Those of us born in prior generations are used to certain innate complexities about insurance. We are almost immune to the thick stack of documents that accompany a policy. We’re not particularly upset about having to jump in a car to visit our insurance agent’s office to ask a question or pay a bill. We somehow are even understanding about delays associated with getting a claim adjustment or an appraisal completed. But, in June, Millennial demographics crossed the chasm. Millennials exceeded a quarter of the population, passing the number of baby boomers. The question for business is, Are we ready? Do we truly know our new consumer; do we understand what they want, what they need, and what they like? It seems obvious that generations get older and that things change, but did we miss the Millennial switch? Are we still stuck thinking about the customer of yesterday and today, or did we start to shift to meet the demands of the customer of tomorrow? The Millennial consumer does not have our patience and understanding. This consumer has seen great companies like Google, Amazon, Apple and others consistently deliver on their promise by providing excellent service. Millennials demand the same in insurance – the speed and quality, simplicity and transparency, fairness and flexibility. Millennial consumers do not understand why insurance has to be so complicated that it almost requires a degree in insurance to truly grasp it or why the policy cannot be acquired, managed and paid for easily online or over mobile. This consumer doesn’t understand when 24/7 service is not available and definitely does not understand when certain insurance activities take weeks to finalize. A Millennial knows that he can acquire money from any of his friends worldwide in a matter of minutes and does not understand when payments from a worldwide enterprise take weeks. Likewise, a Millennial doesn’t understand when claim information captured immediately during the incident cannot be delivered and reviewed in real-time and why almost every claim no matter how small must go through a process that could come out of a CSI episode. As an industry, we are already too late. The industry finds itself experiencing a true generational gap between the insurance organization and the Millennial consumer. What the new insurance customer demands requires more than just fine tuning of existing methods, technologies and business processes. There is a need to re-invent insurance as a whole, and innovative technology and products are the key.

We promise, when we wrote our monthly discussion a few weeks back titled, "At the Margin," we had absolutely no magical insight into the price correction U.S. stocks experienced last week and this, one of the more noticeable in quite some time. You may remember our early August discussion heavily detailed the frailties of human decision-making regarding investments, with particular light being cast on emotional crowd behavior. Greed and fear are two of the most emotionally dominant drivers of decision-making, and two of the greatest enemies of investors. We’ve learned after decades of experience in the financial markets that controlling our emotions is the most important personal exercise for investment decision-making. Having said this, we thought it was important to look at the bigger picture in light of the downward movement in the U.S. and global stock markets over the last several trading days. Although it’s never fun to experience a price correction, we need to remember that price corrections are normal in financial markets. What is abnormal are markets that go straight up without corrections -- or markets that go straight down, for that matter. With all major U.S. equity markets off 10% or more as of this writing, one of the longest periods in market history without a 10% correction has ended. The last time we experienced one was in 2011. The steep correction that has taken place in the last week in U.S. equity markets appears to be a combination of emotional selling and forced selling because of margin calls, as the fundamentals of the markets have not drastically changed in the past week. Let’s step back for a second. Is this the beginning of a bear market in US stocks? No one knows. For now, there is not enough “weight of the evidence” to suggest this, but we’re keeping score. Although few probably realize this, about a month ago 20% of the S&P 500 stocks had already fallen 20% from their highs, well before the recent correction in the major indexes. The fact is that a “stealth correction” has already been occurring for some time now. If you own the stocks that have corrected in this manner, you are fully aware. What happened in recent days is that a lot of the “winners” of this year sold off. Historically, market corrections have been nearer an end than a beginning once the leaders finally correct. We will be watching market character closely in the weeks ahead. It has been so long since we have experienced any type of even semi-meaningful correction in the U.S. equity markets that we have been convinced, when it finally arrived, it would feel like a bear market and emotions would be highly charged. Sound familiar? Is there plenty to worry about in financial markets and global economies today? You had better believe it, but there has been plenty to worry about for years now in the aftermath of the Great Recession. U.S. corporations and households are a lot healthier today than was the case a number of years ago. Perhaps ironically, it’s the government sector where we find balance sheets impaired. It’s a good thing we can’t buy share ownership in global governments. The worries will never stop; there is always something to worry about with the flood of data tied to financial markets and global economies. The key is assessing the magnitude of the reality of these worry points and how they may affect real world economic outcomes. For now, no one knows where the markets will travel with any day-to-day precision. We have been expecting a correction for some time now, although having it happen in just a few days feels like quite the dramatic event. That sense of “free falling” over a short time is never comfortable. We instinctively act to stop the feeling by any means possible; it’s just who we are. We believe it is imperative to do two things as we move ahead – 1) keep our emotions in check while thinking objectively and 2) assess forward market character on a continuing and intensive basis. As we have stated many a time in our communications to you, risk management is the key to successful investment outcomes over time. We know emotions have recently run higher than has been the case for some time now, and because of this it feels the risks of being invested in the equity markets are greater. If the weight of the evidence tells us this for-now-short-term correction is to become something much deeper, we will not hesitate to take protective action. The key in investing is not pinpointing the market peak prior to a correction nor nailing an exact interim market bottom before a rally. The key is avoiding large bear market drawdowns and participating in favorable market environments to the greatest extent possible.

Bowen Thomas Swift was born on Wednesday, Aug. 12, at 6.45am. His buddies call him Bo. Weighing in at 6 pounds, 14 ounces, Bo is 20 inches long, has a normal-sized head (which, if you know either of his parents, was a huge relief) and like any baby is completely and utterly dependent on his parents. He is a blank canvas. So, listen up, son. Here is some advice about how to be a leader, about how to work with people, about business and about life: Lead with compassion. One of the greatest opportunities in life will be the opportunity to lead people. But remember, with this opportunity comes huge responsibility. The people you lead will look to you every single day for two things: direction and guidance. The words that you choose and the tone that you take will matter at all times. So what kind of leader will you be, Bo? Always, always, always remember to take the individual into consideration first. Serve others, and the world will reward you 10x. There will be times when you may question the actions and decisions of those around you. Always assume the best of people. Take the time to get to know people. Always be open to learning and the perspective of others. Slow down, ask questions and seek to understand. Always be compassionate. Live the vision, breathe the mission. Leadership can be defined as the ability to inspire others to achieve a shared objective. The two words that jump out for your dad are "inspire" and "shared." People will go the extra mile when inspired to do so. But remember, son, they must understand the bigger picture and their individual roles in the mission to be really inspired. Then live the mission, Bo. Live every single moment of every single day. Be passionate. Life is too short. Be open, honest and constructive. Feedback is a gift. As a leader, you will have the responsibility to provide feedback. Good and not so good. Both are equally important to the recipient. But, Bo, you must earn the right to give feedback to people. If you don't earn the respect of those around you, they won't listen to you, buddy. Always be respectful. People don't plan to mess up. They don't wake up in the morning and say to themselves: "Today I'm going to do everything I can to fail." When the time is right, and you'll know when, always be open, honest and constructive with feedback. Constructive, for me, is the most important word. Show peopl a path. Guide them down it. Make fast, high-quality, data-driven decisions. By the time you get the chance to lead people, the world will be moving way more quickly than it does today. And, son, it moves pretty damn quickly already. Don't ever make decisions based on a gut feeling. Even when you are under pressure to make a quick decision. We live in a world of big data. You may have a gut feeling about a topic or, as your dad calls it, a hypothesis (thanks, Mike Derezin). But prove your hypothesis with data before you pull the trigger on anything. Business or personal. Slow down to speed up. Collaborate to win. The most successful people in the world are the ones who know how to collaborate. They are self-aware enough to know what they bring to the table. But they also take the time to understand the skills, ability, knowledge and experience of those around them. You will not succeed in life, Bo, if you try and go at it alone. And by the way, son, life is way more fun when you respect and work in partnership with those around you. Keep things simple. Right now, you eat, sleep and poop. As you get older, you'll be pleased to know that you'll have the opportunity to do more things. You will engage with people. People are interesting, but they can bring complexity to life if you let them. As their leader, you will have the job of listening to the complexity, deconstructing their challenges, helping them simplify, helping them get to the core of an issue or a challenge and then sending them on their way. And, please, don't use 400 words when 10 well-chosen words will suffice. Keep things simple. Work hard, play hard. We all have to work, Bo. Life is expensive. But please pick something that makes you happy. Do something you are passionate about. Whatever you choose, remember to have fun. Don't take yourself too seriously. I don't, and it has served me well. Don't be afraid to laugh at yourself. You'll work hard. You're a Swift. But always strive for balance in your life. Work to live, don't live to work. Be present for those around you. There will be so many distractions. Life will get hectic if you let it. And, son, remember to breathe. That's a wrap, Bo. Thanks for listening.

