Tag Archives: profit

3 Skills Needed for Customer Insight

While working in Amsterdam, I was reminded how insight analysts and leaders can shine brightly in very different contexts.

In the Netherlands, a mixture of training and facilitation was helping an events business. What struck me was the similarity of the challenges faced by their insight teams to the challenges I see in the U.K.

The more I work with insight leaders across sectors and geographies, the more I see how much they benefit from highly transferable skills. Here are three that are relevant to very different businesses and locations:

Prioritization

I’ve yet to work with a company where this isn’t a challenge, at least to some extent. As more and more business decisions require considering the customer, it’s not surprising that demand for data, analysis and research continues to rise. Most insight teams are struggling to meet the demand of both regular reporting (“business-as-usual”) tasks and the range of questions or projects coming in from business leaders. There have been many attempts to solve this struggle, including “projectizing” all requests (which tends to come across as a bureaucratic solution to reduce demand for information) and periodic planning sessions (using Impact/Ease Matrix or similar tools). In today’s fast-changing businesses, I’ve found that local prioritization within “the bucket method” works best.

What I mean by the “bucket method” is the identification of the silos (mainly for decision-making) that are most powerful in your business. This often follows your organizational design, but not always. Is your business primarily structured by channel, product, segment or some other division of profit and loss accounts? Each silo should be allocated a “bucket” with a notionally allocated amount of insight resource, which is based on an appropriate combination of profit potential, strategic fit and proven demand (plus acted-on results) Regular meetings should be held between the insight leader and the most senior person possible within that silo. Where possible, the insight leader should meet with the relevant director.

The bucket principle relates to the idea that, when something is full, it’s full. So, in reviewing progress and any future requirements with the relevant director, you challenge him to make local prioritization calls. Going back to the bucket metaphor, adding more requires removing something else—unless the bucket wasn’t already full. Due to human nature, I haven’t seen the bucket principle work company-wide or group-wide. However, it can work very well in the local fiefdoms that exist in most businesses. In fact, it can support a feeling that the insight team is close to the business unit and is in the trenches with them to help achieve their commercial challenges.

Buy-In

When trying to diagnose why past insight work has stalled or why progress isn’t being made, stakeholders often identify an early stage in the “project.” The nine-step model used by Laughlin Consultancy has a step (prior to starting the technical work) called “buy-in.” It takes a clear plan or design for the work needed and sends it back to the sponsoring stakeholder to ensure it will meet the requirements. Often, this practice is missed by insight teams. Even mature customer insight teams may have mastered asking questions and getting to the root of the real business need behind a brief, but they then just capture that requirement in the brief. Too few interpret that need and provide a clear description of what will be delivered.

There are two aspects of returning to your sponsor to achieve buy-in that can be powerful. First is the emotional experience of the business leader (or multiple stakeholders, if needed) feeling more involved in the work to be done. As Alexander Hamilton famously said, “Men often oppose a thing merely because they have had no agency in planning it, or because it may have been planned by those whom they dislike.” It’s so important in the apparently rational world of generating insight to remember the importance of emotions and relationships within your business. Paying stakeholders the compliment of sharing the planned work with them ensures the intended deliverable will meet their needs and is something that often helps.

The other benefit of becoming skilled at this buy-in stage is learning to manage expectations and identify communication requirements. With regard to expectations, you should set realistic timescales (which, first, requires effective planning and design), along with openly sharing any risks or issues so that they don’t come as a surprise. Communication—and asking how much a sponsor wants to be kept in the loop—can make a real difference to keeping your sponsor happy. Some sponsors will be happy with radio silence until a task is complete or a decision is needed (they value not being disturbed). Others will lose confidence in your work unless they hear regular progress updates. It’s best not to confuse one with the other.

Communication

Training customer insight analysts in softer skills often results in a significant portion of the course focusing on the presentation of findings. This isn’t surprising, because, in many ways, that’s the only tangible product insight teams can point to, prior to driving decisions, actions and business results. Too frequently, I hear stories of frustrated insight teams that believe the business doesn’t listen to them, or I hear from business leaders that their insight team doesn’t produce any real insights.

