September 1998 Meeting Recap

"A View from the Top"

Reported By: Lilly Cowan, CPCU

[NOTE: The following is a condensed report of the questions posed to the panel and their respective responses. Some statements have been paraphrased due to space limitations.]

As is traditional for its first meeting, the Philadelphia CPCU Chapter presented a panel of distinguished leaders from the insurance industry to discuss their perspectives on key trends and issues. Valerie Ullman-Katz, Chapter 2d Vice-President and Chair for Programs, introduced each guest: (in alphabetical order)

Joseph Braunstein, Senior Vice-President, Group Insurance Managed Disability, CIGNA; Karen Foley, Group Vice-President, Corporate Business Development, Marketing, CNA; Luke Laborde, Senior Vice-President, Strategic Market Relations, Willis Corroon America; Bill Caplice, Senior Vice-President,Corporate Marketing, AON Risk Services, Inc.

Question (Ullman-Katz): How are Agent-Broker-Insurance Company-Customer roles changing due to technology, which enables rapid and direct communication of information to customers?

Foley: I would re-phrase this question to, "How are changes in technology affecting customer behavior and what is the impact on us?" Customers have been experiencing interactions, via the Internet and other channels of electronic commerce, with many supplies (e.g., banks, retail booksellers, etc.) Their expectations are being transferred to the insurance world. Thus, consumers have increasing power, due in part, to the changes in technology.

We’ve been looking at this question by using a "4 –S" model that would apply both to insurance and brokerage/agency business. The four elements of what we do for a living consist of:

SELL (or purchase)

SORT – do a needs analysis and specifications, develop different options that might fit a customer’s particular needs

SELECT - final option that we think best for that customer’s needs.

SERVICE – component which is increasingly important in our business.

Looking at how these roles for each of the players in our industry are being impacted relative to emerging customer expectations, we see a very different industry going forward.

Caplice: I think the key is customer expectation. From a broker’s viewpoint, we definitely are seeing a more educated client, more demanding client; their job in understanding risk is different. But there are different levels, from the sophisticated global risk manager to the owner of the barbershop on Main Street USA.

I think customers still want the ability to talk to a human being, a professional, so that we can help buyers make decisions. The role of the broker agent is also critical. We need to be very well disciplined in listening and understanding what the risk needs are so that we can drive solutions.

Braunstein: Many employers are now having pressure from their employees in regard to traditional benefit plans. We have a more educated workforce who are demanding more choices, the ability to customize what they believe they need for their financial security. This is changing a lot of the dynamic in terms of what providers/vendors have to give employers in the employee-benefits sector. Technology has been a big driver of that attitude and behavior change.

Laborde: We now see ourselves in the business of mass-customization. Being able to take what once were fairly standard products, and through technology, have the ability to really tailor those products to the individual company. Technology, especially knowledge sharing on a global basis and faster response time, is changing the whole scope of our business. We are moving from strictly insurance solutions to business solutions.

Question: There’s been tremendous consolidation the past three years involving insurance carriers, agents and brokers. In your view, has this been a positive or negative development for insurance buyers? Where is this trend going?

Laborde: I recall this simple concept, from an executive development program, "Customers vote with their feet." Customers have been driving the consolidation of the industry through their expectations of both the scope of services and value/prices they are willing to pay. What we are seeing through consolidation is really a drive to be able to afford the type of technology investments that are necessary and still maintain reasonable levels of overhead that allow some market rate of return. Those companies that don’t have the ability to invest (in technology) will not survive. We hope there’s not much more for it to go on the brokerage side, but on the agency and insurance carrier sides, it will continue.

Foley: I want to make two points. First, the issue of transparency. The more information that is accessible, the more it changes the role of each of the players. Second, we have to think about new competitors. When we talk about consolidation, we can’t think about it only among insurance brokers or agencies.

I think that we will see consolidation of some very interesting combinations that we have not seen before. The reason is transparency, meaning that the mechanisms of insurance are becoming much clearer to people. It is almost more of an engineering concept, where you have component pieces that can be snapped together. (e.g. put together personal insurance, wrap that around financial planning, and then online access to mortgage financing, and so on.)

The result will be that all customers, both retail and commercial, will be able to have customized portfolios of products and services that meet highly individual needs.

Caplice: Clients value consultative services. The traditional brokering transaction that we are used to, negotiating for a better price (among underwriter, broker, client), is getting old and stale, even hurting our profits. We need to become better listeners. Part of consolidation is getting the right talent together, going with the best people, and getting a variety of different disciplines together. All these things come together so that the best talent is upfront listening to the client, with the tools they need to develop and design solutions.

Braunstein: To be slightly contrarian, let’s look at this from our customers’ point of view. They see "800 pound gorillas" being created, and that concerns them. For example, "Am I losing markets?…Am I losing availability?…Do these organizations now want to dictate terms and conditions?"

In our drive to become more effective and efficient, we shouldn’t forget to address the fears that customers naturally will have. So we need to change our approach: become consultative, provide value, identify what our organizations are very good at and execute. In the absence of that, customers are going to look to other types of vendors for their solutions.

Question: In such a fiercely price-conscious, competitive benefits market, how can a company truly differentiate its product?

Braunstein: In thinking about this, I started to go back to some fundamentals.  First, we’ve got to start with persistency, retaining the existing customer bases that we have as a foundation. Focus on what it takes to retain customers long term and translate that into new product ideas.

We can learn from benefits decision-makers. They focus on how satisfied employees are, especially now with record low unemployment. Stronger and richer benefits programs, with lower costs and greater value and service, are becoming the norm. So to the extent that we work on satisfying and providing care for employees, that is one way by which we will differentiate our organizations to the employer (or other decision maker.)

