Money for nothing?
Of all the goods and services competing for a share of our hard-earned cash, insurance will not likely rank high on many Top-10 Lists of most satisfying purchases.
Consumer products generally come with some immediate gratification: We show off the new car as soon as we drive it off the lot; the weekly grocery trip supplies the next meal; we rock the casual Friday jeans purchase. Even a new hairdo will normally draw a round of semi-genuine approval from friends and family.
Insurance is one of the few investments that gives us virtually nothing to show for it. Rare is the policyholder who carries around a declaration page to impress friends with the size of his personal umbrella limit.
Let’s face it, our monthly insurance payment is like our donation to the office lottery—we’re almost certain nothing will come of it, but we can’t bear the thought of missing the big one, the minute we pull out of the pool
In the beginning
Minimizing risk of financial loss is nothing new. Five-thousand years ago, Chinese merchants practiced spread of risk by dividing their wares among several ships, rather than committing an entire load to a single vessel. A ship lost at sea meant relatively small losses to multiple vendors instead of financial ruin for a single merchant.
By 1790 BC, the Babylonians had refined the concept, with merchants arranging loans to protect shipments in the event of loss by storms or thieves. Upon successful passage the merchant would repay the lender—who chose to underwrite the venture—with accrued interest. If the ship went down in a storm or the goods absconded by pirates, the merchant’s loss would be covered by the loan, without penalty.
The first fire insurance company rose from the embers of the great fire of London in 1666 and the field of insurance was further developed by Ben Franklin—who endorsed the idea of risk management with the phrase: an ounce of prevention is worth a pound of cure
—in 1751, with the arrival of the Philapelphia Contributionship. By the mid-1800’s, medical and health insurance was born in the United States, and in 1897—before Henry Ford began mass-producing them—a fellow named Gilbert J. Loomis, of Dayton, Ohio, built an automobile and reportedly paid $1,000 for an insurance policy with the Travelers Insurance Company.
What have we got to lose?
In more recent times, competitive forces in a heavily serviced marketplace has substantially broadened the scope of coverage to include less consequential losses, but the primary purpose of insurance, for most consumers, is to guard against catastrophic personal (or business) loss.
One need only look to the wildfires currently raging outside Kelowna, British Columbia as a reminder of the inferno that evacuated tens of thousands of residents and consumed close to 250 homes in the same Okanagan region, in August 2003. And now, Hurricane Harvey with its spinoff tornadoes and unrelenting rainfall pummels Texas and stands as tragic testament to the cruel potential of natural disaster. Closer to home, Windsor, Ontario is in the midst of a serious flooding event.
But exposure to serious financial loss comes not just from natural disasters. We see news headlines, or a GoFundMe drives, for families that have ‘lost everything‘ to a grease fire at their uninsured house or apartment. We’ll sometimes hear of a pending lawsuit when the backyard pool owner took his eye off the swimming kids ‘for only a minute.’ Or, we’ll learn that ‘alcohol was a factor‘ in a tragic car accident and wonder about the party host’s ‘legal liability‘ after generously topping up wine glasses before grateful guests called it a night and headed off for the drive home.
Insurance is not a long shot at a bankbook windfall—it’s a carefully constructed firewall against severe financial loss. It may not be the ticket to instant wealth, but it does deal with a wildcard of economic vulnerability.
The starring role of the supporting cast
As consumer products go, there are those that enjoy a place in the limelight and those destined to bide in the shadows of support or utility. Insurance is no Mercedes, but it is the omnipresent spare tire occupying its luxury trunk—unnoticed and biding time until an untimely blowout summons it to action. Insurance’s role is more like the penalty killing line on a hockey team: grinding to keep the team level when it finds itself down a player.
Insurance is not the only unsung product or preventative practice quietly protecting our interests. Consider diversification to the investor; the helmet to the football player; an umbrella on a cloudy day; the hotel wake-up call backing up the iPhone. Our insurance payment is not unlike the annual dental checkup; not something we look forward to, but it sure beats a root canal.
Something we buy hoping to never use
So, what are we really getting for our insurance dollars? Some people pay home and automobile premiums for decades without ever filing a claim. Surely, tens of thousands of dollars, over a lifetime, that could have been put to far better use.
But is that true?
While payback on a Big Mac or the TUMS chaser is quickly evident, the reward of an insurance policy is less tangible. What we get in return for our annual premium is not for immediate use, consumption, or gastric relief. But it does free us to invest in things of significance that would otherwise erode the personal reserves we’d need to amass in the event we should incur a serious loss or accident.
One description of insurance is that it’s a one-year unit of financial security allowing the peace of mind to direct resources to other things: Covering the mortgage or monthly rent; funding the children’s education; buying a new car; taking the well-deserved family vacation; or supporting an important charity. For most of us, expenditures made possible by not having to save for the prospect of a serious fire, windstorm, car accident, or legal liability.
Dependable counsel from independent brokers
Few insurance wordings could be characterized as a light read, but insurers have come a long way to transform confounding legalese to a more plain-language format. Still, with all the Terms, Conditions, Definitions, and Exclusions stuffed into the insurance contract, and with a vast range of price and coverage options available in the marketplace, professional advice is a good way to navigate the insurance terrain.
In the world of insurance, that professional is the broker. Aligned with quality insurers and unbeholden to any single company, the independent broker is uniquely positioned to shop the market for product, price, terms, and an operating philosophy that meets the unique needs of its customers. The best brokers combine advanced technologies and efficient processes—for ease of doing business—with the knowledge and expertise to counsel customers through the complexities, end-to-end.
The broker monitors changing circumstances and recommends coverage adjustments as products, regulatory environment, or customer needs require. And at the critical time of loss, the broker champions the interests of their customer, actively monitoring and advocating through to the fair resolution of the claim.
It may be that the humble insurance policy will never reach the bragging status of designer fashions, hot sports cars, and penthouse condos, on the cocktail party circuit, but as fire-weary Okanagan and waterlogged Windsor residents have likely come to appreciate, there are some budget items that are better to have and not need, than to need and not have.
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