Tag Archives: performance

Keep Your Eye on the Fourth P

If you ever took a marketing class, you probably remember the four “P’s” – product, price, promotion and place. While attention to all of these is vital to business success (including one or two new ones added over the years), the fourth P, place (which really is about distribution) has been getting a lot of attention lately in the insurance industry. From traditional channels with agents and brokers to new channels like Google, Compare.com, Gobear.com, Walmart and others, the place where prospects and clients meet insurers is worth a fresh look and an open discussion.

Celent recently reported that many insurers are investing in their distribution capabilities to spur growth and retention by adding or expanding channels and markets and optimizing existing channels. Celent predicted a steady market for investment in distribution management systems from 2014-2016 (“Deal Trends and Projections in the Distribution Management Systems Market,” September 2015). Gartner has indicated distribution management is one of its hot inquiry topics for 2016.

As I wrote in my last blog, distribution might also be the most tangible touchpoint to customers for product inquiries and purchases, outside of paying bills or making the occasional policy change. Interactions with our distribution channels are key opportunities to create positive customer experiences that lead to loyalty and additional sales down the road. Because only a fraction of our customers will have a claim in any given year, few will have the opportunity to experience the true value of insurance. That places the “burden of value proof” upon insurers, to continually reinforce protective messages, supplement with preventive knowledge and reiterate the comfort customers can have in knowing they are insured.

Distribution has always been the prime communicator of these messages and an extremely important part of the insurance value chain. Channels we use have evolved over the centuries, as insurance itself has evolved. (See the recent report from III, “Buying Insurance: Evolving Distribution Channels,” for a good history lesson). But numerous forces inside and outside of our industry have been rapidly transforming this important element of the insurance business model. As an industry, we can’t afford to think about distribution in the “usual” old ways.

Traditional channels are still vitally important, but having a broad array of distribution options is even more important in today’s marketplace. With consumers’ shopping/buying preferences and behaviors changing based on more progressive industries and companies, options and alternatives are critically important to capture and retain customers. While the digital revolution and fast-emerging technologies are intensifying this change, they have not replaced traditional agent channels, despite the predicted demise of the agent channel a few years ago.

Instead, consumers are using multiple channels (traditional and non-traditional) for shopping, buying and policyholding processes. In many cases, it comes down to whichever channel is easiest or whichever channel seems to fit the moment when the individual is ready to transact. This echoes a trend within all industries. For example, research by Deloitte reported by Business Insider found that consumers shop for groceries on average across five different types of stores, no longer needing a traditional grocery store when one is not convenient. Consumers are now buying groceries at warehouse clubs and super-stores like Costco and Walmart, where one-stop-shopping can save time (CBS Moneywatch). For retail suppliers, this means courting any and all potential distribution outlets.

Likewise, insurance needs to expand distribution channels beyond the traditional channel silos of direct mail, captive agent and independent agents to a new model, an omni-channel ecosystem that seamlessly interacts with and meets customers’ ever-expanding expectations. This doesn’t mean that insurers should rush out and go on a channel shopping spree. It does mean insurers must build a strategic action plan for their unique channel ecosystem using relevant channels, partners and capabilities that work cohesively together to optimize the customer relationship. The irony of this is that while insurers are doing this to make things easier for their customers, it can make things a lot more complex for insurers. Enter the growing need for effective distribution management, and systems that improve carriers’ capabilities to manage multiple channels and multiple factors. These factors include:

Compliance: Automation of key producer lifecycle processes, data capture and reporting saves time and ensures accuracy and timeliness.

Compensation: Moving from reliance on core systems and manual tracking and calculations in spreadsheets doesn’t just save time and increase accuracy, it also enables more targeted and creative programs to drive performance of your channels.

Performance: In addition to influencing producer behaviors, the right distribution management system makes available the volume and granularity of data you need to enable flexible reporting, as well as more advanced analytics like segmentation and predictive modeling. Majesco’s recent research report, “A Path to Insurance Distribution Leadership: New Channels and New Data for Innovative Outcomes,” provides some useful insights into how companies are using data to improve the performance of their distribution channels.