Coaching, or just listening to others express such frustrations, regularly reveals that too many analytics and research presentations take the form of long, boring PowerPoints, which are more focused on showing the amount of work that’s been done than presenting clear insights. While it’s understandable that an analyst who has worked for weeks preparing data, analyzing and generating insights wants her effort rewarded, a better form of recognition is having the sponsor act on your recommendations. Often, that’s more likely to occur based on a short summary that spares readers much of the detail.

Data visualizationstorytelling and summarizing are all skills necessary to master on the road to effective communication. Most communication training will also stress the importance of being clear, concrete, considerate, courteous, etc. Many tabloids have mastered these skills. Love them or hate them, tabloid headline writers are masters of hierarchies of communication. Well-crafted, short, eye-catching headings are followed by single-sentence summaries, single-paragraph summaries and then short words, paragraphs and other line breaks to present the text in bite-sized chunks.

Transferable skills

Insight analysts and leaders who master such crafts as prioritization, buy-in and communication could probably succeed in almost any industry and in many different countries. Many directors will attest to the fact that sideways moves helped their careers. A CV demonstrating the ability to master roles in very different contexts is often an indication of readiness for a senior general management role.

industries

Outsiders Retreat From Insurance

Cargill, Monsanto, Wells Fargo and John Deere are officially out of the crop insurance business, according to a recent article from Bloomberg. Large companies like these expanded into different aspects of the agriculture industry over the past few years, and their debut in the insurance industry made quite an impact. With their newly acquired insurance operations, they were the market players to watch – and now we’re watching them leave the industry.

Behind this exodus is the matter of profit. Large companies, especially those that are publicly traded like Monsanto and John Deere, have a different perspective on risk and profit than the typical insurer.

Let’s take crop insurance profit and loss over the past couple years, which is driven by fluctuations in crop prices. As Bloomberg explained, “Bumper harvests have sent corn, the biggest U.S. crop, to less than half its 2012 peak, ratcheting down the premiums farmers pay to insure against loss. Other crops have also seen steep price declines.” At the same time, the broader insurance industry has been seeing lackluster results. The most recent numbers from the Congressional Research Service indicate an underwriting loss of $1.3 billion in 2012 and profit of $657 million in 2013. For insurers, although these are not welcome results, the reality is that there will be challenging years – and insurers are accustomed to anticipating them. They are in for the long haul. But large, diversified commercial companies such as Cargill, John Deere and Monsanto have a much harder time adjusting to these financial results.

So, were these big external players a collective blip on the map, or a real disruption? A pattern visible across many industries offers a possible answer. Large companies diversify around their current offerings, and, if the results are disappointing, they realize the expanded offerings are not core to their business. Google has been extremely successful in most of its diversification, but Google+, its social network offering, never became the powerhouse the compay had hoped would challenge Facebook. If these large companies are unsuccessful, they often leave the new industry.

This is not to downplay the role that new entrants have in the insurance ecosystem. They push our thinking and ways of doing business in directions that might otherwise have taken years for the industry to adopt. New players like Haven Life and Google are not attempting to be the same old insurer, only better. Their goal is to disrupt the business of insurance and to create something in a niche that the industry had not perceived. The disruption they cause can take many forms, from new solutions to new distribution channels. They can go after these markets without owning the entire process – and, in doing so, they create real changes in how the insurance industry has to operate.

Driverless cars will present similar challenges. Volvo and Ford have both mentioned the possibility of covering product liability insurance. How will this affect the insurance industry? Will automakers really cover the liability, or will they front it? Autonomous vehicles will change the insurance landscape by opening doors for these new thinkers. But will the insurance industry need to step in to present new insurance products that provide the necessary coverage? What role will insurers play in the new auto world?

Disrupters like Monsanto, Cargill and John Deere were not in the market for a long time, but they do have an impact. They invested in changing the claims process, and they applied data, analytics and automation in areas that were previously very manual – which causes us to rethink other processes. We can hope that their new ways of doing business opened some eyes in the industry. They did not change the game so much as establish that the game needs to be changed.

