Using the "F" word with Insurance

Created by Chet Gladkowski 09 Jun 2014 @ 08:07
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The "F" word that we don't like to say but it's whispered throughout the insurance industry is FREE. Think of all the free services that agents, brokers and insurance carriers offer. Perhaps the worst offender is when agents issue Certificates of Insurance which cost  between $7 and $18 per form, yet 50% of them are at least inaccurate, or worse imply coverage where none exists. 

Below is a link to a Wall Street Journal article that chronicles changes that airlines have made in their services and fees surrounding baggage. Airlines use to spend as little as possible for baggage because there was no money in it. They changed the paradigm significantly, breaking out baggage as a separate service and fee. They took the additional revenue and significantly invested in technology to meet the higher expected service level. Results are impressive. The rate of mishandled baggage tracked by the Transportation Department fell 54%. US Airways, which had the worst baggage-handling rate among major U.S. airlines, their rate of mishandled bags was 70% lower. Delta cut its mishandled baggage rate by 71% since 2007. Las Vegas uses RFID tags (about $0.13 per bag) which gets read correctly 99.96%

Like airlines with baggage, the insurance industry's history is to do it for free while spending as little on it as possible (both from an investment, payroll and technology standpoint.) It's time for the insurance industry to take a page out of the airline industry playbook and break-out certificate/proof of insurance into a separate service with an appropriate service/revenue fee structure.


Make sense?


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Part of the transition from "free" to "fee" involves differentiating basic service from upgraded service, as a first step. I would think that companies could offer expedited and upgraded services for a fee, while simultaneously reducing their costs on the free stuff. That could give them a positive double whammy on the bottom line.
Two schools of thought arguing for and against - First, people don't appreciate something they get for free, so that is a problem with all the things agents do for free, and then try to use as rationale for consumers not to use direct writers. Second, people hate being "nickled and dimed" with fees, so while the airlines make tons of money on bag fees, consumers absolutely DESPISE them for doing it.