Certainly 2001 has been a year like no other, with events continuing to influence our lives in 2002, and beyond. For some, this will be a time of reflection and moderation, even inertia.
GROWTH STRATEGY REVIEW
Commonsense strategies for insurance agencies
By G. Edward Kalbaugh
While many prefer the status quo, leaders will build new paths forward.
Certainly 2001 has been a year like no other, with events continuing to influence our lives in 2002, and beyond. For some, this will be a time of reflection and moderation, even inertia.
While many prefer the status quo, leaders will build new paths forward. Even so, leadership will surely be tested, as new developments shape the global and local landscape. Thus, it is important for insurance agency principals to follow commonsense strategies that mitigate risk while still ensuring that opportunities are realized.
Before discussing strategies, it is useful to first review some important developments that will affect insurance agencies and their customers.
Important developments
1. Security. There can be no doubt that security concerns will be a top priority going forward, affecting two important areas--the physical and the cyber environments. The cost of securing these environments will be enormous. But limited capital, including government programs, is beginning to flow into the marketplace to help meet security needs. This will fuel opportunity for the insurance industry as well as the companies that provide security products and services.
But security concerns will also have another impact. People will naturally become more conservative and risk-adverse, resisting opportunities and relying instead on that which is known and comfortable.
2. Retrenchment. This aversion to risk will be manifested by retrenchment in a number of areas, especially public capital markets. Already we have seen capital drying up in these markets, with venture capital firms focusing on extracting value from existing investments.
In fact, financial markets are returning to basics, and in some ways to the '80s, especially the major investment banks and buy-out firms, which have shifted from public to private equity deals. For example, the top 10 private-equity firms, led by Goldman Sachs, have amassed private-equity capital in excess of $120 billion. These firms target companies desperate for cash, consolidate them at bargain prices, and then profit from spinning off assets.
While this activity may weed out losers, it can also shift the emphasis of winners from core competencies to a singular focus on owner financial reward, thus weakening the economy. This trend also contributes to drying up capital ordinarily available to small and middle-market companies, thus exacerbating the inability of these firms to meet rising insurance and other costs. Thus, capital retrenchment will have consequential affects for agency customers.
3. Reintermediation. As capital tightens, companies typically look for improved efficiencies, including elimination of intermediaries in the distribution channel. However, traditional disintermediation is giving way to the introduction of a new kind of intermediary--one that provides "one-stop" value-adds, operating with dramatic efficiencies in shifting focus to the customer and away from the product.
Enabling technology and the desire of customers to rely on trusted advisors fuels this reintermediation. Thus, it is important for insurance agents to understand this trend, since the agent's role as value-added intermediary is today barely scratching the surface of opportunity.
4. Customer interactivity. Mercedes Benz now links 310 U.S. dealerships to a private network delivering video manuals, training and repair instructions on demand to more than 4,000 technicians. Mercedes also automatically places a 911 call when the owner does not respond to live phone prompts after onboard sensors detect that the car has just been in an accident. Through onboard GPS, Mercedes knows where the car is at all times.
This is an example of commercial and consumer interactivity with a service provider. This interactivity is enabled by a combination of technologies that provide real-time interpretation of data and creation of customized responses by the customer and the service provider, all across a secure private network.
Customer interaction--delivered through a variety of platforms, including the Internet and mobile devices--creates a feedback loop that enables Mercedes to establish true relationships with its customers and bring sales and service to new levels. Insurance agents must find ways to do the same.
Selected strategies
These developments have been highlighted because they will have significant impact on the insurance business and the way agencies deliver services to their customers. Taken collectively, these developments suggest that agencies need to examine their customer relationships and prepare strategically in order to properly position as these developments unfold.
1. Develop and protect brand equity. Brand equity refers to the value of your identity, which is tied directly to how your customers perceive you. As customers become more concerned about personal and business security, they will turn to trusted advisors whom they have come to depend on. This will mean that your brand may become one of the most important assets of your insurance agency.
At the same time, other powerful symbols, such as AOL for example, are fast becoming trusted portals used by your competitors for transacting consumer business. As these other brands gain customer mind share, business may be siphoned from your agency.
How do you protect and enhance brand equity? First, you must have a clear vision of the value delivered by your agency to customers. Your brand and value proposition must be communicated to your customers and your marketplace. And last, everyone in the agency must consistently deliver that value.
2. Remove barriers between you and your customer. Insurance agents are intermediaries between product producers (insurance carriers) and product consumers (customers) because agents add value necessary for effective delivery of the insurance products and services. However, there should be no artificial barriers between the agent and the customer.
Make the selling and service process as seamless as possible and as interactive as possible at every customer touch-point. Technology can facilitate this. For example, every customer should be able to choose the method of interactivity--direct online access to computer information or direct contact with an employee.
As illustrated in the Mercedes example, removal of barriers and creation of interactivity may require a combination of technologies and human interaction. Agencies need to achieve both.
3. Increase your share of the customer. Each customer requires different things from the agency and each has different value to the agency. This value depends on your ability to cost-effectively serve the customer and more important, your ability to sell new products and services to the customer.
This has several implications. You may have to actively obtain more information from your customers. This may mean acquiring new database technology to house and access the information.
Some customers may not be profitable, once direct and allocated costs are taken into account. Some may have high value potential. You may have to enhance agency knowledge in order to offer new products and services. You may have to give up some products and services and even give up some customers. Your imperative is to retain and focus on profitable customers and those who can become profitable through additional effort on your part.
You must also know your marketplace. As you examine your current customer base, also examine the marketplace and your ability to respond to its needs. What needs exist that aren't being met? Where are the threats? Where are the opportunities--local, regional or national? How is the marketplace best accessed? Do you have the resources to meet marketplace demand? Can you get the resources?
4. Expand outward. While it is important to achieve internal growth, most successful agencies achieve hyper-growth by expanding outward. External growth strategies may include acquisition of another agency, a book of business, a capability or expertise, or development of new programs and distribution channels.
Growth strategies may focus on growing revenues and/or earnings. To grow revenues, agencies must acquire new customers or sell more products and services to existing customers. At the same time, to grow earnings, agencies must contain and/or reduce expenses.
All initiatives must be properly funded, so it is important to manage your agency to ensure adequate earnings. This should not simply be a cost-cutting exercise. Your effort should also focus on optimizing the ability of your agency to deliver value to your customers as efficiently as possible. For example, this may mean hiring specialists, providing additional training, developing new methods, or investing in new technology.
The trick is to balance revenues and earnings growth while sustaining the agency's ability to compete and expand in the marketplace.
5. Partner aggressively. High-performing agencies owe their success in large measure to the value-adds from a network of business partners. These include carriers, vendors, lawyers, accountants, associations, consultants, and others that support agency goals and objectives.
Seek partners who can help you increase knowledge of the marketplace and the major players in the insurance industry, those who are successful and who demonstrate a willingness to share information and knowledge.
Consider as an investment in your future success those partnerships that share your vision, and that deliver a value proposition above their cost.
Summary
Agency principals need to constantly monitor developments that influence the insurance marketplace and respond to these developments with strategies that preserve and increase agency value. As trusted advisors, agencies need to preserve brand equity and focus on the customer. At the same time, agencies need to expand outward and seek partners that can help them achieve success. *
The author
G. Edward Kalbaugh is a partner with Allegent Growth Strategies, a full-service consulting firm specializing in services to the insurance industry. For more information, visit Allegent's Web site (www.allegentgsi.com) or contact the company at info@allegentgsi.com or (516) 364-7034.