The failure of many insurers to understand the needs of their clients holds back the industry more than any other factor, says John Neal
At times like this, phrases such as “back to basics”, “focusing on core competencies” and “sticking to your knitting” tend to become part of everyday business speak.
But important as they are, such sentiments ignore the single factor that continues to hold back our sector: the continuing failure of many insurers to get to know and understand the needs of their clients.
While this may seem blindingly obvious, sadly – because the underwriting community in general may never have truly achieved this goal – it cannot be regarded as going back to basics. More, it is a critical starting point.
Without this knowledge we stand little chance of ever meeting the needs of all our stakeholders simultaneously. And while this may not be a new issue, it is one that is becoming pressing.
The stock market performance of the non-life sector during the past 12 to 18 months should not be allowed to camouflage the fact that quoted insurers have been undervalued for years.
Such low valuations reflect the need for insurers to concentrate on underwriting for profit – on taming the cycle – and to focus on managing their funding “float” conservatively.
Insurers now have to achieve double-digit returns on equity in every part of the cycle to satisfy their shareholders – and they cannot afford to rely on releases from reserves to mask the sins of previous poor underwriting if capital efficiency is to be maximised.
Rather, today’s insurers have to manage every aspect of their corporate profit and loss account with real attention to detail and to train, equip and empower their underwriters to apply the same discipline to their books.
At the same time, they must get to grips with the perception of risk and desired service within the businesses that they serve. Only in this way can they target cover to cost effectively, and efficiently protect the assets and liabilities of policyholders.
Equally, and just as important, this knowledge is critical to support solid underwriting with a first-class claims and service proposition.
Last, and most definitely not least, the industry needs to understand the pressures that brokers are facing.
There is only one pie to be shared. Accordingly, insurers need to better understand brokers’ business models and profit targets to eradicate duplication of effort, so creating a better value proposition for all – underwriter, broker and client.
The goal of “getting to know your customer” is critical. It is the key to properly understanding the needs of shareholders, employees, customers and brokers and, as a result, to identifying the mutual touch point at which the needs of all these stakeholders meet.
It also provides a base from which to map out a long-term, viable proposition that delivers the necessary value for everyone.
It is a simple theory, and one already being put to good use in the industry’s pockets.
But, even though it is a far from radical principle in terms of good business practice, it has generally proved to be a far more difficult concept to implement.
But we cannot allow past experience to govern our approach to the future. In the current economic climate, our greatest opportunity and threat lies in this single issue.