麻豆原创

I don’t expect most insurance agencies to possess formal, in-depth strategies. Many are too small and focused on the next sale or the next renewal. Even many medium sized agencies are focused on the next sale, and provided they make sale after sale, their business won’t be optimized, but they’ll do fine.

Insurance companies, however, are in a different league. Around 35,000-40,000 independent insurance agencies (and who knows how many captive ones) exist while there are only about 1,000 property/casualty (P/C) carriers. And ultimately, it is the carrier who pays the claim and is beholden to the insured.

Good strategic plans always evaluate the competition in detail. I’ve seen very few insurance entities complete this part of a strategic plan at any depth. Although, I am positive one carrier has done it because their success is so significant they are putting their competitors out of business.

Most strategic plans I’ve seen focused on one of three factors: increase sales, decrease expenses, and for carriers, improve loss ratios. But to what end?

Those are tactical goals, not strategic goals. To what end does reduced expenses get an agency or a carrier? Higher profits? Not usually because these tactical plans in my experience never consider collateral effects.

Carriers

For example, it appears a majority of commercial carriers decided uniformly to “strategically” grow their small- and medium-sized enterprises (SME) book. They built plans involving their products and their pricing, and they made brochures and gave strong marching orders to their marketing people to write SME business.

But SME products only possess a small bandwidth of differentiation, so competition became price focused. The demand by carriers was great and not enough SME business existed. Demand exceeded supply and the industry’s loss ratios versus growth rate suggest the carriers growing their books most quickly are doing so by sacrificing loss ratios. Therefore, profits may not increase.

A true strategic plan considers what the competition is also doing or is likely going to do. At least with my analytics, this is predictable. It was obvious to anyone in the field what was happening and how demand was going to exceed supply.

Knowing this, the strategic plans should have been changed. If everyone crowds into the same fishing hole, the supply of fish does not increase. The odds of success obviously decrease. This simple analogy should be part and parcel of every strategic plan.

Therefore, if the SME market is still the strategic target, and the ability to differentiate on a product level is limited, then what other tangible differentiation factor, other than price, can be designed into the product, product delivery, claims, or whatever other competitive advantage?

I haven’t seen any evidence any carrier has thought this through. In other words, their strategic plans are evidence of going through the motions of knowing they should be doing strategic plans, but not willing to think through and execute difficult transitions to make a difference.

Carriers by and large can coast to the point of executives making good paydays. They just go through the motions of planning because everyone agrees that it is important to be seen going through the motions and maybe even executing on some level.

But a few carriers are different. They have accepted that in their markets, price will be the differentiator and to that extent, they have reduced their expenses significantly, enabling them to offer a lower rate while simultaneously increasing their profits. In fact, my research proves there are a few carriers who are growing far faster than normal while simultaneously making higher profits. They are indeed putting their competitors out of business.

A true strategic plan also looks not only at the goal, but also at the collateral effects. In other words, if expenses are cut, what happens to growth?

One carrier cut their underwriting expenses by paying their underwriters less than market wages. The good ones do not seem to be staying, but the bad ones are. Agents are no longer placing their good accounts with that carrier.

Successful strategies and companies are built by analyzing the entire picture and executing based on the entire, holistic situation.

I don’t see this kind of thought being put into strategic plans. One smart carrier’s publicly stated strategy is fascinating, and I don’t think many of its competitors are considering this company’s success or goals into their own strategies. This carrier is growing by more than $7 billion annually. Only about 15 carriers, out of 1,000, have $5 billion in total premium! And this carrier is extremely profitable, i.e., they are not buying their growth. This means this carrier is slowly putting carriers out of business through the death of a thousand cuts. Each carrier loses a little and they don’t really notice it, until they’ve waited too long.

Agencies

The same goes for agencies. A strategic plan is not to hire a producer or cut expenses. An agency’s strategic plan varies by size. I’ll use a larger agency, a $10 million revenue agency. That agency has competition from many angles. It has risks from many angles. Not only might its plan be to hire a producer, but it had better have a plan to enhance that producer’s probability of success. Furthermore, the financial analysis should be on an ROI basis. And that includes identifying the weaknesses of key competitors rather than developing a producer and telling them to go and find sales wherever they can find sales. This most common latter approach is a critical reason producer failure rates are so high.

Agencies had also better be identifying which carriers can support their growth in this market because not all can. Growth resources are always finite. Optimal use of market resources separates winners from also-rans.

No one goes into an athletic game without analyzing the opponent. But insurance companies and agencies build “strategic” plans without ever analyzing their competition. Worse, they don’t think through the collateral effects or logistics of what is truly required to achieve their strategic goals. This is likely to worsen with AI because the Siren song of AI for many is the guilt-free abdication of having to responsibly think.

The most important logistical consideration in building a strategic plan is consideration of the requirements to execute the plan. In particular, the strict accountability of achieving each task and sub-goal. It’s wonderful to have a plan to grow by 15% and you’ll do so by hiring two producers.

Who is responsible for hiring the producers? Who is responsible for developing the producers? What is the penalty for failure? What is the reward for success? This level of execution responsibility is sorely lacking throughout this industry and the winners are clearly taking advantage of this reality.

A high-quality strategic plan therefore requires fully thinking through the plusses and minuses. It requires superb data and analytics. It requires execution accountability. And the couple of carriers cleaning everyone else’s clocks are checking all three boxes. I know of maybe six brokers doing the same. In each case, they are taking advantage of their competitors who are just going through the motions. In today’s state of the industry, a true strategic plan may very well be the difference between sinking and swimming.