Is Insurance a Necessary Evil?

I have been experiencing an insatiable thirst to seek to answer this nagging question about whether insurance is a necessity in our country today. While the subject of insurance is broad and multi-faceted, I will seek to break down the perception of this subject so that our minds for a moment are not engrossed with the surreptitious picture of insurance agents’ incessantly cold-calling potential clients or pursuit of claims arising out of insurable risks by claimants.

Data from the Insurance Regulatory Authority (IRA) shows that the level of uptake of insurance in Kenya is at an all-time low of 3.3 percent. This cannot be compared to developed economies like South Africa where the numbers are at 14%. Many explanations have been advanced to show why Kenyans are still averse to taking up Insurance related products. One prominent argument is that the Per capita income (GDP) of the average income earner cannot be enough to support payment of premiums. The other school of thought is that the savings culture of Kenyans is still wanting.

While the arguments above may hold water, the fundamental understanding of insurance has not been taught to most of us from an early age. The subject of insurance I dare say is still shrouded with a lot of secrecy and misunderstanding akin to the mysticism surrounding ancient religions. The language used is still rather technical to the average person. I realize that at this point I must correct myself quickly and note that every profession has its language; for an engineer has to use engineering language, an architect the same etcetera. Insurance also has its language but if its proponents profess that it benefits almost all of humanity, shouldn’t it be clothed in language that is not so grandiose but easily palatable to the common man?

The responsibility of the stakeholders in the insurance industry is to bring customers’ perception to how insurance works in a language they can understand. This would entail offering a basic insight on what informs the underwriting decisions on various insurance products by insurers. I want to suggest that it would benefit insurers to have open days where they invite people and educate them on the fundamentals of insurance, on the meaning of risk, why insurance is important to any economy and most importantly the benefits of insurance at a personal level. Apart from honing their sales skills, sales professionals need to align themselves properly with the market in order to understand and respond well to their customers’ needs. More often than not, sales people are perceived to be aggressive, over-achieving individuals who are not honest and are quick to point to clients the dotted lines in the application document. This negative perception must stop. Insurance sales people contribute immensely to the overall economic growth and offer important services without which an economy could not function well.

Now back to our overarching theme. Any society is fraught with risks. The risk of death by accidents, accidental injury leading to permanent or temporary disability, the risk of fire arising out of man-made or natural sources e.g. lightning, subterranean fire etc, the risk of accidental injury at the place of work owing to the nature of employment, loss of luggage while travelling and many more. What insurance does is simply to classify the above mentioned risks and price them into premiums. The premiums are then pooled and it is from this pool of funds that claims are settled. The guiding principle here is that a risk should be quantifiable. A close analysis of your immediate environment will reveal many known and unknown risks. Insurance companies manage losses that arise out of insured risks. Think for a moment the costs borne by the insured if there was no insurance to mitigate these risks. Imagine a petrol station owner being held liable for damage by fire arising from his petrol station to his neighbors. If the owner does not have public liability insurance, he may find it difficult to raise money to meet his legal fees and hence may not protect his business. This is because the cost of a claim can far exceed what a business is able to raise and necessitate the shutting down of a business altogether. Many examples abound where insurance solve practical problems and mitigate a host of risks that can cripple businesses and slow economic growth. At a personal level, medical insurance is very vital. Think for a moment the rising cost of Medicare and consultancy fees not to mention the increasing costs of pharmaceutical medicines.

But there is an antithesis to such a healthy explanation and this is advanced by some who argue that risks are only imagined hazards. They posit that a risk is imagined and only ceases to be a risk when an actual occurrence happens. Some even counter a proposal to take up insurance dangerously by arguing that they have, for example, not been admitted to hospital for a number of years and see no need to take up a medical cover. While it is important to live healthy and avoid the hospital and its attendant costs, it would be farcical for one to wish they had a medical cover in the face of a medical emergency.

In conclusion, insurance is necessary to any growing economy like Kenya in spite of the low uptake. It not only creates employment and puts in abeyance the worry of meeting risks; it is an indicator of economic growth and a sign of a thriving economy. More needs to be done to educate the masses with regard to this subject. The responsibility lies squarely at the court of the regulator to put pressure on insurance companies to increase the uptake of insurance in the country. Incentives must be given to companies that have the highest level of penetration to make sure they maintain their influence and widen the market. Is insurance necessary? Indeed it is. Next time someone dissuades you from taking up an insurance plan, think again.

Insurance Agency Lead Scoring

Many insurance agencies have not yet formalized their lead scoring system. This is a worthwhile endeavor for all agencies, and one which should be revisited every year, while tracking the return on investment of their marketing programs.

What is lead scoring? It is a methodology used to rank prospects against a scale, and then assign a value to determine interest level and distribution. For example, let’s say a trucking insurance lead appointment arrives at your agency. This lead is with an owner of 15 power units, they use company drivers, and they are unhappy with their carrier. Perhaps your lead scoring system falls on a 1 to 10 scale, and this lead is scored an 8. What might receive a higher score? And what types of leads are outside of profile, and what score would they receive? Perhaps prospects need to score an 8 to appear on your producer scorecards.

