I thought this was a good article by Patrick Wraight with Academy Journal by Insurance Journal.
The deductible is such a familiar part of insurance that everyone thinks that they know everything about them. Yet, our customers have a different perspective on them. Our customers think that the deductible is just a way for us to reduce how much money we pay them. They think that a deductible is some kind of penalty for having a loss. Here’s the truth. You can use your customers’ deductibles as a place to start a conversation, make yourself their risk management partner, and build a relationship with them.
What is a deductible?
Let’s start with how some of the experts define deductible.
According to the Insurance Information Institute’s article, Understanding Your Insurance Deductibles, “A deductible is an amount of money that you yourself are responsible for paying toward an insured loss. When a disaster strikes your home or you have a car accident, the amount of the deductible is subtracted, or ‘deducted,’ from your claim payment.”
Here is the International Risk Management Institute’s definition of deductible. “An amount the insurer will deduct from the loss before paying up to its policy limits. Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured’s loss recovery. Usually, the amount of the deductible is not subtracted from policy limits.”
What does all that mean? The deductible is the part of the claim that the insured pays. It could be the amount that is subtracted from the payment when a car is totaled, or the amount that has to be overcome before the hurricane claim can be paid. However you cut it, it’s money out of the insured’s pocket and rather than letting your customers think about it is a way to reduce how much the insurance company pays out, help them to see the purposes for it.
Why have deductibles?
I wonder what kind of answers you would get if you asked your customers this question. Whether they get it or not, why not ask them? At worst, you’ll hear answers that you’ll hate. At best, you’ll learn what their perspective is and then you can correct it. So why do we have deductibles?
A deductible allows the customer to hold on to some of the responsibility for the loss. If I know that I’m going to be responsible for all damages that are less than $1,000, I’m likely to be a little more careful. I know. You’re thinking that not everyone needs that kind of incentive to be more careful. I know that. There are some people who are extremely careful all on their own. Yet, there are others who you won’t let borrow your car because you know that he’ll drive it like he stole it. That’s why we have deductibles.
If I may step aside for a minute, some auto insurers get it when it comes to deductibles. They have an option that reduces the deductible over time. It creates a trust relationship between the insured and the company. The longer you go without an accident, the lower the deductible goes. It shows them that you’re not just reporting every little thing and they return the favor by telling you that they trust you enough to remove the deductible.
A deductible can be a financial trade off. Everyone that has had to sell insurance based on price has had the deductible conversation, “If you take a higher deductible, we can lower your price by $45/month.” Insurance companies appreciate insureds selecting higher deductibles so much that they reduce the premium. It also works the other way around. The lower the deductible, the higher the premium.
This is where we provide you the common-sense caution. Just because the insured is selecting a higher deductible, doesn’t mean that they will get a premium reduction that corresponds with it. There comes a point when the deductible gets so high that the company can’t possibly give the insured enough of a discount to make the deductible make sense.
How can you use deductibles to set yourself apart?
You can find out what deductibles make the most sense. Some people selected a deductible when they first got their policy. It fit on that day but hasn’t been looked at in 20 years. The young driver that got a $500 deductible because that’s what daddy told them to do needs someone to take a look and see if that makes sense. The same customer bought a homeowners’ policy with a $1,000 deductible because that was what got quoted when they got their mortgage and since they pay by escrow, they haven’t looked at it since then.
This customer needs someone to look at the policies, do a little investigating, and make sure that the deductibles make sense. By the way, while you’re doing that, you could also go through the policies and find out if there are other changes that need to be made to make sure that the customer is properly protected.
By reviewing the deductible, you have a chance to make sure that the insured has appropriate limits, review the exclusions, quote a flood policy (since it’s not covered on the homeowners’ policy and if they aren’t required to have it, it’ll probably be inexpensive), and make a few other suggestions as well.
Have you ever thought about how your customers are going to pay their deductibles in the event of a loss? Yeah, they haven’t either. Why not have that conversation? By suggesting that they maintain some savings to pay their deductibles, you’re letting them know that they are important. You want them to have as few troubles as possible in the event of a claim. If something happens to their car or their home, you want to be there to see them get back to as normal as possible as quickly as possible.