What to Learn From an Executive Chef

Howard Karp, a chef at the Waldorf Astoria and instructor at the California Culinary Academy who cooked for four U.S. presidents, once told me the secret of cooking: “It’s all in the technique. There are no shortcuts.”

Exquisite food comes from a highly trained, coordinated and cohesive kitchen operation that involves culinary skills such as slicing, dicing, searing and sautéing. Chef Karp added: “One must also understand the chemistry of cooking.”dwdwdw He explained that the order and manner in which all the ingredients are “introduced to one another” makes all the difference.

Watching him cook a five-course dinner for a small group of us was like watching an artist paint a masterpiece. I never followed a recipe card again.

In my world, risks are a common ingredient and need to be handled just as expertly as the fish, meat and other ingredients that Chef Karp works him magic on. The risks to business ventures include:

  1. Damage to reputation/brand
  2. Economic slowdown/slow recovery
  3. Regulatory/legislative changes
  4. Increasing competition
  5. Failure to attract top talent
  6. Failure to meet customer needs
  7. Business interruption
  8. Third-party liability
  9. Cybercrime/viruses
  10. Property damage

Some organizational risk management programs I’ve seen follow a recipe of sorts that seems to have been passed down from one risk manager to another — but only good wines and spirits improve with age.

Clearly, the prevention of accidents (workforce, property, fleet, customer, etc.) establishes the basis for sustained profitability. So, boards demand that senior management have robust involvement in the organization’s enterprise risk management (ERM) efforts. Risk management departments cannot operate outside the business flow and related decision-making processes. Management silos have no place here. Decisions about risk must be driven across all operational aspects of the organization in a consolidated, standardized fashion to build trust and meaningful partnerships with operations.

But the traditional corporate approach to reducing risks is one clever safety campaign after another. Risk management staff, especially those in workers’ comp, obsess on frequency and severity — cutting the number of claims and reducing reserves and settling claims. Risks are “managed” by things like: compliance enforcement; personal protective equipment (PPE); signs; and those safety contests. Risk management operations are often buried in finance, HR or legal departments.

But these loss controls, from my experience, are no match to the potential losses that may occur under a bureaucratic, disliked supervisor.

Senior management must raise its game and focus on the strategic components of risk, such as: alternative risk financing, market economics, reputational risks and human capital. In turn, management needs to know the true costs in each business unit. Relevant risk factors may be buried in a ream of statistics, but corporate executives need to know if their risk management program is making an impact. How is information collected, managed and disseminated? Are your analytics predictive?

After 38 years of directing risk management, I believe that organizations must embrace what some friends and colleagues are calling a culture of safety (COS). This is the pièce de résistance.

COS involves using embedded risk management teams in each business unit to send signals up and down the corporate ladder that loss control is much more than a motto or simple list of steps to take. COS requires developing loss-control programs that are a product of the DNA of a specific organization. COS builds strong, binding partnerships among business units that allow the development of a platform for data analytics, volatility analysis, forecasting and reporting that allow for continual improvement through ERM/Six Sigma. COS has demonstrated significant savings, in the tens of millions of dollars a year at a single company.

There are five essential stages to a viable culture of safety:

  1. Awareness, repositioning of responsibility and analytics
  2. Cultural sustainability through behavioral economics
  3. Behavioral change through positive observations
  4. Combined service, safety and engagement measures
  5. Extended service, safety and engagement measures to the community

An organization should have a vision to assess knowledge, skills and abilities and work with HR to train employees to bring about new levels of expectations. Old safety methodologies focused on inspectors; audit and regulatory-based decisions; checklists and processes; task completions; and frequency-based decisions. COS, on the other hand, is behaviorally focused using coaches, trainers and outside consultants who partner with teams of employees who are already technically proficient and operational savvy. In addition, key performance indicators (KPIs) can help shape behaviors.

