Insurance companies today are all targeting profitable growth. There’s a buzz in the marketplace that one can shoot in any direction and hit their target. It’s not that easy, however, because real growth opportunities are not everywhere.
Executive SummaryStrategic growth calls for deliberate movements rather than rushed reactions in pursuit of shiny objects, write consultants for The Nolan Company. Here, they review organizational personalities that determine growth motives, review pitfalls to avoid—like ignoring internal and external barriers—and offer recommendations to limit the downsides of growth strategies.
If hitting a target only involved aim, every company would be hitting the mark. The fact is, most aren’t. Why? Insurers that want to achieve profitable growth must factor multiple variables into their strategy.
For insurers, several key levers control growth. These include products, analytics, distribution, new markets and resources. As a member of a consulting firm that has long advised insurance organizations, our experience suggests growth goals also require balance, alignment, integration and accurate interpretation of both internal and external conditions. It’s a bit like lining up the shot, getting into a stable position and knowing which direction the wind is blowing. Strategic growth calls for deliberate movements, not rushed reactions.
How to Find the Right Goal
Most growth goals generate excitement at first, but that excitement can turn to disbelief or complacency if employees don’t perceive the organization has committed the resources necessary to the “right” goal. A growth plan will improve an insurer’s results, but only when the plan exploits the insurer’s strengths, weaknesses and its market.
A strategic growth plan should begin with clear answers to a few questions, starting with:
- Why does this growth plan make sense for us now?
- What has changed externally in the marketplace, and internally, that makes this growth possible or necessary for us?
- What must our growth strategy deliver?
What’s Your Organization’s Personality?
Insurers we have worked with to develop successful growth strategies have different organizational “personalities,” which often determine their motivations for seeking growth.
Defensiveness. The desire to defend a market position from existing or new competitors can be a powerful motivator, particularly for insurers with solid books of renewal business in their product set or geography. Insurers with a defensive motivation might say: “We’re a monoline carrier, and multiline companies are going after our customers. We’ve got to do something!” or “Midsize regional carriers like us can’t afford to lose market share to national carriers!”
When defensiveness is the primary motivation for growth, it’s important that insurers’ plans address and reduce the threats and weaknesses they face. This is a limiting position that will give way to another “personality.” We have seen examples of successful organizations that took a defensive position for too long, only to inevitably fall behind their competition and fail to meet expectations in the marketplace.
Opportunism and Reaction. Growth opportunities can emerge when market conditions change. For example, an insurer might view a legislative change or regulatory reform as improving its potential for profitably underwriting in a given state. Its personality might assert: “We’ve been waiting for this. If we don’t act now, we’ll lose our opportunity!” Insurers that tend to be reactive or opportunistic should proceed with caution. Many insurers that play a reactive game end up chasing shiny objects, wasting valuable time and resources, and oftentimes just confusing the organization. Opportunism can be an appropriate use of organizational capital, as long as it fits your strategy.
Deliberate and Bold. Whether it’s new geographies, new states, new products or new channels, many insurers are eager to enter new markets—motivated to maximize their franchise value, knowledge, expertise and brand. This personality might confidently state, “We’ve got the right people, products and processes, and we will plant our flag in the market.” When exploration and conquest are the main growth motivators, many insurers use the opportunity to try selling new products. A new product can differentiate a new entrant in a market or customer segment, providing a foothold for the insurer to offer other products in its portfolio.
Pitfalls to Avoid
Regardless of what motivates an insurer to grow, just knowing what to do doesn’t make it happen. There are three common pitfalls to avoid.
1. Failing to decide what not to do. For most organizations, the hardest part of strategy is figuring out what not to pursue. Insurers need to acknowledge that there are limits to what their organization can accomplish. Ignoring those limitations can hurt employee morale and imperil the growth plan. Chasing shiny objects is expensive, disruptive and very often results in poor execution. Is your organization reacting to what comes at it or trying to create what it wants?
2. Downplaying internal and external barriers. Insurers need to acknowledge their short-term and long-term barriers to achieving growth. The more successful you’ve been, the harder it is to change, and often what was the key to prior success is not understood. That is seen in a very real example of underwriters wanting to ask 50 questions while agents and insureds live in a seven-question world. The message and change needed to be successful must cascade down to the desk employee to be embraced.
3. Underestimating weaknesses and overestimating strengths. It’s human nature to focus more on our strengths than our weaknesses, such as the majority of drivers clinging to the belief that they’re above average. Accident statistics indicate that simply isn’t true. For an insurer, a successful growth strategy relies on clearly understanding the organization’s strengths and weaknesses. For example, where is the organization’s profit sweet spot? Other areas to assess for strengths and weaknesses include the distribution system, customer experience, claims and underwriting capabilities, technology capability, talent, and management bandwidth.
The Quick and the Dead
Sometimes, market changes shift the paradigm and create unforeseen opportunities. In a case of a perceived weakness becoming a strength, smaller and midsize carriers may worry that they are at a disadvantage. They may think they lack the systems and structure of large organizations, with their specialization and large staffs, but there is good news. Today, big companies are not always beating smaller ones. The winners are fast-acting organizations that outpace the slower ones.
Insurance organizations seeking to develop a strategic growth plan should take note of the upsides and downsides of pursuing growth. For example:
- A strategic growth plan will interact with all aspects of the organization. Therefore, communicating the plan effectively is essential.
- Growth is a source of future value, but it also brings risk. Excitement and focus about growth can distract an organization from its day-to-day delivery and operational effectiveness. The customer experience may suffer unless the organization maintains a sharp focus.
- The organization’s capabilities—and its limitations—shape its growth strategy. Fit the strategy to those parameters.
- High-performing teams have a clear and shared understanding of their capabilities, the market, and how the customer defines value. This provides them with a strong position to deliver growth.
Look for upcoming articles, in which we’ll offer more insights for insurers, such as how to nurture legacy business while growth plans are moving at full speed.