The last point I want to make is about this drive towards integration. There’s a lot of value and interest in it. Our organization is making a big investment in integrating care (linkage of benefits and property/casualty products, WC,etc.) Those things will succeed because they solve a customer’s problem, not because we will pull customers to them. Generally, people tend to resist taking pioneer risks. So, when we bring new products and services to the table, we have to do it in a customer-friendly way.

Caplice: One of the things I am involved with everyday is getting people to think differently, "out-of-the-box." It really gets down to changing peoples’ behavior on how they approach business everyday. Our business, we’re in the business of taking risk. We have to be risk-takers, we have to be first. We cannot be afraid to fail.

Foley: "How do you start something like that?" First of all, we have a tendency in our industry, to start innovating, by thinking of distribution channels and profit. When we look at other industries, (e.g. credit card companies), they track customer data very carefully and can distinguish between real "drivers of behavior" and "proxies." Let me explain. A "driver of behavior" is the actual thing on which a consumer bases his/her decision, whether or not to purchase a product or service. A proxy would be an answer a person might give in a satisfaction survey.

I think that data mining, collecting real valuable information on our customers, is something we all need to do. It is a tool that can help increase the probability of customers wanting a product or service we are offering. Also, it keeps the overhead down and that’s what we, as an industry, have to do because the cycle of product development time is shrinking. The only way to do that is to have data on what really drives customer buying decisions.

Laborde: I think the key trend going to forward, looking at the next ten years, is to think out-of- the-box, in terms of the way that we have been historically organized and how we provided clients with services. For many of our clients, traditional insurance industry distinctions (such as P & C, Surety, etc.) are not relevant. They have business problems to face. What they need are individuals who can come in and understand their business situation and offer multiple solutions. I think that is where the differentiation at all levels of the industry is likely to happen.

Question: How would you, as strategic planners for your organizations, cultivate that type of risk taking culture within your employee ranks? Can you foster that?

Laborde: We have to, because, as Karen (Foley) indicated earlier, our competition is no longer just AON or Marsh, direct writers, etc. We have whole new levels of competition and a new standard is being set. It has to be a very structured and formalized process, but it begins with recognition that there is an issue, a problem and an opportunity. We have to raise that recognition for all the staff.

Braunstein: There is both a strategic view of the company, if you’re in a leadership capacity, as well as how to get that vision of what’s happening to the employee level. It starts with selection, complemented by a conscious effort at employee development. It will survive only if management’s commitment towards driving out the fear of making a mistake is continuous. The behavior that you want to see happen with the entry level operating staff has to be modeled by senior levels.

Caplice: I agree that we must drive out the fear and even offer rewards for trying. Perhaps, people ought to fear for their jobs if they don’t try new or creative approaches, because change is going to occur. People have to understand that the risk of staying the old way is greater than trying new things.

Foley: I think that one of the things we ought to do as senior people, or as future leaders, is that, as problems are brought to us, see if they can be punted back down the line. By doing that, we would not be denying our responsibility but saying to people who work for us, "We trust you to make these important decisions."

Question: What type of individual may be needed in the industry as we go forward? (directed to Mr. Caplice)

Caplice: For many of us, joining the insurance industry just kind of happened. We need to change that. Today, we are a dynamic, risk management business. What type of people do we need in order to continue the changes that are happening, and bring to clients solutions that are beyond simply selling an insurance policy? Perhaps engineers, accountants, lawyers, environmental specialists, financial thinkers?…We need to get people who want to come into our business. Different educational backgrounds are welcome because the needs of clients are always changing and evolving.

Laborde: The issue of selection or attracting people is really about diversity in the broadest sense. We should look for individuals who bring diverse experiences, who thrived in education and learning environments by taking diverse types of courses and programs. Bringing these people into our organizations, and allowing them to blossom by bringing a different perspective to decision making, is an important ingredient that we need to succeed now and in the long run.

Braunstein: My greatest fear as a strategic planner is not where our competition will come from for customers’ business, but our competition for talent. I think that Bill (Kaplice) was right about "raising the bar." We have to aggressively seek a higher level of talent than we have done in the history of our industry...making sure that these individuals have both the technology background and the customer focus.

Foley: The last question brought to mind one of the 12 principles set out in a book I read recently. It was, "Hire the children." The idea really is to reach out to this new generation; however, we should not to abandon all the knowledge that resides in this room. We should all be proud of being in this industry. It’s a very worthy thing to do.

Braunstein: As leaders or managers in our respective organizations, we each have certain responsibilities. I can’t imagine one more important than improving the quality of the gene pool of the organization that we support. It’s something that we don’t put enough effort into but that has to happen.

Ullman-Katz: Any closing remarks pertinent to this group?

Caplice: Whenever I talk with CPCU’s, I’m always impressed with their level of technical knowledge of the business. But expanding beyond that, how we go forward with it, is the key to driving change.

Laborde: One of the things that I admire about the CPCU Society is the commitment to continuing education. My challenge to all of you is, "Do not be satisfied with pat answers or the status quo." Question the issues and changes that are taking place. You have great intellectual capital to contribute to this process, individually and collectively. Come here to learn, but also make us (those doing strategic planning) listen and learn as to where you believe the changes that are most important should take place.

Braunstein: The notion of credentialling is really valuable but I also offer a challenge. There are multiple levels in our organizations, and people with a variety of skills, roles and responsibilities. They all should have the opportunity to have some sort of credentialling.

It gives people a goal to strive for a stronger sense of worth. It helps breed better quality, more satisfied employees. I encourage you to create ways to credential, apart from professional designations. I think this is also part of selection and retention.