There has been a lot of frustration in the insurance industry from both those who sell it and those who need it. Both camps are suffering financially, and both can do better if they get together on vital insurance protection, but they just can’t seem to hook up without jumping through hoops. In an era of hyper-information and instant communication, this disconnect may seem crazy, but it’s real. In a time of chaotic change, an online meetup service would be valuable to agents and consumers alike to repair that agent/client relationship and put the personal touch back into insurance. Financially challenged agents and consumers Incomes have stagnated for insurance agents and the general public alike, and the route to better times seems unclear for both sides. According to the U.S. Bureau of Labor Statistics, the mean annual salary for insurance sales agents inched up only 2% between 2010 and 2014. In 2010, it was $62,520.  In 2014, it was $63,730. Furthermore, the field has become overcrowded, with 18% more agents vying for the business in 2014 than in 2010. The general public has fared no better. Following the Great Recession, which began in December 2007, the wealthiest Americans have done well. The "rest of us," however, continue to struggle. The proportion of American households defined as "middle-income" remained stagnant from 2010 through 2014, at about 51%, according to a Pew Research Center study. Back in 1970, the "middle-income" percentage was 10 points higher. The potential for pocketbook improvements Both insurance agents and their prospects could do better financially if they could somehow get together more quickly and smoothly – through a matchmaker or intermediary. It’s easy to see how agents could profit. With, say, a 10% to 50% increase in qualified leads per month, a corresponding jump in income could be expected. And with other efficiencies through more nuanced matchmaking, even greater income increases might be forthcoming – through enhanced referrals, for example. It’s a little more complicated to see how connecting more smoothly could financially benefit insurance buyers. It becomes clear, though, when one goes to the heart of what insurance is for.  It’s for mitigating risk, which can be expensive. It also means personal benefits such as improved health and well-being. For example, good guidance from an agent can:

• Make the difference between paying and not having to pay for home repairs after a type of storm damage not covered by an “economy” policy the agent advised against.
• Preserve a family’s estate by convincing the family, early on, of the prudence of securing long-term-care insurance. This could be a financial game changer for millions of families that are now exposed. According to industry estimates, about 90% of those who could benefit from LTC insurance do not own a policy. And one of the biggest causes of bankruptcy is uncovered health expenses, especially in the later years!
• Help keep clients safe and whole through an auto policy with safe-driving incentives. The potential benefits range from lower premiums to higher lifetime incomes because of avoiding accidents that might interrupt the ability to work.

As technology and society evolve, good guidance from an insurance agent may affect people’s pocketbooks and lives in more significant ways than ever. More and more agents can:

• Team with financial advisers to foster sound budgeting, savings, investments and money management.
• Influence their clients’ health by recommending policies, now starting to appear, that come with fitness incentives. The financial win here is double: lower premiums for keeping up one’s wellness routine and greater lifetime earnings through enhanced vitality and work-span.

The matchmaker solution A good matchmaking service brings insurance agents and buyers together in very efficient, human ways. It starts with search and ends with introductions and contact.  It includes:

• A search function to locate agents for a particular type of insurance (auto, critical illness, health, homeowners, life, long-term care, Medicare supplement) in a particular geographic area.
• A list of agents with their pictures and names visible, for the buyer to peruse and select from.
• Details about each agent, including:
  • Insurance lines and carriers represented.
  • Agent’s biography or background description.
  • Reviews or testimonials with ratings (usually one to five stars).
  • Link to the agent’s personal or business website.
  • Other information ranging from a location map to social media links.

Limited matching has existed for a few years. Some generic consumer rating and matching services embrace insurance agents. They include Yelp and Angie’s List. General search services, such as Google and Bing, serve as de facto matching services, but in a very spotty way. Insurance associations develop leads that are sold to agents but do not typically provide free online access to individual agents. Robust agent-buyer matching, with all the above elements, is ready for prime time. In 2015, Agent Review, the first complete rating and matching service designed specifically for insurance agents and insurance buyers, was introduced.

I have some bad news. There are no longer any easy or obvious niches of sustained, guaranteed profits in insurance. In today’s environment of big data and analytics, all the easy wins are too quickly identified, targeted and brought back to par. If you’ve found a profitable niche, be aware that the rest of the industry is looking and will eventually find it, too. Why? The industry has simply gotten very good at knowing what it insures and being able to effectively price to risk. Once upon a time, it was sufficient to rely on basic historical data to identify profitable segments. Loss ratio is lower for small risks in Wisconsin? Let’s target those. Today, however, all of these “obvious” wins stand out like beacons in the darkness. To win in a game where the players have access to big data and advanced analytics, carriers should consider two new realities:

• You can’t count on finding easy opportunities down intuitive paths. If it’s easy and intuitive, you can bet that everyone else will eventually find it, too.
• Sustainable opportunities lie in embracing the non-obvious and the counter-intuitive: finding multivariate relationships between variables, using data from novel sources and incorporating information from other coverages.

Just knowing what you insure is only the start. The big trick is putting new information to good use. How can carriers translate information on these new opportunities into action? In particular, how can carriers better price to risk? We see two general strategies that carriers are using in pricing to risk:

• Put risks into categories based on predicted profitability level
• Put risks into categories based on predicted loss

The difference appears subtle at first glance. Which approach a given carrier will take is driven by its ability to employ flexible pricing. As we will now explore, it’s possible for carriers to implement risk-based pricing in both price-constrained and flexible-rate environments.

