Why does price become the differentiator?

Friday, February 21, 2014
Written By
Abbie Michaelson

Every week I meet with many account executives, directors and brokerage proprietors and I ask them all the same question: ‘When you last lost or failed to win an account, what was the overriding reason?’ Nine times out of ten, the answer is ‘price’. However, using ‘price’ as the main reason for a lost account is just an excuse. Broadly speaking, all brokers have access to the same markets, so unless someone is playing around with the schedule, pricing should be somewhat similar.

Changing the traditional mindset

The reason commercial insurance brokers use ‘price’ as an excuse is because we have become accustomed to attributing our failure to attract or retain business to price—nobody ever questions it, it is just a given. We commonly say ‘they went to ABC Brokers because of price’ or ‘they stayed with ABC Brokers because they beat our price by 5%’.

This is a mindset we should and can change. Traditionally, commercial insurance buyers hold a ‘beauty parade’ once a year (or two) to establish the merits and finances associated with their current policy and its broker. Three or four account executives turn up and tell Mr. Buyer that they can’t be beaten on service, their expertise is second to none and that they are ever-so-nice people to do business with.   Consequently, as every broker is pushing the same pitch, there is no way a Buyer can genuinely differentiate them. Therefore, the majority of the time, their purchasing decision comes down to which policy is the cheapest.

True broker differentiation

True differentiation comes from delivering more unique features and being able to demonstrate it not just at the point of sale but throughout the year. What are you providing your clients to truly differentiate your brokerage? Are you simply delivering an insurance policy, or are you supporting their business in other important areas? Do you provide value touches such as comprehensive written policies, industry specific health and safety manuals, business continuity plans or workplace risk insights to help them navigate their particular business risks and liabilities? How about monthly newsletter communications and legislative updates to keep your clients up-to-date on changing issues?

(By the way, if you say that insurers deliver some of this information to your client, think about how much value that is really giving you. Is your logo and brand on those resources?)

Imagine the next time that you meet with a client at renewal time or ask a prospect for their business, and you have been providing meaningful resources to support their business all year round. Your client or prospect will have seen the additional benefits of what your brokerage can provide and you will now truly stand out amongst those vying for their business. While ‘price’ is still a factor for buyers, you have now differentiated yourself from the marketplace and bring more value for the pound than other brokers. You are no longer simply providing an insurance policy – you are seen as a trusted business partner.

With the insurance market becoming increasingly competitive, differentiating through this consultative approach is absolutely vital to gaining business (and retaining the clients).  Stop throwing your hat in the ring eleven months out of the year and give yourself a genuine chance of winning with value added service differentiation. And if you are looking for a partner to provide the types of resources your clients will value (shameless plug, I know), I recommend you check out our Broker Briefcase solution.

3 responses to “Why does price become the differentiator?”

  1. Price will always be the main buy in on Insurance.

    People begrudge paying for insurance, because the industry is built on fear, and people generally do not like to pay for something that is not tangible. In addition Insurance companies hike premiums regardless of whether you have claimed or not, and Insist on Excess to mitigate what is already a nice earner for them. People resent this.

    I haven’t claimed on my motor insurance for arguments sake, yet I’m still expected to pay more? Why…because the industry is broken. Expecting people to pay for other peoples lack of insurance. Or so they say this. I’m afraid I’m one of the cynics, and have no respect for Insurance companies at all because of this.

    Ask yourself one question where’s their risk?

    Excess
    Premium
    Price Hiking (Without a claim)

    • David, I disagree.

      Price will always be the main decision maker if that is all that is spoken about. Once you start talking about providing help with Risk Management resources & safeguarding policies (for example), you’d be surprised how often the premium becomes a consideration along with other things – and not the only/main consideration.

      You call it fear – I say it’s good risk management. The person whose house has burned down & insurers rebuilt it probably thinks it’s a fairly tangible thing! Nothing to stop you self insuring the risks you can afford to take.

      An excess is in place to prevent minor claims which have high administration costs – no excess would mean higher premiums for all.

      Insurance has always been & will always be a “pool” of risk – it’s not broken, it’s how it operates.

      In terms of their risk it’s the fire, flood, malicious damage, earthquake, subsidence that happens to a building they are insuring – to which a small excess is irrelevant, a premium is far, far exceeded (why the “pool” exists).

      Insurance companies are commercial organisations, not charities. They are not forcing you to insure with them! BTW, insurers often don’t actually make the huge profits that the public thinks they do.

      James

  2. David – I agree to a certain extent that as an industry we have allowed price to become the differentiator my point is that to take away the focus on price we should be looking to provide value added services to compliment the policy/schedule.

    Areas of concern for all business owners are reducing employees absenteeism costs, whether that is workplace injury or sickness – education from the broker directly to employees co-branded each month dealing with recognised issues (as defined by the HSE) is one way of providing genuine differentiation. Proven to increase retention and client to client referrals the key to this strategy is to automate it directly from the email address of the account executive/director responsible for that client – that is what Broker Briefcase does for you, provides you with the strategy, the content, the automation and within 5 clicks you can have the entire year set up. Apologies for the shameless plug at the end!

    Roger – thank you for your kind words.

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