Insurers' Marketing Myopia
June 2001
Don't insurers realize the value of being
customer focused instead of product focused? Yes, but they are hampered by a
lack of direct access to clients, development of intellectual capital, and consistency
on improving the bottom line. Learn more in this insightful article.
by Gary
J. Bausom
Bausom & Associates, Inc.
Don't insurance companies know about the value of being customer focused
versus being product focused? Yes, they do, but they face a number of obstacles.
These obstacles include lack of the following: direct access to clients, development
of intellectual capital, and consistency on how to improve the "bottom line."
Access
Brokers and agents limit access to clients. The distribution system was designed
to create efficiency in achieving desired premium volumes. With any salesperson,
when rewards are predicated on volume, quality of business can take a backseat.
The problem is not with the salesperson but with the individuals establishing
and offering the rewards.
The brokerage business has changed notably in the past 5 years. Beyond the
numerous merger and acquisition consolidations, the culture has changed to an
even greater extent. Seasoned individuals, who understood their firm's culture
and occasionally bent corporate protocol for the sake of quality client service
and maintenance of highly trusted relationships with underwriters, have been
forced out or retired early. They have been replaced with young, energetic people
with a good deal of potential who are less costly. However, these new people
lack the experience, relationships, and mentoring necessary to adequately serve
clients, especially the risk management accounts and their management groups.
Today, large brokerage firms are organized and serve customers on a functional
or "silo" basis. Other than the most senior brokerage firm executives, few have
an overview of a client's entire account. This organizational approach is designed
to prevent brokers from leaving the firm and having clients follow them out
the door.
Meanwhile, the gap between insurance companies and clients has gotten considerably
wider.
Intellectual Capital
If you roll the clock back 10 years, full-service 900 pound gorillas thought
Charles Schwab was a joke. We know who is smiling today. Why? Schwab provided
basic access to the market at low cost and built trust with their clients by
delivering, as represented, every time. Today, Schwab has expanded by attracting
quality talent, who advise clients with the support of internal and external
research.
If insurance companies have the financial capital, they are the ones with
the greatest concern over preservation and growth. Intellectual capital is the
driver for maintaining current business and attracting new business, which will
assure preservation and growth of financial capital.
Acquiring Intellectual Capital
Insurance companies should direct their marketing efforts toward clients
who demonstrate leadership qualities and have the support of their management.
So, what does this mean in client terms?
In the insurance industry, intellectual capital seems to be reduced to wrangling
over price. Most risk managers have focused almost solely on the spot price
of insurance. Risk managers can better explain short-term premium variances
than they can explain the failure to collect, or delay in collecting, a $100
million claim. Most risk managers have not been on the job long enough to have
experienced a large claim, and perhaps they have plans to move on in the near
future.
Risk managers who want to advance rapidly will need to anticipate trends
in the market, ask their corporate leadership group for assistance in managing
vendors, and, above all, educate their management to judge them on a set of
established criteria rather than changes in the level of insurance premiums.
The following are some examples.
- If management has been forewarned concerning trends in the insurance
industry, they are less likely to be surprised when changes occur.
- Risk mangers that are held accountable for defined objectives should
request the authority to select their teams both internally and externally.
(When senior management receives a call from a vendor, the response should
be, "That is interesting but I do not make those decisions, our risk manager
does.")
- While a purchasing manager may be judged on cost per unit (including
carrying costs), risk managers need to be evaluated on their knowledge and
expertise in advising management on risk and related actions. (Reporters
from the New York Times and Wall Street Journal are valued and
paid for their knowledge, insights, and effective communication skills,
not for the number of words written per month. What qualities will senior
management look for when adding a new member to their team?)
So where should the leaders in risk management focus their attention? From
insurers they seek the following:
- Credit quality
- Capacity, net and treaty
- Individual accountability, one or two people
- Underwriters who understand their risks, businesses, and measures of
success
- Delivery, as represented, every time
How prepared are insurance companies to be leaders processing intellectual
capital for the purpose of effectively dealing with clients and directing the
sales channel? If the insurers and the sales channel are not working as allies,
no one wins, including the client.
Profitability
Some insurance companies seem to send mixed messages to their underwriters.
In the first half of a year, the focus is on top line revenue, while during
the last half of the year, underwriters are emphasizing the bottom line, or
vice versa.
Attracting quality accounts and retaining them will achieve sustainable profitability.
Noted experts James Heskett and Earl Sasser of the Harvard Business School,
in their book Service Quality, have demonstrated
that it requires 3 years after acquiring a new account to break even. Obtaining
and retaining quality accounts will improve profitability and its consistency
far better than a "shotgun" approach to increasing written premium.
Retaining accounts requires business relationships that support the partners
and make them look good. It also requires personal accountability, like "standing
up" and admitting, "It was my fault, and here is what I will do to make it right."
A business relationship has to go well beyond a client account number and a
receivable.
Profit margins will be notably better where there are matches between clients
and underwriters who are both seeking and delivering added value, compared to
clients looking for the "best" spot price. If an account is won based on price
alone, it will also be lost based on price.
Action Items
What are the next steps for insurance companies?
- Develop and acquire the people with intellectual capital.
- Select industry groups to study.
- Invest time with clients.
- Redefine working relationships with sales channels.
- Invest in channel improvements.
Or
- Maintain the status quo … and accept a reduced role and even lower profitability!
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