Predicting Profitability: Triage Model

In the first strategy, carriers evaluate their ability to profitably write a risk using their current pricing structure. This strategy often prevails where there are constraints on pricing flexibility, such as regulatory constraints, and it allows a carrier to price to risk, even when the market-facing price on any given risk is fixed. The most common application here is a true triage model: Use the predicted profitability on a single risk to determine appetite. Often, the carrier will translate a model score to a “red/yellow/green” score that the underwriter (or automated system) uses to guide her evaluation of whether the risk fits the appetite. The triage model is used to shut off the flow of unprofitable business by simply refusing to offer coverage at prices below the level of profitability. A triage model can also be implemented as an agency-facing tool. When agents get an indication (red/yellow/green again), they start to learn what the carrier’s appetite will be and are more likely to send only business that fits the appetite. This approach has the added benefit of reducing underwriting time and expense for the carrier; the decline rate drops, and the bind/quote rate rises when the agents have more visibility into carrier appetite. A final application carriers are using is in overall account evaluation. It may be that a carrier has little or no flexibility on workers' compensation prices, but significant pricing flexibility on pricing for the business owners policy (BOP) cover. By knowing exactly how profitable (or unprofitable) the WC policy will be at current rates, the carrier can adjust price on the BOP side to bring the entire account to target profitability.

Predicting Loss: Pricing Model

If a carrier has pricing flexibility, pricing to risk is more straightforward: Simply adjust price on a per-risk basis. That said, there are still several viable approaches to individual risk pricing. Regardless of approach, one of the key problems these carriers must address is the disruption that inevitably follows any new approach to pricing, particularly on renewal business. The first, and least disruptive, approach is to use a pricing model exclusively on new business opportunities. This allows the carrier to effectively act as a sniper and take over-priced business from competitors. This is the strategy employed by several of the big personal auto carriers in their “switch to us and save 12%” campaigns. Here we see “know what you insure” being played out in living color; carriers are betting that their models are better able to identify good risks, and offer better prices, than the pricing models employed by the rest of the market. Second, carriers can price to risk by employing a more granular rate structure. This is sometimes referred to as “tiering” – the model helps define different levels of loss potential, and those varying levels are reflected in a multi-tiered rate plan. One key advantage here is that this might open some new markets and opportunities not in better risks, but in higher-risk categories. By offering coverage for these higher-cost risks, at higher rates, the carrier can still maintain profitability. Finally, there is the most dramatic and potentially most disruptive strategy: pricing every piece of new and renewal business to risk. This is sometimes called re-underwriting the book. Here, the carrier is putting a lot of faith in the new model to correctly identify risk and identify the correct price for all risks. It’s very common in this scenario for the carrier to place caps on a single-year price change. For example, there may be renewals that are indicated at +35% rate, but annual change will be limited to +10%. Alternatively, carriers may not take price at all on renewal accounts, unless there are exposure changes or losses on the expiring policy.

Know What You Insure

Ultimately, the winners in the insurance space are the carriers that best know what they insure. Fortunately, in an environment where big data is becoming more available, and more advanced analytics are being employed, it’s now possible for most carriers to acquire this knowledge. Whether they’re using this knowledge in building strategy, smarter underwriting or pricing to risk, the results are the same: consistent profitability. Sometimes there are pricing constraints that would, at first glance, make effectively pricing to risk challenging. As we have discussed, there are still some viable approaches for carriers facing price inflexibility. Even for carriers with unlimited price flexibility, pricing to risk isn’t as easy as simply applying a model rate to each account; insurers must take care to avoid unnecessary price disruption. We’ve discussed several approaches here, as well. Effectively pricing to risk gives carriers the opportunity to win without relying on protecting a secret, profitable niche. In the end, this will give them the ability to profit in multiple markets and multiple niches across the entire spectrum of risk quality.

Remember the must-read book Unleashing the Killer App: Digital Strategies for Market Dominance, by Larry Downes and Chunka Mui? I was lucky to get a signed copy at a Diamond Technology Partners event and hear them speak about the killer app. It was in 1998, the start of the e-business revolution, with the emergence of the Internet as a platform for a new business model. Every company was holding executive management strategy sessions discussing the book and brainstorming. In the insurance industry, many were putting up their first websites and beginning to think about e-business opportunities that could become their killer apps.

Many insurance companies failed in this effort. Their vision wasn’t big enough. Their desire to upend existing models wasn’t strong enough. Rather, they thought incrementally and cautiously. This resulted in strange hybrid solutions, such as websites with no integration to back-end systems. Requests were printed off and manually put into the systems. Many companies wasted time on vaporware -- ideas that never got off the ground because of organizational angst or a lack of leadership.

