Facing Non-Traditional Rivals

THIS MONTH'S EXPERTS

JEFF BEHM
Chief E-Business Officer
InsureHiTech (Princeton, NJ)

GREGORY A. ROSS
President
eStrategies Consulting, Inc. (Acton, MA)

LOU GEREMIA
Founder
Insurance.com (Newton, MA)

BRIAN W. SMITH
Senior Partner
Mayer, Brown & Platt (Washington, DC)

WILLIAM N. PIERONI
General Manager, Global Insurance
Industry, IBM (White Plains, NY)

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Q: What can insurers learn from the successes and failures of non-traditional competition, including retailers, dot-coms, media firms, banks and non-US institutions?

A: Jeff Behm, InsureHiTech: Insurers need to act on the knowledge that our industry has fallen well behind others in using Web technology to create internal efficiencies and to make life easier and better for customers. Just because some dot-coms have failed does not mean that slow, incremental change will win out. Banks and brokerages with really great online service (like Schwab) have raised the bar for us.

A: Gregory A. Ross, eStrategies Consulting: On the failure side I would say we have learned that just because something is technically possible, doesn't mean people will want to do it or will change their behavior in order to do it. Another lesson is one of establishing trust, especially when the products are non-demand-oriented, like insurance. There needs to be an interaction with a trusted party during the transaction. Most insurers don't have the kind of brand recognition that would permit them to interact with customers the way a retailer or bank does. Usually the local agent is the brand. So, insurance carriers need to focus on being an excellent wholesaler of their products to the agent.

A: Lou Geremia, Insurance.com: As online, multi-carrier insurance platforms evolve and expand their presence, it is very clear that retail customers want to have choices among products and insurers. Customers want to be able to feel as though they have efficiently "shopped" and found the best value from someone they can trust.

A: Brian W. Smith, Mayer, Brown & Platt: The most successful companies seem always to "play to their strength"—expanding on developed expertise and established competence. Many recent failures stem from venturing into new businesses without a full appreciation for the complexities of the business or without proper homework to identify risks—legal, regulatory and financial business challenges. Insurance companies are familiar with the intricacy of a heavily regulated business. They should be naturally attuned to "gliding" into similar and compatible businesses and to co-venturing with other, more experienced players to gain comfort with new businesses.

A: William N. Pieroni, IBM: It is critical to understand your fundamental basis for competitive advantage and identify strategies and tactics that reflect these strengths. Additionally, organizations need to recognize that they don't need to own the entire value chain. A significant number of companies have created value through capability sourcing and distribution alliances.

Q: Which kinds of organizations are the biggest potential competitors to insurers?

A: Ross: The brokerage companies are much better positioned to compete with insurers than banks. Their technology is real time and "straight through," their information is consolidated and the full-service brokerage houses have representatives who can build trusted relationships. Insurance companies' back office systems are usually not fully integrated, remain paper-based and are not real time, so it is difficult for them to deliver a good Web experience to either customers or brokers and agents. Firms with a hybrid insurance and investment focus, such as American Express Financial Advisors or Prudential, are good models to emulate.

A: Geremia: Large financial services firms will be bigger players in distributing insurance products to their enormous installed bases of customers. While I see these firms acting more as distributors as opposed to underwriters, they will continue to wield more influence with insurers, as technology increasingly enables them to economically distribute product, and as their customers continue to feel comfortable buying insurance through them.

A: Smith: Different competitors for different lines of business. Retail-oriented banks are broadening their reach into insurance agency businesses. Life, even property/casualty, on the retail agency side, are natural growth areas for banks. On the wholesale/commercial lines side, I see banks more reluctant to underwrite P&C or life business. The ways banks will cross over will be twofold: foreign banks joining with foreign insurers ultimately introducing this business to the US markets, while US banks and insurance companies joint venture to form managing agency or managing underwriting companies.

A: Pieroni: Diversified financial services companies pose the largest competitive threat to insurers, given their capability, infrastructure, existing relationships and ability to maximize customer lifetime value across the financial services spectrum. Additionally, product manufacturers are increasingly viewing bundled financial products as a new source of growth and a strategy to improve customer loyalty. Self-insurance poses the greatest threat to commercial insurers. Unbundling of services in both personal and commercial lines will occur as many technology-based specialists emerge.

Q: What is the value of "coopetition," where insurers partner with competitors, such as banks?

A: Behm: Primary value comes from reduced costs of customer acquisition/ maintenance, as these firms can now share client data. However, those who do not respect the privacy of their clients will see strong negative reactions. Coopetition works best when the firms have a well-integrated CRM platform supporting the marketing.

A: Ross: Because no company can build it all itself, partnership is a business necessity today. The key is to realize that the cultures and expectations of firms like banks are different from those of insurers. Banks are more focused on customer profitability and direct marketing, while insurers tend to be distribution-focused and have more of a sales culture. Careful consideration as to who is the wholesaler vs. the retailer in these situations and who owns the client is key.

A: Smith: Partnerships and joint ventures, on the one hand, and joint marketing arrangements and alliances, on the other, are valuable means of combining to better serve customers. The former are more formal, involving contribution of capital, acquisition of risk and a role in management. The latter, potentially, are more flexible vehicles which can provide unique opportunities for customer service, product development and distribution, and profit. The keys to both are proper preparation, clear and shared expectations, good documentation and good faith.

A: Pieroni: Where premium growth is stalled and acquisition costs for profitable segments are high, insurers should consider partnering with competitors. In situations where insurers are unable to achieve minimum efficient scale, they may choose to partner with competitors to optimize expenses. Where external knowledge transfer is required or insurers want to test strategies with limited initial investments, partnering may be the best method of increasing long-term value for the company.

Q: What technology issues should insurance companies consider to be better positioned against new competition?

A: Behm: Insurance companies will need to rapidly exchange data online with agents and customers, for the entire customer lifecycle (not just upload/download for quotes). Agents and brokers will need new agency systems that improve internal workflow and allow rapid distribution of information online between clients and insurance carriers. Agents and insurance companies need to fully support industry initiatives which help develop standards allowing such exchanges, such as ACORD XML efforts.

A: Geremia: Providing retail customers choice of products and insurance carriers is both a philosophical and technological hurdle for insurers. However, I believe it is a hurdle that will prove to be surmountable and worth the effort. Consumer demand is growing for that value proposition and "advocacy."

A: Pieroni: Pervasive computing creates opportunities for new products and services. Around the clock, untethered access from a variety of devices is being facilitated by emerging global standards and increasingly smaller form factors. Deep computing enables cost-effective processes to mass customize products, pricing and customer/producer interactions. Finally, e-sourcing will increasingly enable capabilities to be purchased on an as-used basis.

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio