Last week, I talked about the exceptional performance that the Alphas are achieving in the market (High performers in a down market). This week, we’ll examine why they are so successful. Despite different business models, the Alphas share four similarities in the way they operate that contributed to their success.
1. Underwriting discipline
On average, loss ratios for the Alphas over the past five years were 7-12 percentage points lower than their competitor’s loss ratios. To achieve this, all of the alphas developed consistent, repeatable underwriting processes. By providing training, monitoring processes, and ensuring brokers clearly understood their risk appetite, they ensured risks were selected and handled appropriately. In addition, they used data to make better business, segmentation and risk pricing decisions. Finally, these leaders restructured underwriting to be more industry-focused and thus avoided commoditization.
2. Targeted broker relationships and services
The alphas focused heavily on strengthening relationships with targeted brokers by being responsive. For example, one leader made it easier for risk managers and brokers to more easily manage key aspects of their insurance program through an online portal. While the portal initially added expense, it soon paid off in increased broker satisfaction and decreased call volumes. These leaders also ensured consistent risk appetites and products, increasing broker opportunities. Additional ease of business measures includes streamlining the claims process for greater broker and customer satisfaction.
3. Value proposition bolstered by value-added services
The key to success in this area was to base the design of all value-added services on data and analytics that clearly link new service ideas to sales and customer retention.
4. Operating cost and service balance
Profitable low cost insurers effectively balance service and cost by ensuring that “must have” services are available throughout the value chain. Those that rely on a higher cost structure believe that it can result in higher premiums and better retention.
I’ve discussed the four key operating priorities for becoming an Alpha leader in today’s market. As we know, market conditions always change. To discover how to become one of the Alphas of the future, join me next week for my concluding blog post in this series.
To learn more, download: Chasing the Alpha: How Commercial Lines Insurance Leaders Outperform the Market