The late 1990s were an exciting and painful time as we recalibrated our thinking toward an entirely new era of business. In spite of our efforts, we fell a lap or more behind in our race toward innovation.

But some companies succeeded. Think about Esurance and Homesite, startups that understood the opportunities and launched their businesses around this time. These companies exploited the dramatic changes introduced by the Internet and challenged one of the long-held business assumptions, that agents were required to sell and service insurance with direct-to-consumer models. As a result, they emerged as formidable, innovative companies.

Do established insurers have another chance to stay in the race?

Recently, I read the follow-up to the first book, this one titled, The New Killer Apps: How Large Companies Can Out-Innovate Start-ups, and another titled, Billion Dollar Lessons, both by Chunka Mui and Paul B. Carroll. Interestingly, the follow-up takes the view that decades- or century-long established companies can out-innovate today’s start-ups, many of whom are considered unicorns (pre-IPO tech start-ups with at least a $1 billion market value). These unicorns and other start-ups have emerged in the last few years with not only massive valuations but with real business models, real revenue and real customers -- unlike in the first Internet boom. Think of Uber, Airbnb, Snapchat, SpaceX and Pinterest.

Even more compelling for insurance is the rapidly growing intensity of change being influenced by these companies. Consider Uber and the impact on auto insurance, Airbnb and homeowners insurance or Snapchat’s new payment options.

The authors are quick to point out what we should all recognize, that being big AND agile is essential in today’s rapidly changing world of converging technology innovations, including mobile, social media, sensors, cameras, cloud and emergent knowledge. They estimate that more than $36 trillion of stock-market value is up for “re-imagination” in the near future — meaning that either existing companies reimagine their business and claim the markets of the future or the alternative may happen and they may be reimagined out of existence!

When the authors compared successes and failures of established companies, they found that successful companies thought big, started small and learned fast. Failures commonly missed on one or all of these points.

Is the insurance industry thinking big enough yet? Are companies innovating by starting small? And are they learning fast by experimenting, testing and learning from failures?

The only way insurers stand to catch up in a race where the trophy is not just success but also survival, is to out-innovate the competition, including the new competition from outside the industry looking to disrupt insurance. It’s possible, but it is going to require both wise technology investment and a whole new insurance business model mindset.

