Insurance Is Not a Commodity: Here’s Why That Matters
In today’s digital world, although consumers like to treat it like it is just another product where the cheapest price wins, insurance is NOT a commodity. With big names like Progressive, Geico, Esurance, and Lemonade promising savings through flashy ads, it’s no surprise that people are searching online for the lowest possible premium.
But here’s the truth: Shopping by price alone can cost you in the long run.
How Insurance Really Works
At its core, insurance is about sharing risk among a group with similar risk profiles. The more risk you represent, the more you pay. That’s not arbitrary—it’s based on complex calculations from actuaries who consider dozens of factors.
Each insurer’s rates must also be reviewed and approved by state insurance regulators. This ensures that pricing is based on real claims data—not just marketing strategy.
What Drives the Price of Your Insurance?
An insurance company’s rates depend on two main things:
-
How much they pay in claims
-
How much they spend on overhead (like software, advertising, and operations)
To offer low prices, a company has to cut costs somewhere. Either they:
-
Pay fewer claims
-
Spend less on infrastructure and marketing
-
Or both
But here’s the catch: when a company slashes spending on advertising or claims processing, consumers often assume they’re less trustworthy—when in fact, they may just be more efficient or conservative with risk.
What You Don’t See Behind That Quote
Online insurance quotes are convenient, but the technology to offer real-time pricing is expensive. Companies that invest heavily in software and marketing need to recover those costs. That often means:
-
Stricter underwriting (they only accept lower-risk customers)
-
Tighter policy language (more exclusions or limitations)
In other words, you may pay less upfront, but you could pay more when it matters most—during a claim.
Policy Language: The Hidden Difference
Most consumers don’t realize that not all insurance policies are created equal. Policy language can vary significantly between companies. These small differences—exclusions, limitations, or missing endorsements—can mean the difference between a covered claim and a denied one.
Yes, state regulators approve policy language, but insurers still have room to write contracts that limit payouts while remaining within legal guidelines.
That’s why working with a knowledgeable agent matters—we help you understand not just the price, but the true value of your coverage.
The Bottom Line
Insurance isn’t just about price—it’s about what you’re getting for your money. Before you chase the cheapest quote, make sure you understand:
-
What’s covered
-
What’s excluded
-
And how the insurer handles claims
Because when something goes wrong, you don’t want a discount—you want a check.