An all too common scenario that happens is when you have a client or someone from outside the industry ask their insurance agent a question that many might completely frown at. “I didn’t have any claims this whole policy year, I should be entitled to get part of my premiums back.” A big chunk of the public doesn’t even have a vague conception in their minds that insurance is the risk of all the people pooled together versus an individual one-on-one thing. Because you didn’t file an auto or homeowners insurance claim in the past year does not mean you should see your rates drop when you reach your renewal period. The idea that it’s not fair that the premiums you pay into the insurance company end up increasing because other people had claims is the essence of how insurance really works. This might be a bit hard to explain still, but bear with me.
An amusing and clever way to invert this question to someone that doesn’t understand insurance is the following. You purchase a term life policy where after your 20 year term is over you are still alive. Congratulations, this is really great news that your family or heirs didn’t suffer your death and the financial burdens accompanying your demise. Your policy term is over, do you end up going to your insurance company and say, “Hey, I didn’t die can I have my money back?” Depending on how the person in front of you reacts to this question, who knows if they may be even more confused at this point. Many of you that are in the industry may be very amused at all this because this has at least happened to you or someone you know of.
The whole problem with educating your clients and the uninformed public is how they believe that somehow these multi-billion insurance companies are really dummies. They don’t know that you really can’t fool them, and that they can smell fraud from a mile away. However, probably the best way to put it to your client or someone that wants to understand this pooled risk concept of insurance in layman’s terms is, “That’s really great Mr. Smith for not having any accidents or claims for the year, but other a-holes do and we end up having to pay for it.” (Caution: Make sure your client has some sense of humor when taking this angle to explain.)