From the You Can’t Make This Stuff Up Department: Steve Legg took an important step on his path to becoming the director of risk management of Starbucks to avoid having what looked like a bad pun on his business card. He had earned his Associate in Risk Management designation, but that meant his name appeared as Legg-ARM. So, he says, he went on to earn his Chartered Property & Casualty Underwriter (CPCU) designation, because it is listed before ARM. His card now (safely) reads “Steve Legg, CPCU, ARM.” But I’m jumping into the middle of the story, in this second in our series of Thought Leaders in Action. (The first, with Loren Nickel, director of risk management at Google, is here.) To begin at the beginning, I’ll provide a summary of Legg’s background, then follow with the story of how he earned his prestigious position, some detail on Starbucks and how it manages risk and some insights from Legg for other risk managers. Steve Legg His bio Legg, who is 46 years old, has been at the Starbucks headquarters in Seattle since June 1997. His responsibilities include global corporate property and casualty insurance and risk financing for the company. Legg reports to the treasurer of Starbucks and heads a risk management team of 13 professionals, with two-thirds involved in claims management and the balance working in risk financing and risk transfer, its risk management information system (RMIS) , internal reporting and captive management. Starbucks has 22,519 stores in 66 countries, with a targeted growth rate of 1,650 net new stores during this fiscal year. Starbucks, the name inspired by Herman Melville’s novel Moby Dick, has one of the most recognized logos in the world. Its mission statement, developed by its founder Howard Schultz, is “to inspire and nurture the human spirit one person, one cup and one neighborhood at a time.” Before joining Starbucks, Legg worked as an independent insurance broker, as well as in a claims capacity for Crawford & Co. Legg served on the board of the Washington state chapter of the Risk & Insurance Management Society (RIMS) for seven years, serving as president of the chapter during the 2005-2006 year. He has been an active participant within National RIMS and has served as a speaker to other insurance industry groups, such as the CPCU Society, the Professional Liability Underwriting Society (PLUS) and the Marine Insurance Association of Seattle. He has a degree in political economy of industrial societies from the University of California at Berkeley. His story Legg grew up in Kirkland, WA, on the east side of Lake Washington. Nicknamed “the little city that could,” Kirkland is the former headquarters for the Seattle Seahawks and Costco. Kirkland Signature is still Costco’s store brand. “I grew up interested in a lot of different things, but I wouldn’t say with any degree of certainty that I knew what I wanted to do for a living,” Legg said. “I was intrigued with going somewhere else to study, so I attended UC Berkeley. I was interested in crisis management, and I just happened to be at Cal when the 6.9 Loma Prieta earthquake [1989] and devastating Oakland Hills firestorm [1991] hit. From those experiences, I thought I might pursue law school. “As things turned out, my first job was back in Washington state working as a claims adjuster for the branch manager of Crawford & Co., hired by our mutual friend and industry colleague Katrina Zitnik, who was later director of workers’ comp for Costco, 2001-2013. We handled the huge Boeing workers’ comp self-insured account. There were around 100 employees in that office alone. My specialty was working with chemical-related claims, which was really fascinating, before I moved over to liability claims. By my second year there, I started to really understand what risk management was all about.” From that experience, Legg went on to achieve his ARM designation. “It may sound corny, but I didn’t like the way it looked on my business card as Legg-ARM, so I went on to pursue my CPCU,” Legg said. “With that formal insurance education, I went to work for a regional insurance brokerage in Kirkland where I learned a lot about insurance and other facets of risk management.” Legg said: “I came to this realization that I didn’t want to handle claims or broker insurance. I wanted to be on the buyer’s side of all this – tending to insurance and a whole lot of other things.” In 1997, Legg was hired by his predecessor at Starbucks, which had gone public in 1992. At the time he joined Starbucks, the company had about 1,000 stores in the U.S. and Canada and just a few new locations in Japan. Legg describes his experience at that time in risk management as more of a buyer of insurance, but his job responsibilities quickly deepened and expanded with the global spread of Starbucks. He assumed the director of risk management position in 2006 when his boss and mentor retired and became active in the management of Starbucks’ Vermont captive. The evolving company Legg explained that the organizational structure is set up based on three key global regions: (1) the Americas; (2) EMEA, which is Europe, Middle East and Africa; and (3) CAP, which is China, Asia Pacific. “Our biggest push is in the CAP region, especially China, which presents a lot of opportunity,” he said. Although that region has a tea-drinking tradition, Legg pointed out that Starbucks owns the tea company Tazo and more recently bought Teavana and its 300-plus stores, providing a high-end, specialty tea product that has become popular at Starbucks locations. He said Starbucks’ specialty coffee and expresso beverages have also become very popular in tea-drinking cultures. Starbucks has also expanded its offerings in premium pastries (it bought La Boulange), food and merchandise offerings, and it recently began providing beer and wine in selected areas of the country. “Evenings at Starbucks had been under-utilized,” Legg said, “so with the rollout of beer and wine we’re able to serve additional patrons.” How Starbucks manages risk Serving 66 countries with various laws and customs, Starbucks has a global quality assurance organization work with business units that are immersed in foreign locations. “Risk management and legal principles are practiced with our people that understand and are sensitive to local government, culture, customs and laws,” Legg said. “Starbucks wants to provide appropriate food and beverages, and we have a global safety security organization, as well, that makes sure that we are tending to the different types of risks these different and diverse cultures hold. Safety and security are fundamental components in the initial and on-going training of our partners." When asked about the challenge of identifying, evaluating and treating risk in far-flung global operations, Legg noted that there is a common thread regardless of demographics that relates to keeping stores well-managed, clean, secure and hazard-free. He added that a global design team works with individual markets to address issues that mitigate any unusual risk factors, which could include something as simple as adjusting counter and stool height. Store components are designed to provide for each locale’s needs while Starbucks maintains the quality and consistency that its customers expect. As for dealing with its insurance and reinsurance markets, Legg noted that Starbucks collects a significant amount of data on all of its locations to enable its internal team and underwriters to have the geographic information they need for modeling. North American operations are mostly self-insured via large retentions and deductibles; Legg points out that first-dollar and low-deductible insurance policies are far more common, accessible and prevalent in other parts of the world. Compulsory insurance requirements differ across jurisdictions -- in many parts of the world, for instance, workers’ compensation as we know it is not available, and injuries or illnesses among employees (which Starbucks calls "partners") are addressed in different ways. “Regardless of the transfer or retention of risk, Starbucks feels that no one could ever care as much about our partners and our brand as we do,” Legg said. He added, “We inspire and nurture our partners and customers… through providing good products, friendly service and by contributing to our communities. It’s an important part of our culture and what makes this brand so strong.” All eligible full- and part-time Starbucks employees receive comprehensive health coverage and equity in their company, referred to as “bean stock.” In turn, employees typically volunteer more than one million hours each year in helping their local communities. Starbucks has also set up agronomy offices in different countries around the world to help origin farmers to better manage their crops and businesses. “It’s really important all up and down the chain from the front-line stores to the source of the company’s most precious commodity to have a seamless connection,” Legg said. His suggestions I asked Legg what coaching suggestions he has for people entering the field of risk management. He said, “I think to be successful in risk management that it helps to have a good understanding of a number of different disciplines like accounting, finance, law, etc. Most importantly, you need to have the ability to think critically through things to make good decisions and to then have the ability to communicate well and to influence others. Knowledge without good communication skills won’t equip you for this career. “I find myself guiding and teaching other people in the organization every day, helping them develop their own risk assessment philosophy in what they do day in and day out. We in risk management can’t be there all the time, so our job is to train others throughout the organization to make good, sound risk management decisions. “Be open-minded and flexible. Risk management staff needs to identify and admit their mistakes, correct things and be able to change course as needed.” Legg added with a laugh, “You think you know in detail how things are, then you find out you really don’t know how things are.”