Is the lead distributed to producers by territory? Does your lead handling process vary by type of lead, product or prospect? For example, are commercial leads separated by large and small business, by industry or product? Are benefit leads parsed by groups over and under 50? And does your agency have a tracking system in place to determine how many leads showed for the appointment, moved into the pipeline, received quotes and ultimately convert into new business?

Salespeople, sales managers, producers and other business people often refer to prospects in vague terms such as: new, warm, hot, cold, likely, qualified, etc. These terms do little to better understand a sales pipeline or convey likelihood of purchase to other members of the team. Agencies can consider creating a simple prospect scorecard to resolve this issue and quantify their lead scoring. Formalizing lead scoring offers benefits such as:

Helps Producers create ideal attributes to form a buyer persona
Creates a simple numeric system to leverage your buyer persona
Assigns numeric values to rank your best prospects
Creates a simple qualification acronym to determine likelihood to close

What should be included in a prospect scorecard?

Use a prospect scorecard to quantify your approach to pipeline building. Some attributes of your ideal client might include revenue, growth rate, client type (business or consumer) and market niche. For example, are you targeting companies with $5m to $10m in revenue? Are your best prospects fast-growing firms, trucking companies, manufacturers or consumers?

If you’re selling to consumers, are they high net worth, middle-income, millennials or senior citizens? Are your prospects in a specific niche market such as banking, insurance, biotech, consulting, education, etc.? Create a scorecard with your ideal attributes and a customized qualification abbreviation to help you determine if you’re selling to an in-profile prospect.

Insurance agencies and brokers seeking to get to the next level with their insurance marketing and lead generation, but lacking the internal resources to achieve their marketing goals, can reach out to a proficient insurance agency marketing firm.

Intellectual Property – A Growing Concern for Many Types of Businesses

A few weeks ago, a prospective client approached our company seeking Intellectual Property Coverage. He did not fully understand the coverage but was adamant that a policy be issued as quickly as possible. Of course this raised some red flags. Upon further discussions, it was noted that his software company was being sued for copyright infringement from a US based company. Since there was a pending litigation in place, we were unable to assist in providing coverage and suggested he contact law firms that specialize in Intellectual property disputes. This unfortunate incident could have been avoided if his current insurance broker and the client took the necessary time to fully understand the business model and possible exposures. The policy issued to this client was a standard CGL policy covering premises liability and specifically excluded trademark, patent and copyright infringement. In today’s fast paced & uncertain economic environment, intellectual property suits involving infringement of trademark, copyright and patents are being filed and litigated at alarming rates with crippling costs to both parties involved.

So what exactly is Intellectual Property? It can be broken down as follows:

Industrial property – includes inventions (patents), trademarks & industrial designs
Copyright – includes literary & artistic works such as articles, novels, drawings, paintings, designs.

These exclusive legal rights allow the owners of intellectual property to prosper from the property they have created, thus allowing a financial incentive for the creation and investment in their intellectual property. However, many new start-ups in addition to small and medium sized companies do not fully understand their benefits or potential implications. These organizations may have very valuable rights but are unable to use them effectively while others are unintentionally violating intellectual property rights of others without being aware of costly legal ramifications.

Some important terminology was used above and should be explained further.

Patents – Cover new inventions including process, machine, manufacture or any new and useful improvement of an existing invention.

Trade-marks- Provide exclusive rights to word(s), symbols and designs to distinguish goods or services from others in similar marketplace.

Copyright – Only the copyright owner, often the creator of the work, can produce, reproduce, or grant permission to others to do so.

As technology moves ahead at lightning speed, it has made it increasingly easy to reproduce countless types of materials that are subject to copyright. Companies must be very careful not to infringe on the rights of others. Penalties for trademark, patent and copyright infringement have become very costly and will damage the reputation of these companies on a world wide scale. Up until the mid 1990′s, the primary assets of most companies was their building, equipment, stock etc. Not anymore. Although these items still are very valuable, intellectual property, computer data, customer information are just as valuable and could lead to financial hardship if they are not protected with proper security measures and specific insurance coverage’s.

When dealing with the various forms of IP, it is advisable to seek out a lawyer/law firm that specializes in copyright, patents, trademarks, or trade secrets. They should fully understand your business model and your technology as well as you do while being able to explain the legal issues in this complex field in clear, practical language that you can understand.

Another important way to protect IP is to obtain Intellectual Property Insurance. This coverage protects companies for copyright, trademark or patent infringement claims arising out of the company’s operation. An Intellectual Property policy will pay the costs to defend you if someone tries to claim the rights to the same business model, process, or application. As long as the company is not aware of any pending litigation, infringements or violations, one can apply for insurance to protect your trademark or patent. Very few standard insurance policies protect businesses from loss or damage to their intellectual property. Similar to seeking out a prudent lawyer, it is just as important to seek out a company that specializes in this type of insurance. Make sure the policy is not limited to your specific province or state but rather on a worldwide basis. With more and more insurance companies entering this market, it should be rather easy to obtain a policy that fits your exposure.