to the insurance companies, them sending it back to you, putting it into a presentation, and voila – deliver a decrease and everyone goes home happy.

Being a mailman won’t cut it in this market. And candidly, it never should have in the first place.

That process I just described is inherently broken. There is no leverage. No decision making insight. No REAL VALUE derived for the client.

The problem that you are seeing today is that so many brokers are still conducting business this way.

Resulting in bad news late, market burn, and dollars left on the table.

But the good news is that there is a better way.

• Stop simply trading dollars with the insurance company.
• Stop running the renewal rate race.
• Stop measuring the success of your broker on the act of simply placing your insurance.

There is no magic wand to make the hard market go away, but your results are directly correlated with the process and strategy that your broker deploys, which should be so much more than being a conduit to the insurance marketplace.

So, are you getting a mailman?