Self-Service: Portals for your producers and channel partners give them the transparency that’s vital for trusted, mutually beneficial relationships. Developing e-service capabilities for customers and agents was a high priority among insurers Majesco surveyed for the recent research report, “Digital Readiness in Insurance.”

You can have the best insurance products, pricing and advertising to build your market presence, but if you don’t have a distribution ecosystem underpinned by a robust distribution management system to optimize and maximize these channels, your customer growth and retention potential will remain limited. If it is difficult to effectively optimize compliance, compensation and performance of your channels, you could end up losing to competitors that can. Distribution management systems are no longer considered back-office systems; they are front-office enablers in today’s radically changing marketplace. That brings us back to the concept of place. Just like long-established retailers will remodel every couple of years, the place you meet your customers can’t remain untouched without your organization and its products losing their feeling of value.

Are you developing a distribution ecosystem? Do you have the right distribution management solution to optimize your established and newly developed channels to help you grow? Celent and Gartner are telling the industry that your competitors are considering and implementing modern distribution management systems. If you haven’t been considering distribution management modernization, now is the time to begin the conversation.

Integrating Strategy, Risk and Performance

While many (including me) talk about the need for integrating the setting and execution of strategy, the management of risk, decision-making and performance monitoring, reporting and management, there isn’t a great deal of useful guidance on how to do it well.

A recent article in CGMA Magazine, 8 Best Practices for Aligning Strategy, Planning and Risk, describes a methodology used by Mass Mutual that it calls the “Pinwheel.”

There are a number of points in the article that I like:

  • “Success in business is influenced by many factors: effective strategy and execution; deep understanding of the business environment, including its risks; the ability to innovate and adapt; and the ability to align strategy throughout the organization.”
  • “The CEO gathers senior corporate and business unit leaders off-site three times a year. As well as fostering transparency, teamwork and alignment, this ensures that the resulting information reaches the board of directors in time for its meetings….The result: The leadership team is more engaged in what the company’s businesses are doing, not just divisional priorities. This makes them more collaborative and informed leaders. This helps foster a more unified brand and culture across the organization.”
  • “A sound understanding of global business conditions and trends is fundamental to effective governance and planning.”
    Comment: Understanding the external context is critical if optimal objectives and strategies are to be set, with an adequate understanding of the risks inherent in each strategy and the relative merits of every option.
  • “Strategy and planning is a dynamic process, and disruptive innovation is essential for cultural change and strategic agility. Management and the board must continually consider new initiatives that may contribute to achieving the organization’s long-term vision and aspirations.”
  • Key risk indicators are established for strategies, plans, projects and so on.
  • “Evaluation and monitoring to manage risks and the overall impact on the organization is an ongoing process….Monitoring is a continuous, multi-layered process. In addition to quarterly monitoring of progress against the three-year operating plan and one-year budget, the company has initiated bottom-up ‘huddle boards’ that provide critical information across all levels of the organization.”
  • “Effective governance requires a tailored information strategy for the executive leadership team and the board of directors…. This should include: essential information needed to monitor and evaluate strategic execution of the organization; risks to the achievement of long-term objectives; and risks related to conforming to compliance and reporting requirements.”
  • “Integrating the ERM, FP&A and budget functions can help to manage risks effectively and to allocate limited capital more quickly and efficiently.”

I am not familiar with the company and its methodology, but based on the limited information in the article I think there are some areas for improvement:

1. Rather than selecting strategies and objectives and only then considering risk, the consideration of risk should be a critical element in the strategy-selection process.

2. The article talks about providing performance and risk information separately to the corporate development and risk functions. Surely, this should be integrated and used primarily by operating management to adjust course as needed.

3. I am always nervous when the CFO and his team set the budget and there is no mention of how operating management participates in the process. However, it is interesting that the risk function at Mass Mutual is involved.

What do you think? I welcome your comments.