A smoke alarm isn't the only kind of protection on sale at your local superstore these days. Need some life or health insurance with those printer cartridges? You’re in luck. Insurers like Metlife and Aetna now sell insurance policies through superstores. Walmart launched a pilot program with Metlife to sell life insurance policies at 200 Walmart stores, and Costco members can select Aetna health plans offered through Costco’s Personal Health Insurance program -- Costco has offered its members discounts on auto, homeowner, renters, umbrella and specialty insurance through Ameriprise Insurance for several years. Although not every effort has gotten off to a flying start, these are good examples of insurers experimenting with approaches to tap into large, underserved markets and new sales channels and to create brand awareness in a shopping environment where there’s a natural connection with the products they sell. What I’m most curious about is the impact the superstore channel will have on how these insurers sell. What can insurers learn from two of the world’s most valuable retail brands about creating the kind of convenient, affordable one-stop-shopping experiences that Walmart and Costco offer and consumers so desperately want? Plenty of things. Here are four: 1) FOCUS ON SELLING YOUR BRAND RATHER THAN YOUR PRODUCT Walmart and Costco both offer lower-priced house brand products, but neither focuses its attention on selling its own product even though that would obviously benefit the bottom-line. The goal is to own the customer by meeting the brand promise of offering low prices and good value on any and all products that a customer wants to buy. Walmart doesn’t worry about selling a competitor’s product – even with a small profit margin, Walmart still generates revenue and profit, through multiple product sales, and keeps the customer coming back rather than sending him to shop with the competition. It’s good business sense to focus on what the customer wants to buy rather than what a retailer wants to sell. Similarly, it’s good business sense for an insurer to consider selling products that are a good fit with the brand and that complement other product offerings – even if that means offering a competitor’s product. Selling a competitor’s products can help insurers facilitate that convenient, one-stop-shopping experience that consumers want. It allows the insurer to keep the customer relationship while generating revenue from underwriting the risk, or from brokerage fees. And in cases where an insurer doesn’t have the experience, appetite or capacity to underwrite the product, it’s better to make fee income than the underwriting income. An insurer’s No. 1 goal is to own the customer. The insurer that underwrites the product makes one sale; the insurer that owns the customer can sell to her for her entire lifetime. That can mean decades of selling renewals, cross-selling related products and generating referral business. 2) OFFER CUSTOMERS CHOICE Mac or PC? Chocolate or vanilla? We’re a culture of consumers who covet choice. Even a limited selection is enough to provide customers with this valuable component of the shopping experience. While Costco is cautious about the number of brands it offers (limiting the number of brands allows Costco to get the kind of volume discounts it needs to offer the lowest prices), like Walmart it offers at least two choices of brands for any given product. Providing a competitor’s products can help insurers, too. The objective is to give customers a selection ample enough that they can compare insurance products and choose the product that works best for them. As with Costco, this may mean offering the customer a choice between two brands that offer different price points and levels of coverage. 3) SELL CUSTOMERS EVERYTHING THEY WANT There’s nothing haphazard about the layout of a Walmart or Costco. Superstores invest a great deal of time and money walking the walk of their customers. They think through how customers search and shop for products and how those products should be grouped for optimal cross-selling opportunities. While insurers understand the profitable art of cross-selling, in theory, I’ve witnessed more than a few property and casualty insurers who’ve missed big opportunities to cross-sell products. What happens when that flower shop you just insured needs auto insurance on its three delivery vehicles and you don’t have it? If the insurer isn’t prepared to sell the customer what she wants, the customer will go to the competition to satisfy her multiple coverage requirements. 4) NEVER LET THE CUSTOMER LEAVE EMPTY-HANDED The path from creating awareness to having a customer walk through the door ready to purchase is long and expensive. A superstore does everything in its power to make sure you have no excuse to walk out the door without buying something. Factoring in advertising and promotional campaigns, the cost of bringing a paying customer through the door could be as high as $400 to $500 for some insurers. Every insurer’s goal should be to make effective use of a lead by finding some way to fulfill the customer’s product needs. I’ve only scratched the surface. Now it’s your turn: What superstore selling practices do you think insurers should consider to win market share?

