Dare to Lead: A Prescription for Prosperity

By Rob Berg

Optimism is a forward-looking quality. At this time last year, however, there was a striking lack of optimism in 2009 forecasts and a backward-looking set of predictions. This is no surprise to those familiar with an old insurance company joke. It compares an insurance company, and by extension the insurance industry, to a car in which sits the CEO, the chief marketing officer, the chief underwriting officer and the chief actuary. The CEO is steering, the chief marketing officer has his foot on the gas, the chief underwriting officer has her foot on the brake and the chief actuary is looking out the back window telling them all where to go.

So where do we find optimism? We do see some positive signs for 2010, including a rallying stock market, a return to profitability for the insurance industry and an increase in housing numbers. Unemployment remains steady at 10 percent, and credit still is quite difficult to obtain. People are hoarding as the savings rate increases and the use of credit declines precipitously. Our country is over-leveraged, the tax rolls have been decimated by continuing unemployment and foreign governments own the vast majority of our Treasury securities.  How can one respond positively to an economic climate with so many variables in flux? Where does one place their bets, so to speak?

An encouraging thought is that tomorrow’s market leaders will be born of these times, trading danger for opportunity and   looking forward with the knowledge that better times lie ahead. Tomorrow’s leaders will carefully weigh strategies, balancing critical decisions against an appropriate appetite for risk. To join their ranks, insurance companies should use the advantages wrought by crisis to purchase tomorrow’s prosperity. Here’s how:

• Pick up talent. There’s a new pool of talent available that was not available a year ago. Pick up those talented folks who have been sitting on the sidelines, and shore up your team for the coming expansion.
• Invest heavily. We’re seeing marked increases in technology investments by prescient companies gearing up for the next big upswing. The December 2009/January 2010 issue of Insurance & Technology notes that 40 percent of mid-size P&C carriers intend to increase IT spending during 2010. Similar gains are expected among 30 percent of large carriers. This means your competitors intend to spend; so should you.
• Break into new markets. Get a fix on markets that were hard hit. Insurance companies offering financial guarantee products, for example, were especially hurt, posting a combined ratio of 276.2 during 2008 and 175 for the first nine months of 2009. As poor risks shake out of that market, the quality of credit risks increases dramatically and a skittish lending industry looks for more ways to secure their funds.
• Get your house in order. Small gains in efficiency translate into big savings. Take a good look at internal operations to gain a solid understanding of where incremental improvements can be made. Finding one or two points of margin in a $100 million book of business is significant. The best news is that the big wins come from the first wave of improvements. Pareto’s Law reminds us that 80 percent of our inefficiencies come from just 20 percent of the possible sources.
• Outsource. Take a look at non-core operations best put in the hands of capable partners. Where did you suffer most during the downturn? What parts of your operation are most impacted by the wild market cycles the insurance industry notoriously endures? Outsource, turn your fixed costs into variable costs and create an agile enterprise that readily responds to market moves.

Challenging times send weak competitors reeling, while strong, visionary companies confidently capture low-hanging fruit the gales of recession inevitably force to the ground. This is a great time to be strategically opportunistic. Take stock of your organization, make the most of an unprecedented opportunity to gain the tools of prosperity and assume a previously unattainable market position. Dare to lead!

Rob Berg is principal and director of management consulting for Perr & Knight.  He can be reached via email at rberg@perrknight.com.