Happier Clients Through Better Selling

Hardcore youth gangs have a vibrant business in some Toronto schools. They sell a wide assortment of stolen or illegal goods ranging from “Timberland” shoes to “Phat Farm” jeans, credit cards to counterfeit TTC tickets. Handguns can also be easily purchased. On one particular day, a student approached a gang member about purchasing a cellular phone. The gang member responded that he had the particular flip phone available but suggested the student purchase a more expensive camera cell phone. The student declined the offer. Undeterred, the gang member pulled a NBA jersey from his backpack and offered it to the student.

Though the actions of the gang member are reprehensible, his salesmanship has to be admired. He is using two effective sales methods. The first method is “selling up”. This technique involves persuading the customer to purchase a more expensive item than he/she originally intended. The second method called “suggestion selling” entails convincing the customer to purchase more goods and services than he/she first intended. Perhaps a better role model for these two sales techniques is McDonald’s Restaurants. Everyone is familiar with the phrases: “Do you want to super-size that?” and “Do you want fries with that?” These are simple but effective examples of selling up and suggestion selling.

SELLING DOWN

Good brokers and agents already use these sales techniques. They persuade their clients to purchase broad form policies instead of named peril policies and increase errors and omissions limits to reflect current legal trends. Unfortunately, these sales professionals are in the minority.

The vast majority of sales representatives practice selling down. Selling down is a method invented and used frequently in the insurance industry. It involves doing everything possible to lower clients’ premiums. They are actually helping clients to spend less money. Selling down is used out of fear and shortsightedness – the fear of losing a client in a competitive marketplace. Shortsightedness because most insurance professionals know the public does not really understand insurance and will agree to anything that will lower their premiums.

Selling down sales people cannot see the forest for the trees. They are primarily concerned about appeasing an angry public and meeting their quotas. The loss of premium revenue from selling down and not practicing selling up, or suggestion selling is immeasurable.

REGULATORY IMPACT

Even provincial regulators have bought into the mindset that the public will be appeased with lower premiums despite being underinsured. The Financial Services Commission of Ontario (FSCO) suggests several methods to reduce premiums. What type of industry regulator attempts to sabotage its own industry? Does the CRTC (Canadian Radio-Television and Telecommunication Commission) advise people to turn off their televisions and pick up a book? No, they continue to approve new channels. Digital cable offers over 300 channels. No one requires all these channels, yet the CRTC does not issue a warning to the public.

FSCO on the other hand, warns the public about being over-insured. What person or what business has too much insurance? If they suffer a catastrophic loss will all their contents and inventory be covered? Will their liability coverage be sufficient in the next lawsuit? For most people and businesses the answer is “no”.

Selling up and suggesting selling are vital to changing the public’s negative attitude on insurance. The “Indemnity Matrix” (as shown in this article) demonstrates this point. People want, and expect to have their losses fully covered by the insurer. Claims adjusters are all too familiar with the insured’s moan “how much is this loss going to cost me?” If the answer is nothing then the customer will be happy with their insurance products. If the insured incurs additional costs then they will be unhappy. The Indemnity Matrix simplifies this consumer analysis into six possible groups. The vertical column places losses into three categories: “0 to 89%” of the loss covered, “90 to 100%” covered, and “101%-plus” covered.

An example of a loss that would be “101%-plus” covered is a carpet loss where there is no natural cut off point. The damaged and undamaged portions of the carpet may have to be replaced. The horizontal section of the Indemnity Matrix breaks down insureds’ responses as either yes they are happy with the settlement and thus their insurance products or no they are not happy. There is no somewhat satisfied or somewhat dissatisfied middle ground. The target zone for all insurers should be “yes the client is happy because “90% to 100%” of the loss is covered”. If “90% to 100%” of the loss is covered, and the customer is still not happy, then the insurer has internal problems that are affecting customer service.

ADD-ONS

Residential policies are ideal for selling up and suggestion selling. The special limits section of a policy will by its very nature fall into the “0% to 89% unhappy square”. This unhappy customer can be placated at the onset of the policy period by scheduling articles such as bicycles, jewelry and collectibles. Scheduling articles thus moves the unhappy customer to the “90% to 100% happy customer” section.

Likewise, exclusions on a policy fall into the “0% to 89%” unhappy customer section. Selling the insured additional insurance will resolve this problem and shift them to the “90% to 100%” happy client.

Additional insurance for sewer backup and roomers/boarders are natural areas to concentrate sales efforts. The goal of selling up and suggestion selling is to increase revenue in greater proportions to the increased risk the insurer accepts. Low frequency risks are the key to success such as additional insurance for outdoor greenery and voluntary property damage. These low frequency loss areas can be bundled together when sold similar to cable television upgrade packages. Initially, customers upgrade their cable package for a specific channel but later discover other channels they cannot live without. The same can hold true with additional coverages and higher limits.

DEDUCTIBLE FALLACY

Residential policies are just the tip of the iceberg for selling up and suggestion selling. According to Statistics Canada there are over two million small businesses in Canada (100 or fewer employees). Cashflow is an enormous problem for small businesses. Claims that result in the “0% to 89%” unhappy customer section of the Indemnity Matrix can trigger financial disaster. New inventory may not be obtainable through trade credit. Projected annual profits may turn into financial losses.

Small businesses can easily work additional monthly premiums into their income statement compared to absorbing a large loss in one quarter. An insurance premium representing 10% of monthly expenses for a business is not unreasonable or unattainable from an insured’s perspective.

Deductibles are the universal area where selling down and selling up clash. Increasing deductibles is an easy method to lower premiums. Even FSCO suggests that this is a foolish technique. Large deductibles will turn a “90% to 100%” happy client into a “0% to 89%” unhappy customer while at the same time suppressing premium revenue. A $1,000 deductible on residential policies and $10,000 deductible on commercial policies are not necessary. Every deductible has a hidden value that will keep the insured from submitting a loss. If the client’s deductible is only $500, they will still not summit a claim for any loss under $700 because the reward is not sufficient.

The primary incentive for residential and small business clients to avoid submitting a claim is the possibility of a premium increase upon renewal. They do not wish to pay more premiums the following year for the same coverage. They may be willing to pay more premiums for additional coverages if their past claims experiences were fully covered.

Only happy customers will purchase greater quantities and types of insurance products. Insureds are happy when at least 90% of their losses are covered. Once a loss is incurred, the insu rer is limited in its choices to satisfy a customer. The time of action is when policies are sold. If a high school thug can sell up and suggestion sell, no doubt all insurance professionals can do likewise.