Those in the insurance sector live or die by their appreciation and calibration of the risks they cover for various types of customers and counterparties. But many don’t have the data that enables them to properly manage one of their own biggest risks – the sustainability of their revenue and relationships.
Any CEO or head of operations needs to understand this, and to think about how they monitor and manage the risk. Added to this, one of the key considerations of the ratings agencies is the ability of an insurer or broker to retain and develop client relationships.
Simply put, it’s important to measure the right things. We’ll give a couple of examples of this later, but let’s start with some of the barriers that stop boards accessing accurate insights. Given this is about the sustainability of relationships, the people who do have the knowledge about that are the customers or insureds themselves. But…the customer won’t always tell you. Why not?
Sometimes it’s human nature – it’s difficult to say something to the main contact. This doesn’t necessarily mean a problem as they may find it hard to be frank about both the really good aspects of your organisation as well as the weaknesses. They may also struggle to be totally frank with the main contact about the quality of the service provided.
Ironically this will be particularly true just at the time when you would find it more useful – when there are issues which might impact the share of risk they give you.
Added to this, relationship managers can find it difficult to ask for “quantitative” data about the customer’s views on performance, how healthy the relationship is or how well placed you are to insure the next relevant risk (for example). That makes it hard to track performance and take any corrective action needed.
Then the relationship manager won’t always tell their management. Why not?
As shown above, sometimes they won’t know or be able to find out, but internal dynamics also make it difficult for relationship managers to provide or pass on open and frank information about the firm’s or their colleague’s performance; or perhaps even more commonly, their own.
This is itself poses a major barrier to getting the management insight you really need.
One other point is really worth remembering. If the insight resides just in the relationship manager’s head, the organisation as a whole will always struggle to use it. The alternative – if the relationship manager remains the sole route for insight – is to expect them to document and collate the insights they gain from customers in a way that the whole organisation or specific team can use. That’s time consuming and diverts them from their efforts in generating more business. The result is that they’re unlikely to do it effectively.
And intermediaries won’t always tell you. Why not?
Intermediaries inevitably filter information about what clients want. Their filter is always going to be about what they think would be useful for you to know (or what is in their interest for you to know). Thus intermediary insight is only a partial view of what drives the customer use of any insurer or reinsurer; and this inevitably creates a risk.
All of these barriers can be broken down with a well-constructed, cost-effective customer feedback programme.
We mentioned a couple of examples earlier.
A study commissioned a few years’ ago by Standard & Poor’s, looking into the ways in which major European companies selected and evaluated lead insurers, found that the most important difference between the first choice lead insurer and others was international footprint. For casualty insurance, it was headline price. This was something that only the underlying analysis identified and was not something that was overtly known by the insurers being evaluated.
We recently completed a project for a multi-regional reinsurer which was focusing its internal improvement efforts on pure speed of response – not only in claims management but when responding to newly offered business. But its feedback programme found that the “quality” of response was also critically important, sometimes described as “willingness to find a solution”. Put very simply, a “no” with a 3 hour response time was of much less value – to the client and to them in gaining share of risk – than a “not on this basis…but if you change this term…” with a 5 hour response rate. Focusing solely on speed on response as a measure encouraged the wrong behaviour.
If you’d like to find out more about how to gain insight that will reduce the level of risk associated with your own revenue and customer relationships, contact info@litmusanalysis.com
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