How companies define their businesses can help determine their long-term success and even survival.
Turn-of-the-previous-century buggy whip and bicycle manufacturers are often cited as examples of companies that did a particularly poor job of defining themselves, and in the process reached a dead end. Had these companies defined their business mission as having been personal transportation, they might have widened their field of vision and shifted to automobile manufacturing when demand for their products diminished. However, since they adhered to narrow business definitions, consumers looking for more get up and go from their personal transportation left them by the side of the road as they traded in their bicycles and buggies for motorcars.
Here in the present century Amazon has displayed remarkable vision and dexterity regarding its business mission. By refusing to narrowly define its business mission as the online bookstore it was during its early days, Amazon has evolved into the everything store. While the disruption that has taken place in the retail sector is a legitimate cause for concern in downtown shopping districts and malls across the country, this does not diminish Amazon’s accomplishment.
How insurance carriers define their business missions—narrowly or broadly—is equally important. This reality is particularly compelling when we consider automobile insurance. If driverless car technology fulfills its promise during the years ahead, more than 6 million auto accidents recorded in the U.S. annually could become a thing of the past. While none of us will regret this happy turn of events, as more than 3 million people are injured annually in auto crashes, carriers must consider how to continue to provide value and service to their valued customers. This consideration will begin with an in-depth analysis of such remaining risks as product liability, theft, vandalism, flooding and damage from fallen limbs and roadside debris, and continue through such new risks as cyber attacks. Following this analysis, insureds, agents and carriers can continue to reap the benefits of a renewed relationship that is as vibrant and vigorous as the one we left behind.
The threat of disruption posed by InsurTech to the present insurance model also challenges carriers to renew their relationships with insureds. While none of us can know for sure if InsurTech is a revolution or an evolution, a game changer or simply a new wrinkle, carriers would be remiss to not consider where benefits such as ultra-customized policies and dynamic pricing could fit into an expanded business definition.
While a sense of urgency is generally a good idea when considering ways to grow and strengthen the insurance industry, the need for quick action has never been greater than it is today. Amazon went from $0 to $20,000 per week in sales within 30 days of being launched in Jeff Bezos’ garage. 2016 revenue reached $136 billion. Meanwhile, Google reached $1 billion revenue in only a five-year period. Disruptive technologies like InsurTech don’t take a seat in the waiting room while legacy businesses prepare a measured response. They don’t even take time to open the door
When considering how to best draft a flexible, wide-reaching business definition, risk management comes to mind. Its appeal stems from the fact it doesn’t presuppose a solution. While, of course, insurance is one potential solution when managing risk, so is contractual risk transfer. Rigorous workplace safety training is another obvious solution. Flexibility is a key component of any business definition. Carriers can build out their current service set to include new ones.
Following are two companies that deserve affirmation for their flexible, wide-ranging business definitions:
As reported by Carrier Management, Praedicat, which plays in our insurance space, has recently raised $6 million in early stage financing with a plan to reach beyond insurance clients to accelerate development of products that prepare companies for emerging or latent commercial risks. By reaching beyond insurance clients, Praedicat has stretched its business definition. In so doing, it has diversified its business risk while potentially increasing revenue and profit.
25 years after opening its first restaurant, the Union Square Hospitality Group – the owner of Shake Shack and many table service restaurants – broadened its business definition beyond the restaurant business by launching Hospitality Quotient. Management understood more than delivering food to its customers, it was delivering hospitality. Hospitality Quotient “helps companies activate the transformative power of hospitality as a sustainable competitive advantage.” Not one place is set or meal is served by this profit center.
We began this journey by discussing bicycles, buggies and cars, and ended with food and hospitality. With so much food being consumed in cars today, I suppose this is about right. For me, the most important takeaway from our journey is while carriers must remain focused on their core business proposition, they must also take time to see the big picture while embracing an aggressive, expansive business definition. Otherwise, they run the risk of being moved outside the frame.