• The founder and CEO of an early-stage company that has just closed a solid seed round tells me that what has benefited his business most in the past year, and allowed him to pivot toward a promising future, can be expressed in one word: focus.

• The CEO of a late-stage startup who spent more than 100 days closing a recent round with an important new investor tells me how he was thoroughly “beaten up” during due diligence because of what was perceived to be a lack of clarity in the company’s market positioning. This added weeks to the process, diverting resources away from sales and daily operations.

• The CEO of a B2B content start-up tells me that he and his team are doing too many things and essentially careening from one new idea to the next, acknowledges the need to prioritize but indicates he has to get through his short-term list first.

Each of these conversations is recent and real – they all occurred in the past two weeks. And while they happen to be about young, relatively small companies, each of these situations scales to big, mature companies, as well. If the issue isn't about closing a round of funding, it’s about getting funding in the annual budget. If it’s not about investor feedback, it’s about reacting to the latest round of input from the CFO or the board. And who among us hasn’t bemoaned the quarter-to-quarter focus of publicly held companies of every size and sector? Each of these stories points to the need every business has for strategy. And even if you think you don’t have one, or can coast along without one, guess again – you just have strategy by default. What is strategy? Better yet, what isn’t it? Strategy is NOT:

• The domain of high-priced (or any price) consultants who create fancy documents – although some outside perspective or facilitation can be a big help

• The catch-all for anything your team comes up with that survives the budget review process even though it cannot be precisely quantified (I have witnessed respected members of the finance function inside a Fortune 100 company be fully comfortable with this characterization)

• The department in which geeky, analytic introverts perceived as unable to execute (hence they create more of those strategy documents) build their careers

• Optional, something to be dealt with later, maybe when you have more time (tell me when, honestly, that will be?)

• A list of strategic initiatives…or a set of PowerPoint slides full of cool visuals

So, then, what is strategy?

• Strategy, quite frankly, is what leaders do to identify and allocate resources to help them get their businesses where they want them to go.

• Strategy is mostly about execution.

• Strategy is less about what you must do, than what you should not be doing.

Or, my favorite definition:

• Strategy is about knowing (1) where are you? -- (2) where do you want to be? -- (3) how are you going to get there?

There are both direct and opportunity costs of deferring answers to these three questions, and ultimately taking the actions that ensure every employee and partner can buy into and play their roles in ways that reflect the answers. Where to start:

• Write down what you envision at your “point of arrival.” What is it going to look like and feel like? What will respected colleagues and members of the sector be saying about your company when you reach your destination? What will your products, customer or client experience and customer service be like? What will your brand represent?

• Then write the story of where you are today, answering these same sorts of questions in the present.

• Spend most of your effort breaking apart the answer to “how” into three to five headlines.

• Now here is the toughest part: The temptation will be to build laundry lists of activities under each headline, or even just rearrange (and add to!) what you are already doing today. The successful outcome of this thought process is to surface things you would like to do (including things that are already underway) that you have to admit play at best a limited role in getting you where you want to be. And to cross them off the list and actually stop doing them.

What I am suggesting is not a one-and-done exercise. It’s not a solo activity. And while it may begin at an offsite or work session, it’s not a meeting. This is a process to reflect in your daily leadership, management and the culture of your company. This is how strategy becomes meaningful to creating sustainable and persistent growth. This article also appears in Amy Radin’s column in Huffington Post and her LinkedIn blog.

Here we go again: Out of the blue, FIS agreed to acquire SunGard. The joining of two more global technology firms creates another giant in the financial services space. Why so many?

• Power of scale. Size allows companies to consolidate overhead, with the merger of people, processes, infrastructure and product offerings, allowing for profitable growth.
• Market dominance. Buying market share and client footprint across industries certainly is faster than organic growth, and it allows for performance balancing across industries as the market swings and shifts.
• Diversification of offerings and clients. The broadening of offerings, rather than deepening capabilities, allows for an expanded footprint in customers across many industries.

What does this mean to us in insurance?

• Fills the gap. Combining creates opportunities to bring together a suite of offerings that better align to the changing needs of insurers as they continue to transform and innovate toward becoming the Next-Gen insurer.
• Reflects financial strength. Many M&As reflect the health and wealth of the financial services industry, especially in insurance. Insurance is a top target industry for many solution providers because of growing technology investments, expanding needs and demand and solutions providing more offerings.
• Presents fewer options. As we see more solution providers consolidate, there are fewer company options. But on the flip side, the solution providers will bring together all these technologies and services.

So don’t blink, there will be more to come. We will see more consolidation – all with the goal to strengthen offerings, broaden footprints, position for growth and ultimately seize the pot of gold in insurance.