More public education about insurance is required, partly because of the nuance around the concept of indemnity and the intangible nature of the product, says a champion of financial literacy at Co-operators.
“Maybe the most powerful message is that insurance is the only industry that comes with a cheque when the bad thing happens, when everyone else comes with a bill,” says Jess Baker, executive vice president of retail sales at Co-operators.
“Explaining that concept to young people aged 18 to 34 is really important, because they get it. Money is scarce. And to think there’s a vehicle that could provide a cheque when the bad thing happens piques their interest.”
Insurance is still not a widely understood topic, for a number of possible reasons, Baker told Canadian Underwriter in a conversation about financial literacy.
“One is because it’s a regulated industry, in which licensed insurance professionals are giving advice, and maybe that’s why some of the social media influencers or other [public] forums don’t delve into it,” she told CU.
Another reason may be that people can relate more readily to information that tangibly affects their personal finances, such as investment or savings advice. Whereas, in insurance, the concept of indemnity — the pooling of money from the many to pay for the needs of a few — is abstract.
“We talk to clients about the fact that we’re selling a promise to you,” Baker says. “What we’re selling to you is intangible. It’s a contract that says, ‘You’ll give us some premiums, and we’ll give you a commitment in this document saying if the bad thing happens, we will pay you some sort of money.’
“The concept of indemnity is that we will make you whole again. We will put you to the same position you were in before the event of a loss — not better, not worse, but the same position.”
That’s a nuanced concept to explain to consumers, Baker says.
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For example, insurance is not solely about replacing the physical ‘stuff’ that gets damaged — the house, the car, the products your clients’ businesses sell, etc. It’s also about making sure the earning power of the insured people or businesses is maintained after the loss.
What makes insurance complicated is that it touches on earning capacity as well, Baker says. For example, in life insurance, critical illness insurance, or disability insurance, the insured’s assets and liabilities are factored in when someone is sick or injured and unable to earn money to pay the bills for a period. To make people whole again, insurance sometimes has to factor in the value of an estate, mortgage payments, student loans, post-secondary education tuition or living costs, or even the financial value of the insured’s legacy.
For some insureds, this can all seem a bit mystifying.
“Here’s how I would explain it [to a customer],” Baker says. “’Okay, it’s great you have a place to live in, and we’ve insured the home. But what if something should happen? Do you have something to live on?’
“Because the groceries, the hockey practice, the ballet lessons, the university, those bills still come. The light bill still comes in for the house that’s paid for, so indemnifying your income, or indemnifying your future earning power, is a powerful concept for young people.”
People will always consult search engines when seeking information about insurance, but insurance professionals can improve financial literacy about insurance by making a proactive effort to engage people in their communities, Baker says.
For example, for Financial Literacy Month and beyond, P&C insurance industry professionals should make the most of their opportunities to partner with schools, including high schools and universities, as well as community groups to explain the basics of insurance to Canadians.
“I think it’s so important that all young Canadians understand that paying a small premium today can protect you from having to put your future on hold or dip into your savings if the bad thing happens,” she says.
Obviously the nature of the discussion will change as insurance advisors talk to people in different age groups or other demographic categories. However, Baker emphasizes that listening is one of the most important skills an advisor can have.
“Life cycle and life stage don’t always progress together in locked pace, but a change in either marks a milestone that signals a change in your client’s needs, budgets or priorities, and so the [insurance] products and solutions need to change with it,” Baker says.
“For example, I would not be talking to someone in your father’s demographic about asset accumulation or life insurance. We would be talking about estate planning, or ensuring that all of his assets or possessions are properly protected in the event that he wishes to pass on that legacy.”
Feature image courtesy of iStock.com/sept2004
