What’s the Future with Insurance?
There’s no shortage of opinions.Leaders of several international insurance companies and other industry “experts” – were asked in 2017:
What major changes do you see on the horizon for the property/casualty insurance industry in the next 10 years?
Some of their answers follow:
In a decade, our venerable, well-established carriers with legacy systems and cultures—if they manage to survive—will be anachronistic.
Insurance companies are resilient, and they can continue to be resilient if they move quickly and decisively.
Could these two quotes offer more opposite perspectives? How helpful are either of these to your strategic planning?
If you could wake up an underwriter or broker from 1686, it would take only a few days to get them up to speed.
Success in this environment demands perpetual innovation and the ability to reimagine the world of risk. Yet, this must come at a time when many in our industry are saddled with business models that haven’t changed much in the last 200 years.
The insurance system today is built on agents, actuaries and underwriters, who will be replaced with simple-to-use online interfaces, algorithms and artificial intelligence.
What we expect to see in the coming years is a continuation of what happened in travel—with the majority of relatively simple customer scenarios moving to a few online players
These last four may leave us wringing our hands with worry about why we even want to remain in the Insurance business at all.
D2C will certainly gain more market share as well, but predominately, I think insurance will remain too regulated and too geographically fragmented to completely drop a broker or agent.
The diverse and embedded infrastructure for selling insurance is tougher to disrupt than most people think.
These two may allow us to exhale and catch our breath, regaining some sense of optimism for the future.Or, maybe we’re biased (or desparate) to believe these last two?
Digitization and automation alone are not the keys to success. What really matters is how we connect with our customers and gain a clear understanding of their needs. Our strategic focus is on the customer.
Hopefully, we can get behind this last one.
Many other articles, whitepapers, and reports offer bold predictions from the perspective of Insurers. As fun as gathering contradictory information may be, it’s not terribly helpful for us seeking to plan strategically for the future. A research study detailed in the book, Superforecasting, highlights the pitfalls of “experts” across domains studied for decades. Experts in politics, economics, sciences, you name it, were shown to be historically awful predictors. The authors note that “experts” make dart throwing chimpanzees look good. Areas of specialty, number of years of experience, even access to “classified” information, didn’t help accuracy. In fact, there seems to be an inverse relationship with expert’s own confidence and their predictive ability.
The Danish proverb “It is difficult to make predictions, especially about the future”, sums things up nicely.
We can run down many rabbit holes trying to predict the future. There’s no crystal ball offering clarity. All you can do is all you can do. There’s no single, correct path forward.
“Would you tell me, please, which way I ought to go from here?’ said Alice.
‘That depends a good deal on where you want to get to,’ said the Cat.
‘I don’t much care where -‘ said Alice.
‘Then it doesn’t matter which way you go,’ said the Cat.
― Lewis Carroll, Alice in Wonderland
I’m not smart enough to predict that any of the above “experts” will be right or wrong. I would bet on Insurance remaining in place in some shape or form for the foreseeable future. People will continue to exist. Businesses will continue to exist. Insurable assets will continue to exist. People will want to acquire things. Being a broker should remain a viable business for at least another generation. We would be well served to plan on being here and plan on remaining of value to insureds.
Biting our nails over what might happen is a distraction. Wallowing in worrying is an excuse to avoid doing real work that can make a difference today.
Insurance is a stable and mature industry. This is both its blessing and curse. Curse in that it is difficult to differentiate oneself in a mature industry. Blessing in that we’re not alone. There are others’ experiences we can look to for reference and ideas.
Is there an available resource that offers objective guidance as to what we could target operationally to make ourselves better?
The report formerly known as The Berris Report and now offered as Property & Casualty Insurance Brokerage Report distributed regularly every few years offers us a look at what successful brokerages are doing in Canada and presents both an objective comparison to our current state as well as a guide for our future strategic actions. It’s not a guarantee or protection against future change. However, I’d offer if we aren’t able to keep pace with best practices in the current marketplace, worrying about predicting the future isn’t going to be much help.
What objective guidance does the Berris Report offer us?
- The driving commonality of brokerages succeeding in current marketplace is a pursuit of Operational Excellence. Strong Net Profit (Operating Profit Margin) results in the range of 28%+. These strong profits are earned by consistently earning CPCs representing almost 7% of revenues coupled with concerted efforts in developing “other” revenue streams.
This strategic focus seems to deliver tactical decisions such as:
- Productivity/Employee efficiency. Berris report considers Revenue per Full Time Employee (Rev/FTE) as the single most influential financial metric to monitor. with a target of $118,000.
- Scale -> in order to maintain influence with and value to markets.
- Proactive Sales Approach. Develop niche expertise. Pursuit of particular markets/industry segments. They know who they want to sell to and go after them.
These areas offer great focal points. One would do well to seek clarity customizing definitions objectively in each of these areas for their brokerage. Perhaps, we could consider that if our results aren’t equivalent to those of the top 20% of brokers on the Property & Casualty Insurance Brokerage Report, then time spent on “Strategic Planning” isn’t very strategic at all. We’re likely putting the cart in front of the horse. We need to get serious about our operational excellence before we worry about a future that is impossible to predict.