Risk Management Blog - ClearRisk

Insurance is a Commodity! …Or is it?

Posted by Craig Rowe on Wed, Feb 9, 2011 @ 11:02 AM

Often a topic for debate, the issue of insurance as a commodity sparked a great discussion on LinkedIn. I’d like you hear what you have to say in own comments section below.

A commodity is defined a good that is the same no matter who supplies it, and can be differentiated based on price.

Is it true that all insurance is the same aside from price? How do most companies decide where to purchase their insurance?

There are many different points of view on this topic. While some see insurance to be a commodity such as lumber, wheat or iron ore, others believe that insurance can be differentiated. One LinkedIn professional commented that insurance is dependent on the importance of assets acquired by a company; a new company may only need the lowest price insurance coverage, while others have more assets to protect and will seek the best coverage for an affordable price.

Another commented that, as an insurance broker, it is necessary to make price as irrelevant as possible. Clients should start thinking not only of price, but of the total cost of risk. While certain insurance coverage may be expensive, it can be more expensive for a company to risk not having that coverage. If an employee is injured and not covered by Worker’s Compensation, it can be expensive for a company to handle this without the proper coverage.

Some believe that if companies purchase insurance based on price alone, they are failing to see the value of mitigating risk. An insurance broker should be able to clearly explain the differences of suggested policies and how they directly benefit the client company.

Another response concluded that insurance is a commodity, but the relationship a client has with a broker is always a differentiator. The insurance broker provides a service in selling that commodity; it is ultimately the relationship between client and broker that is valuable and variable.

As I see it, the value of insurance is often underestimated. It is only after a substantial loss that company owners truly appreciate their coverage. For risk managers, insurance is an important tool for transferring risk and often the last consideration after employing other risk mitigation techniques.

How do you value insurance? Is it a commodity, or do you take more into consideration when choosing your coverage than price alone? As an insurance broker, how do you make the client see insurance as a something other than a commodity?

Leave your comments below.

When you are done be sure to join in on the conversation I’m having on LinkedIn now

How do you handle the risk of social media in your company?

Topics: insurance broker risk management, is insurance a commodity, value of insurance broker