To deploy a viable COS, companies should consider using qualified outside experts as a diagnostic tool to identify and quantify risks using meaningful analytics. Companies need to know how they stack up against the competition. This type of analysis by reputable firms can provide practical insights for senior management and lead to the building blocks for a fine-tuned corporate risk strategy and an enhanced culture of safety.

One such consulting firm, Operant Solutions, inspired me to write this article with stories on risk management successes it presented at the RIMS Western Regional Conference in Lake Tahoe recently. (If you’re interested in getting a copy of the presentation, you can contact Sue Antonoplos at 650-336-3144.)

I am inspired by the words of Julia Child: “Cooking well doesn’t mean cooking fancy.”

Healthcare Reforms Aren’t Sustainable

A recent NPR program celebrated the success of the Affordable Care Act (ACA). The benchmark was that many really sick people finally had coverage and that many poor people were now obtaining coverage because of subsidies or because of the expansion of Medicaid. If measured by participation, the healthcare reform under ACA is a success, with more growth anticipated.

Unfortunately, the long-term benchmark must be sustainability and outcomes, not participation. Government programs are often popular in the short term but not sustainable in the long term. The National Flood Insurance Program, Medicare, Medicaid, the VA, etc. will ultimately have to be “adjusted” because 100% of the taxpayers are funding these systems and a very much smaller percentage of us use them.

At some point, the non-users scream “enough already.” “Other people’s money” always runs out, and the $2.6 trillion-plus spent on healthcare is not evenly divided. 47% is spent on the sickest 5% of the population, and just 3% is spent on the healthiest 50% of Americans, according to “Healing a Broken Healthcare System,” from the Louisiana Healthcare Education Coalition. Half of the people are hardly benefiting from the money they contribute under healthcare reform.

Our systems of healthcare and healthcare financing cannot be sustained as they are trending. Yesterday’s system was not sustainable; neither is today’s ACA. The marketplace must innovate. More government and more taxes are not the answer.

Obesity and diabetes are running rampant, and too many folks (especially young people) are living a sedentary lifestyle. This lifestyle adds to the “diseased population” and the future problems and costs.

Personal and family responsibility are a necessity. Nutrition (diet) and activities (exercise) are a start. Addressing the individual in all her elements — mind, body and spirit — is a must. Answers to this crisis are inside of us as individuals and populations — not just at the doctor’s office.

Providers and institutions delivering care must leverage technology for efficiency of operations and efficacy of results. Increased availability and utilization of naturopathic physicians, physician assistants, nurse practitioners, health coaches, nutritionists, counselors and tele-medicine will ensure increased patient engagement and ultimately satisfaction and enhanced results.

Preventive medicine for all and “bringing” care and prevention to populations who can’t get to the marketplace available to most will improve lives and reduce costs. We need fewer dollars to be spent on prescriptions and invasive surgeries. It’s okay for providers and payers to just say no to demands that are not in the consumer’s best interest — regardless of what the TV commercial suggests.

Genomics, improved diagnostics to ensure earlier interventions, a focus on extending life (versus delaying death), integrated/holistic care, marrying technology and touch and technology, natural medicine and other changes are in the works now.

Other hopes rest in vascular therapy, tailored and embraced wellness plans, systems that can intervene with populations in need during crises and tailored and personalized process management for chronically ill mental health patients. Accountable care, outcome-based payment mechanisms, new models of care and care delivery and consumer engagement (personal avatars facilitating our own motivation allowing us to design our own “road to well”) are solutions now or yet to be introduced in the market of tomorrow. These are our future. Marcus Welby, M.D., is dead, but the healing and caring he delivered can live on.

This article was written in August. Last week, I received proof of the concepts. A friend received his renewal for his ACA policy. Coverage was reduced from a 70/30 co-pay (insurer pays 70%,) to a 60/40 plan, yet his premiums increased 31%. This is just the beginning — it will get worse. When you insure a majority of sick people and you subsidize many of their premiums, you will get participation. When relatively healthy and unsubsidized policyholders receive prohibitive rate increases, they will discontinue coverage, and the insured pool suffers adverse selection. Did I mention that the situation will get worse?

The 2 New Realities Because of Big Data

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.