The Big Think

April 28, 2005

A Man Walks Into An Insurance Agency…

Filed under: Technology — jasony @ 1:34 am

No joke here, unfortunately. Due to the fact that American National insurance is trying to fund the care of half the elderly patients in Texas out of our premium increases alone, Erin and I have decided to do the All-American Semi-Annual Insurance Shuffle and cast our lot onto the sea of insurance policies in the hopes that we’ll find one that’s cheaper than the national budget of Borneo.

So we did the smart thing and contacted some friends to get their referrals for an agent. Since it’s the law that agents have to sell identical policies for identical prices, we figured one was as good as another. Off we went to the offices of our friendly neighborhood confidence man, er, insurance agent. After talking to us for an hour (and he really seemed like a nice guy), said agent was finally convinced that we *really did* want a new policy that was (gasp!) cheaper than our current policy. We told him what we were currently paying (mistake #1), who we were with, and what kind of coverage we were looking for in a new policy. He told us he’d “crunch some numbers” and get right back to us.

Apparently his abacus broke down, because it took the better part of a fortnight and several emails to get a response out of the guy, and when it came, it was in the form of a PDF email attachment from…. our current insurance company. Yup, he’d gone back to the spring of our discontent, entered our ages and a few other details, and then forwarded a pdf of the price quotes. And get this: the quotes are no better than what we’re currently paying. For this we waited a week?

So I jumped onto one of the many internet insurance comparators and spent thirteen nanoseconds entering in our sex and birthdays. And just like that, I had dozens of preliminary policy quotes to compare. And get this: the best one, from an A- rated company, was less than half what Mr. Agent quoted us. It was about now that I finally realized that Agents, acting on behalf of the insurance companies, are actually working against their best interest by getting you into a cheaper plan. Less money for the Conglomorated Risk Management Co. Ltd means fewer Harley payments for the old middle man.

When I wrote him and told him about the research that I’d done, he responded by saying “you have to be careful what you buy over the internet”. Laudable advice, to be sure, but it seems a little suspect coming from somebody who stands to lose a commission to a .com. Besides, it’s not like I went looking at seedy sites or anything. This is pretty much the standard in online insurance comparators right now.

This all reminds me of an article that’s running in the current issue of Wired. It deals with Realtors and the imbalance of information. See, if I know something that you don’t, chances are good that I can build a business model around selling you my expertise, my access to information, or my connections. Realtors do this all the time, and they’ve built a business around an exorbitant 6% commission rate for what can amount to a cab ride and a hand-holding session while you sign the documents. They used to have a lock on the market when the MLS was only accessible if you knew the secret handshakes and codewords of Fraternetas Realatatis, but now that Information (and the MLS) is available for free online, realtors are having to bend over backwards to justify their extortionate fees. I’m not doubting that there are agents out there who are worth it, but it’s definitely a minefield.

(Aside: why do realtors drive such nice cars? BMW’s, Lexi, Mercedeseses. I know they think it makes them look successful to their clients, but in reality it just sends the signal that they make a decent living for what is, and let’s be honest here, not a very difficult job. I’m all for making a good living, but when it takes your clients four or five years of mortgage payment just to pay off your commission, I think the pay schedules are a little out of whack. But I digress).

Quick story. When Erin and I were looking for our current house, we spent weeks traveling around Austin, looking into different neighborhoods, researching the MLS online, visiting over 50 houses, and getting a feel for where we were in that magic price/size/location triangle. When we finally broke down and got an agent (at the urging of a family member), what did she do? She faxed us three pages of addresses that she thought would meet our needs. Turns out they were straight out of the MLS and we had already visited most of them. No kidding. Well, it was our first house, and we thought we had to have an agent, so we hired her anyway. The sum total of her work as our agent was to show up when we went to the builder we had already decided on, dropped the ernest money on the house model we had already decided on, and signed the papers containing all the decisions we had already made. Total work on her part: maybe an hour. Total take: thousands. Unfortunately, if we had not had her involved, the builder would not have lowered the selling price of the house by the amount of the agent’s commission. They would have just pocketed the difference. But such is the power of the Realty industry now that the builder can’t negotiate price based on the involvement or lack of involvement of an agent. If they do, they can be sure they’ll be blackballed by the realtors in town and nobody will come looking at their homes. It’s a racket, I tells ya.

But Lo, the great turning of the capitalistic wheel has brought about Opportunity. For up has sprung the 1% Realty companies. Businesses that are willing to take one sixth the pay of the entrenched realty agents in return for many of the same services. Using the same online tools as the Coach-Clad Cabal, these new breed of realty specialists perform many of the same services for a far smaller piece of the mortgage pie, and I say good on them. God bless the internet, the public MLS, and the free flow of information.

To bring it full circle, I think the same thing is happening in insurance right now, and a lot of agents are going to start feeling the pinch. The days of assuming the customer doesn’t have the same information you do, easily accessible, are over.

1 Comment »

  1. IMHO, Brokerage of any type (real estate, insurance, travel agents, stocks) are not long for this world. There will always be a few who like the cache of “my travel agent/broker/etc.” but the majority of people are wising up to the power of Free Information.

    I was a travel agent for a lot of years. The advent of the internet basically undercut the agent market for everyone; airlines no longer pay the 10% from every ticket to agents. They still spend that money, but it’s on airline websites, bulk lot sales to discounters, etc. In my observation, the oldfashioned type of brokerage business will be about 1/3rd the size in 10 years.

    Comment by Katherine — April 28, 2005 @ 8:30 am

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