Insurance companies have long worked directly with customers rather than through agents, especially when it comes to car insurance. Yet the case of Mati Alon shows how insurance companies seem to put their interests over customer’s, perhaps at their own expense.
Alon, a hedge fund director, recently attempted to renew his car insurance. He checked the dry statistics: where he was insured and what he had paid for the previous year’s policy. In his case it was 6,800 shekels ($1,950) for comprehensive and mandatory insurance from The Phoenix insurance company, which he purchased through an agent.
Alon figured that The Phoenix knew his insurance history would happily keep him as a client. After all, he drove fewer than 8,000 kilometers per year and was insuring two drivers over the age of 40 and hadn’t had any claims over the previous three years. He is the classic car insurance client: One who pays a lot but hardly makes any claims. He decided to give The Phoenix first dibs.
“The representative who answered the telephone took my details and loaded my policy on his screen. He remarked that I was insured through an agent,” he recalls. “I told him I know that and I don’t want to work with this agent any longer, and I’d be happy to renew the policy. He answered he couldn’t insure me because I had gone through an agent. I asked to speak to his manager, as I hadn’t married my agent and just wanted to renew my policy for a year. He replied he’d already asked his manager and the system simply wouldn’t let him renew as long as I was listed under the agent.”
He says he was pretty shocked and told the service representative he’d simply leave for another company and they’d lose him as a customer. The representative apologized and told him, “that’s the situation.”
Alon checked other companies and received significantly higher quotes until he started comparing prices and looking for another firm through the online insurance agent Wobi. “A terrific person answered, and she offered me 5,800 shekels for a year of mandatory and comprehensive insurance without any deductible,” he says. The funniest thing, he adds, is that “Wobi sold me insurance through The Phoenix.”
The Phoenix could have renewed Alon’s policy and saved itself the cost of sharing the proceeds with the agent. Why didn’t it do that? Is it simply inefficiency? Why does an insurance company seem to care more about the agent than the customer?
The reason is probably tied to the role of insurance agents as salespeople for the insurance companies. The companies see the portfolios the agents bring as an asset, even if they have to pay them commission. According to figures of Israel’s capital markets authority, insurance agents received 9.3 billion shekels in commissions, a 6% jump from fees in 2017. The Phoenix pays agents commissions of up to 15.5%.
What likely interests The Phoenix is the diverse portfolio the agent holds: car, health, pension, property and more. As long as the agent’s portfolio is profitable, that’s enough for company. Moreover, The Phoenix isn’t prepared to release the client from the agent’s chokehold, even if the client turns directly to the company, nor does it bother The Phoenix to have the client come through another agent. The Phoenix won’t hurt the agents, even at the expense of the client or itself.
This practice is twisted. Despite its attempts to present an image of being direct and its ads about “Phoenix smart,” the company puts the agent before the client. It is safe to assume The Phoenix could have reduced the agent’s fee and reduced the client’s premium below 5,800 shekels, but the agents still have a great amount of leverage with the insurance companies, even the ones like The Phoenix, who are trying to be innovative. Now what’s left to see is what the company’s new owners and new CEO, Eyal Ben Simon, will do.
The Phoenix declined to comment. Capital markets officials said, “We will ask the company about the incident.”
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