Expert Commentary

Insurers' Marketing Myopia

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.

June 2001

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."


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:

  1. Credit quality
  2. Capacity, net and treaty
  3. Individual accountability, one or two people
  4. Underwriters who understand their risks, businesses, and measures of success
  5. 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.


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.


  • Maintain the status quo … and accept a reduced role and even lower profitability!

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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