Selling Insurance on Value Over Price

By Joseph Peters

Most experts agree competing on price is not sustainable in the insurance business. A better approach: stressing value.

Price competition is the norm in today’s insurance industry. Insurers, agents and brokers and online quoting sites promote how easy it is to get prices and how the least expensive policy will usually be the best buy.

Who can blame the price promoters? Consumers usually react positively to low prices. And if the least expensive product turns out not to be the best option, this will only become known many years from now at claim time, if ever.

The perception that all policies are the same means only price differentiates them. This is the classic definition of a commodity. Yet, insurance is not a commodity. Within product types (life, health, disability, personal lines P&C and commercial P&C), differences abound. They range from how companies handle up-front underwriting and back-end claim settlements to their customer-service prowess and financial strength. However, price competition gives short shrift to these factors. It also increases the likelihood of defections when clients put their policies out to bid to find cost savings. The price reductions will often be minor or not large enough to outweigh the advantages of their current policy. But in their zeal to snare lower premiums, they may switch policies anyway. Surely, there must be a better way of selling—and shopping for—insurance.

Price Selling: the Flight to the Bottom

Price advantages only last until a competitor reduces prices and steals a company’s customers. Marketing guru Seth Godin calls this “the tyranny of the lowest price.” At first, the process of lowering prices involves smart efficiencies,” he says. “But over time...the quest for the bottom leads to brutality...Someone else is always willing to go a penny lower than you are and to compete, your choices get ever more limited.”

In the insurance industry, which has chased the siren’s call of price competition, insurers can survive a downward premium spiral in several ways. First, they can tighten their underwriting. This lets them add lower-risk, higher-profit customers to their books to offset premium reductions. Or they can shave policy benefits or tighten claim standards, so settlements cost less. These strategies have downsides, which can weaken an insurer’s competitive position over the long term.

What’s the alternative to price-based selling? That is selling on the basis of value.

The Value of Value-Based Selling

The first step is to consider the true nature of “cost.” Some insurance marketers argue policy premium is the ultimate—and only—cost factor. If an insurer’s product costs $150 less per year than its nearest competitor, it will be the cost leader. However, be careful. This approach fails to consider other elements that determine cost.

For example, if a life insurer sells term life products with accelerated or simplified underwriting, it will enhance the shopping experience of applicants. Not having to undergo blood tests or submit a urine sample is a major plus for time-pressed consumers. This is a cost reducer. Similarly, a company that believes in rigorous underwriting will be easier to deal with when a consumer files a claim. Instead of trying to do post-sales underwriting to reduce payouts, it will fairly adjust submitted claims, again producing a lower consumer cost.

Selling on the basis of value is a better way to build your business than selling on the basis of price. Here’s why:

• Value more fully describes how insurance works. It gives consumers a complete picture of how their policy benefits them.
• Value derives from multiple product and service features. This makes it a more durable advantage over time. When you have a price edge, it will last only until a competitor lowers its premiums. Value advantages, on the other hand, can last years or decades.
• Value is harder to replicate. An insurance company that knows how to create the right combination of insurance benefits at an appropriate price, supported with effective underwriting, claim processing, communications and customer service will hold a more defensible market position than those competing solely on price. Commodity pricing, by definition, is easier to launch, but harder to defend.
• Value takes into account the role of agents and brokers. Consumers who buy through agents and brokers rather than directly from insurers lower their purchase costs. That’s because their insurance advisors can help them assess their risks, select the right coverage and have the protection underwritten and issued as efficiently as possible. And they can help them get their claims processed quickly and fairly. Consumers who buy directly from an insurer are on their own, having to spend more time and energy on their insurance, boosting its cost.
• Value selling creates stronger brands than price selling does. Agents and brokers who provide high-value protection will experience a reputation edge in the marketplace. This helps them generate more leads and close more sales in less time than if they pursued a price-led sales strategy.

With so many advantages of value-based selling over price-based selling, the path to take should be obvious. However, committing yourself to value selling is just the beginning. You also have to revise your sales techniques to better communicate the value of your products and personal service to prospects and clients. Here are a few pointers to get you started.

How to Shift to Value-Based Selling

In your sales discussions, always stress how insurers vary in claims-handling efficiency and reliability. Help prospects understand that saving $10 or $100 on insurance only to have a $1,000 or $10,000 claim check get delayed isn’t a good idea. Advise them to look past modest cost differences to consider how well an insurer will perform when it counts most: at claim time.

What’s more, some insurers have invested heavily in improving claims handling through artificial intelligence. Explaining these investments and resulting efficiencies to your prospects will help them stay focused on the insurer advantages that truly matter.

Another strategy is to do more fact-finding. That’s because you can’t make the value argument unless you understand what prospects want from their insurance. Start by asking open-ended questions such as:

• “What financial worries keep you up at night?”
• “If you could change one thing about your insurance or financial situation, what would it be?”
• “How do you see your career (and that of your spouse) evolving in coming years.”
• “If you received a $1,000 windfall, would you use it to enhance future opportunities or to increase your current safety and security?”

Obviously, your specific questions will depend on which product or products you’re trying to sell. However, the more open-ended questions you ask—and the more time you give prospects to answer them—the better you’ll understand what they truly need and want.

When you believe you have a clear picture of their needs, summarize what you’ve learned. For example, you might say: “You told me your key financial concern is protecting your family in case something happens to your spouse. Fortunately, you already have enough life and disability insurance for yourself. But you have nothing for her (or him). Would you agree that your main need is to purchase enough life insurance so your family can adjust to the loss of her income should your spouse pass away? Also, do you agree we should look into buying individual disability insurance in case an illness or accident makes it impossible for him (or her) to keep working?”

Once you confirm needs, your goal is clear:  Point out as many product features and benefits as possible that satisfy them. By making the linkage between product features and benefits and prospect needs, you’ll give prospects a powerful reason to consider elements other than price in their decision-making. If you do this carefully, most people will stop focusing solely on price. They may even accept more expensive insurance options if they believe they satisfy crucial needs.

This is an important point. Many agents shy away from upselling benefits that might increase the cost. They assume this will scare off prospects. But in reality, many prospects will agree to pay more for higher value. For example, when you explain the importance of uninsured motorist coverage in auto insurance, prospects will often agree to a higher premium. The same is true regarding boosting bodily-injury liability or maxing out the limits on auto medical payments. The point is this: showing prospects the benefits of a more robust insurance safety net, despite it costing more, usually pays dividends for both buyers and their agents. They get better coverage, and you get a more satisfied and presumably more loyal customer. Everyone wins!

Buying from an admitted vs. a non-admitted insurer can be a value driver, as well. Many consumers don’t understand that some policies are cheaper because the insurer involved is non-admitted. When you explain the advantages of admitted companies over non-admitted ones, consumers will see the importance of paying more for fully regulated protection.

Finally, to improve your value-selling skills, avoid adopting an apple-to-apple quoting strategy. Many agents take that approach because it’s easy. You get a copy of their current policy and then quote against it to see if you can save the person money. The problem is, if you find a cheaper product and your prospect agrees to buy it, you will retain the business only until another agent comes along with a lower price.

A better approach is to do rigorous fact-finding. Probe to see whether they’re happy with their insurance. Ask about their submitted claims and settlement checks. If you uncover dissatisfaction, search the market for insurers and products that will likely perform better. When you present your findings, prospects will be so delighted you addressed their concerns they may not only switch their insurance over to you but also agree to pay a higher premium for better coverage.

>Welcome to the power of value-based selling. If you do it right, it will serve your clients more effectively and put money in your pocket nearly every time!

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