In last month's column, I compared insurance producers and production to racehorses and horse races. Let's continue with this metaphor and ask a few more questions worth considering regardless of your role in the insurance industry.
Is your "racetrack" sustainable? Is there a better way? In the future, will the people (niches) you serve still spend time and money at your "clubhouse" or "betting window"?
Horse racing is the sport of kings, but we are no longer a monarchy. Today, some racetracks have closed, many are struggling and some are successful because of subsidies from slot machines. Tomorrow, EA Sports or some other videogame magician may create virtual races with folks betting from their La-Z-Boy via PayPal.
Our world today is much more democratic and less autocratic. The global economy, the Internet, and the knowledge and information that it delivers have created sophisticated consumers with unlimited options. Such a new world of consumers will define the industries that serve them and not be defined (held hostage) by traditional methodologies.
Racetracks may always be a niche to be served, but this will not be sufficient to sustain the traditional methodology that has developed through the decades. Racetracks must change. The insurance industry must adapt and change.
In his classic article, "Marketing Myopia," Theodore Levitt correctly explained, "Every major industry was once a growth industry." Mr. Levitt further states that industries decline not because of market saturation.
"It is because there has been a failure of management," he wrote.
I could tell you more, but Mr. Levitt does it much better than me. I urge you to read his article.
Here's reality: Most in the manufacturing and distribution end of the insurance business have done and continue to do well--real well. We are not motivated to change. For us, the good old days are two old white guys (OWG) drinking at the City Club and doing a deal. Our system is producer defined and producer driven.
We sell products that included our compensation packaged inside. These products "cover" the risk of loss by physical peril--the stuff we know and are comfortable with. Unfortunately, the product is a promise to pay in the future in a language that most buyers can't understand for losses occurring because of exposures that are foreign to them. We are comfortable with what we sell, but buyers aren't comfortable with what they buy.
The world has and is changing, but for the most part our industry hasn't. Today, the client's decision-makers often wear a skirt or are a different color, generation or ethnicity, and maybe they aren't enamored with our tales of drinking beer and chasing women. We are in a conflict of interest with them. It is best for us if they buy a policy first, and best for them if the policy is the last step in their process.
Our system is about transfer of physical perils, yet the marketplace today needs more: the management of the broader range of risks, from strategic, operational, geopolitical, fiscal, people, competition and marketplace, environmental, reputation and credibility, to the risks of tomorrow (What if? What next? When?).
Today, we sell risk transfer, but maybe what's needed is a greater focus on the avoidance and reduction of loss and finally a funding mechanism for all catastrophic losses. Before you laugh, realize that someday we may have policies absent exclusions because that's what the courts have wrought.
Too often risk management has been a euphemism for insurance sales, yet in practice it should be simply a process of maximizing good and minimizing bad in our organizations. I'm guessing if we could get into the hearts and heads of our clients, we'd learn that they value more people and services that can help them "be" better in business than those that help them feel better after a loss.
We will arrive when our diverse team of professionals includes an expert for each client and its industry, and is not focused solely on product sales or insurance coverages. We will work for "tips" (fees) because we will be held accountable and paid for the value we deliver. We won't sell products; we'll facilitate acquisition of solutions.
Tomorrow, we won't be driven by the individual personality of a producer but more by our talent teams listening to clients and designing and building what they want at a price they are willing to pay. We will be client defined and client driven.
Don't believe me? Let's go to the City Club for a drink. We can discuss it there. The racetrack has closed.
MICHAEL G. MANES is owner of Square One Consulting, a New Iberia, La.- based consulting business focusing on planning, sales and operations, and change management and architecture. He has over 37 years of insurance industry experience, including serving as an instructor of risk and insurance at Louisiana State University.
February 8, 2011
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