When you are in the early stages of starting your company, your one focus is to get things rolling. To do that, you prioritize: raising capital, getting your Certificate of Authority, obtaining reinsurance and, of course, growing the policy count. And don’t forget about agent licensing, regulatory compliance, hiring people, and all of the systems, processes and other moving parts that make an insurance company work.
Executive SummaryMany regional and specialty carriers focus on growth without stopping to look at the scalability of their processes, people and tools—increasing the risk that they won’t be able to fulfill their responsibilities to policyholders and regulators over the long term. Here, Carol Williams, CEO of Strategic Decision Solutions, advises carrier leadership to set milestone markers—periodic checkpoints triggering breaks in the action to re-evaluate how well their systems, processes and staffing can support current and future stages of development. She also provides a five-point checklist with specific items of focus.
A few years go by and the company has grown tremendously. Premiums and policy counts, and therefore market share, continue to grow. On the surface, things seem to be going quite well, but when you begin peeling the onion layers back, a different picture emerges.
In spite of the appearance of success, the company is actually reeling on the inside. It is operating at a loss, reinsurance rates keep going up by double digits each year, and the threat of a ratings downgrade is looming. Regulators are frequently knocking on the door to examine every nook and cranny, and a growing number of lawsuits drain the company’s energy. Months and even years go by where it seems the only thing you and fellow executives do is put out one fire just to move on to the next.
Everyone acknowledges there are problems, but no one seems to know where they are coming from or how to begin fixing them. You only know that something needs to change, or else the company’s long-term success could be at risk.
Outdated Systems and Processes
During a phase of rapid growth—whether it occurs for a couple years or 10—it can be easy to forget about some of those behind-the-scenes systems and processes that are critical to writing policies, paying claims and simply managing the day-to-day of the company. While this sort of ad-hoc infrastructure was sufficient when the company was a fraction of its current size, it can no longer handle the weight of exponentially higher numbers of policies, financial transactions, vendor contracts and even people.
Relying on systems and processes created for a much smaller company can, in fact, create grave threats to future success. Financial loss from overpaying on vendor contracts or claims, increased scrutiny from regulators, a damaged reputation due to delayed claims or other policyholder issues are just a few examples. It really depends on your company and specific circumstances.
Having some manual processes wasn’t a big deal when you had only one person inputting data, but now you’ve got 10 people doing a certain task. Not only does this elevate the risk that something could get entered wrong, there’s an increased risk of fraud since current processes do not allow for checks and balances.
Shifting Mindset From Growth to Scalability
When it is increasingly clear that issues can no longer be handled on a case-by-case basis, it’s probably time for you as a company to take a pause and shift from a growth mindset to scalability. Being able to scale up as conditions warrant is an important component of making the transition from that of a startup to a more established company.
Every company has goals around revenue or policyholders it would like to reach within a given amount of time whether they are documented or not. When these goals are set, the leadership should also set milestones—”gates” or “checkpoints”—to trigger when the company takes a break and evaluates whether current systems, processes and people are sufficient and effective without being bureaucratic or stifling.
Being able to scale up quickly and easily when future milestones are triggered is a critical part of any insurer’s long-term success.
Some areas where regional and specialty carrier executives can focus their attention to improve scalability include:
- Technology and automation. As mentioned earlier, manual data entry can introduce a variety of risks that can threaten long-term growth. Trying to manage an ever-growing number of policyholders or employees with rudimentary processes can create even worse headaches. If the company has reached a certain point, it may be time to consider software systems designed for said purposes. (Buy software; don’t build it. Many insurers do not have the IT people in-house to support that kind of activity.) For example, you may still be issuing payments to vendors manually.
- Engage with third-party vendors for additional support. Many insurers will have their own call centers, but in the event of a triggering event, having a third-party on hand can help the company scale up and maintain robust customer service in times of increased workloads. Just make sure that the service contract includes quality metrics for accountability and tha the vendor is trained on your processes and systems.
- Underwriting standards and processes. In the beginning, your underwriters may have reviewed each policy application. This was OK when there were only a few to review each day, but things have since changed. To scale up and maintain an efficient process, policy applications with certain characteristics can be automatically approved or receive a lower level of review. This frees up underwriting staff to more carefully scrutinize those applications with higher risk characteristics.
- Develop a centralized area for vendor contracts. Although domestic carriers are typically required to file certain contracts with their respective regulator, many companies struggle to ensure every contract is being managed properly. But as your company grows, you will be working with a growing list of software companies, suppliers, service providers and other vendors. Having these contracts written, executed and managed in disparate areas of the company can cause a host of issues that can threaten future growth. (e.g., paying invoices on expired contracts). Instead, use vendor management software to organize the contracts and manage the relationships with the vendors. Know in advance when a contract is coming up for expiration, so you can decide if you want to continue with the vendor or go search for another choice. Either way, you aren’t scrambling at the eleventh hour when the contract is about to expire and you are forced into staying with a vendor you don’t really like.
- Establish uniform corporate policies. It might surprise you how many companies in the P/C space do not have simple corporate policies around expense reimbursement, vacation time, purchasing and other important areas of the company. The attitude in the beginning was “go forth and conquer,” but it will eventually become clear that this approach is now more of a liability than an asset. Corporate policies don’t have to be complex, but employees will appreciate boundaries and expectations being clearly communicated. And you and your fellow executives will save money and reduce your frustration.
- Improve communication and collaboration. Executives, managers and employees talk all the time, but are they doing it with a clear understanding of how their actions will impact other areas of the company? If marketing takes a particular course of action, how will it impact legal or finances? Everyone in the company has a role to play in ensuring success, but if they are not talking with one another, growth over the long term will be in jeopardy. Make sure that the company has regularly scheduled forums for collaboration, whether using technology or in a conference room. Set rules of engagement and encourage everyone to engage in the discussion.
These are just a few of the common areas P/C carriers struggle with after that initial spurt of growth.
Reviewing the operations or “backbone” of the company in a consistent, systematic way is a vital part of making sure that it is solvent, prepared for future growth, and that customer needs and expectations are met. Neglecting to shore up these and other areas could be devastating to the carrier’s future prospects.
In the end, it is the responsibility of executives like you to understand your company’s specific weaknesses and take steps to ensure continued growth and success.