Cutting Insurance Costs Through Reverse Auctions

Insurance is an expense we'd all like to minimize – without loss of quality. There are several services that encourage insurers to make their best offers, but it can be difficult to distinguish whether the website or 800 number is truly representing multiple insurers, or is just pushing a single company's products. We also find that, having requested quotes, there are likely to be follow-up e-mails and phone calls for a year or more afterwards that need to be dealt with. Once a company has your contact information, they tend to be very persistent and even aggressive in trying to sell you insurance.

But there is a better way. What if you could solicit bids for the insurance package you need without revealing your contact information? Say you could spell out what level of house insurance, car insurance, life insurance and/or medical insurance you need, and have insurers bid on the package in competition with each other – without contacting you directly or through e-mail – wouldn't that be a great way to select your provider or providers?

You can do this. Reverse auction sites allow you to specify what you want, and the site invites suppliers to bid on your needs. You decide what service, product or combination you want and how long the bidding should be open. So you could post your needs six weeks before your insurance contract expires, let it run for a month, and have a couple of weeks to select the winner and create the contract.

Reverse auction websites do not allow you to publish your contact information. This protects you from aggressive solicitation, and avoids bypassing the site – which normally charges a small amount for the service they provide. Some will allow the provider to publish contact information, trusting that you will complete the contract through the site, since the site typically allows listings to be free and charges a small success fee to the winning bidder. Most people find one of the greatest benefits of the reverse auction process to be the privacy it generates for them, and the sense of control they have over the transaction. This is only possible if you do your negotiating through the site without revealing your contact information – it leaves you in charge of how to evaluate the bids, and avoids coming under pressure from each supplier who gets your contact information before the contract is completed.

The art in posting a requirement is to understand what the supplier needs to know, and to describe what you want clearly enough that the suppliers can bid responsibly. For house insurance, you might want to specify:

• Replacement value of the property;

• Type of construction;

• Age of house;

• Whether you have fire extinguishers;

• Value of furnishings – often estimated as about 75% percent of the value of the property;

• Zip code you live in;

• Any special valuables you want to include.

• What liability limits you would like;

• Whether you want the insurance to keep pace with inflation;

• The size and the AM Best or other industry rating of the company offering the insurance;

• Etc.

A review of your existing policy can help tailor your custom-made request.

Do the same for all the other insurance needs you have. Review each policy that you want to replace, or review websites of insurers to understand what needs to be specified for new policies you don't yet have, and carefully select what you want.

Once you have posted your requirements on a reverse auction website, you'll want to monitor the post so that you know when insurers or agents have questions to clarify your needs. You'll also be able to see what bids are coming in and start assessing the different suppliers from their write-ups. Over time, each supplier builds up a rating on the website based on how they have served other clients, so you should be able to assess their reliability. Initially, before they have a significant rating, you will have to trust that they fairly represent their principal (the company whose insurance they are quoting), and base your choice on evaluation of the insurance company rather than the agent.

Finally, at the end of the auction period that you specified, or earlier if it suits you, you can make your pick and accept a specific bid – assuming that at least one meets your needs. From there, you and the agent work out the details. Remember that the bid you accept represents a legal contract. The agent is obliged to provide you what was bid at the price bid, and you are obliged to pay that price for the insurance you have contracted for. Be aware that they may still try to upsell you, so be prepared. The more homework you have done before accepting a contract and talking to the agent, the better prepared you'll be to stick to your original requirements.

If you decide to split the contracts between two or more insurers, you'll have to accept a bid for one part of the package, and re-post the remainder, making sure that your desired bidder is invited to bid on the restructured package.

Try it and see whether you don't reduce your insurance costs – without losing quality of coverage and without the avalanche of agents contacting you for your business.