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Insurance companies, like all companies regardless of industry, should have several management capabilities: a strategy to differentiate themselves in the marketplace, a business model to enable the strategy, a moat to defend the business model, and a plan to strengthen (or replace) any deteriorating or dying components of the moat.

Executive Summary

Viewpoint: In this article inspired by a section of his recently published book, "From Stone Tablets to Satellites: The Continued Intimate but Awkward Relationship Between the Insurance Industry and Technology," insurance analyst Barry Rabkin discusses the defensibility of moats protecting P/C insurance businesses, opining that technology and associated technology applications components of a moat will dry up more quickly than other moat components.

Creating a Robust Business Model

Moats depend on the existence of business models.

Investopedia defines a business model as “a company’s plan for generating value to targeted market segments through its provision of products or services (or both) and simultaneously generating a profit.”

There are many other descriptions of business models available. However, the essence of what I consider a traditional business model comes down to four major components: a value proposition, a profit formula, a set of resources and a set of processes.

A firm’s value proposition should be defined to help someone (consumer or corporation or both) accomplish a job (i.e., fulfill a need) affordably, conveniently and effectively. The firm establishes a profit formula to deliver the value proposition in a profitable manner. The firm identifies the resources it needs (buildings, equipment, people, skills, products, technology and technology applications) to support the value proposition (and deliver it profitably). Processes are created and maintained that are required to support the firm’s value proposition and resources simply and affordably.

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