“The Black Hole of Lower Prices” When Purchasing Insurance

Our price is lower! You cannot enter into a transaction today without hearing these words in some way, shape, or form. Consumers get sucked into it; companies build their entire future on it. I call it The Black Hole of Lower Prices.

Consumers demand it, and companies vying for competitive advantage vigorously promote it.

Unlike the natural gravitational black hole where nothing escapes, product quality and good service easily escape from The Black Hole of Lower Prices and fuel the rocky relationship that currently exists between consumers and businesses.

The Black Hole of Lower Prices

This is a term I use to describe the fact that over 90% of purchase transactions are decided based on the cost of the products or services being sold or purchased. Consumers want lower prices; that’s a fact. Businesses want satisfied clients who will continue doing business with them; that’s a fact.

The constant price pull between consumers wanting the lowest price andbusinesses wanting to satisfy their clients’ expectations while remaining profitable have created a black hole. Where the quality of products and services being purchased have completely escaped the competitive landscape.

Take for example the purchase of insurance products. In my many years of working in the insurance industry, I have never come across a situation where an insurance claim was paid or declined because the premium was too high or too low. Claims are paid or declined based on the underlying coverage.

The Gravitational Pull of the Black Hole

During a recent meeting with a physician client to discuss the purchase of disability insurance, I provided illustrations and comparisons from various insurance companies. Along with sample contract wording that explained the definitions of the coverage proposed.

“I spoke to my medical association and their price is cheaper” replied the client.

In that moment I could sense the gravitational pull of the black hole. Fortunately, I am quite familiar with association group plans and was able to point out to the client that not only are their products inferior in terms of the coverage provided, they also have a much higher rate of declining claims. Additionally, the cost of an association group plan is significantly higher in the long term, compared to an individual insurance plan.

Who is to Blame?

The competitive landscape in the free market environment aided by advancements in technology is causing The Black Hole of Lower Prices to grow increasingly expansive. To the point where no party can reasonably be held accountable when something goes wrong.

Another client detailed his dislike for the insurance industry because he had his first minor claim in 20 years of purchasing insurance; and it resulted in a 15% increase in his insurance premiums at renewal. The client was now shopping online for a better rate.

Technology has made access to information readily available by simply entering www. Clients are flooded with offers of lower prices on their computer and hand-held devices. Very little thought is given to the quality of the product, service, or advice sourced through this medium. Businesses, by simply uploading a disclaimer form, can essentially shift potential liability to their cost sensitive customers.

The Answer is Not Simple

Interestingly, insurance coverage is available that would have resulted in no increase to this client’s premium. Further investigation into the matter concluded that the client’s broker offered the coverage, but it was rejected because it “cost more”.

Where does accountability lie? Is it with the client who is price sensitive or the insurance professional who understands the value of the coverage?

Price vs. Quality

Why don’t consumers and businesses place a greater emphasis on quality products and services? Simply put, because it will likely cost more; and The Black Hole of Lower Prices will not allow higher costs to interrupt its gravitational pull.

Let’s look at another example.

People purchase term life insurance because the initial premiums are lower. Term life insurance will cost a lot more than permanent life insurance, in the long run. Term life insurance also terminates in the future and all the money spent on premiums also disappears. Permanent life insurance can be paid up and result in ownership of a valuable asset.

Yet, consumers prefer to purchase term life insurance even when faced with compelling data that points to its deficiencies.

Escaping the Black Hole

Will there ever be a common place where consumers demand for lower prices can be satisfied by high quality products and exceptional service? Possibly, because it’s not impossible to think that consumers will deter from their price first emphasis.

It is incumbent though on the providers of goods and services to let consumers know that by focusing on price you get what you pay for. But by focusing on quality, you get what you value.