8 Things Wrong With the Insurance Industry

Over the past decade, my communications company, Slingshot, has had the opportunity to work with 38 different property and casualty insurance companies on a wide range of topics, from designing computer systems, Web sites, and marketing programs to managing brand development and product launches.

Our work has allowed us to become both a knowledgeable industry insider and a third-party spectator looking in from the sidelines. The outcome, we believe, is quite a unique understanding of the industry. We see the good, the bad and the indifferent as part of our ongoing role — often experiencing all three in the same day.

As somebody who loves to rock the boat, I’ll leave it to somebody else to outline the positive traits of the industry. For the purpose of helping to improve the industry, I’m going to focus on identifying its shortcomings. I do this to encourage debate and promote conversations that I hope will make the insurance industry stronger.

1) Good underwriters are promoted to be managers

Good underwriters are excellent at their job and uniquely skilled to analyze risk and select good from bad. A problem develops when we reward them with promotions into senior management roles.

In many cases, these same underwriters are not as good at managing people or instilling vision in an organization. In fact, the two roles in the organization are almost at odds with each other: the attention to detail that makes for a strong underwriter can theoretically conflict with the ability to see the forest instead of the trees, which is the hallmark of strong senior management team members.

The outcome of this dynamic is an industry with a dearth of innovation and vision. Managers and underwriters both have important roles, but let’s keep those roles separate and distinct.

2) The Entire Industry Is Suffering A Dearth Of Innovation

I am humbled to report that I can’t think of a truly innovative product or approach that has come about in the past decade. (And that includes the many projects we have worked on over the past decade, so I am not pointing fingers.)

I’m talking about those great ideas that disrupt entire industries because someone has had one of those moments in which a light bulb goes off in his or her brain and everyone else wonders why it has taken so long to happen. Think Black- Berries, flat panel TVs, online trading or hybrid cars…

In any other industry, companies that don’t innovate go out of business. In ours, it is the norm.

3) Your customers don’t like you (if they even know you exist)

It doesn’t matter whether we meet with Harley Davidson owners in Kingston, Ont., teachers in Alberta or nursing home owners in Toronto, they all share one common belief — insurance companies are ripping them off. And that is only after a bit of prodding to see if they know who their insurer is.

Generally speaking, consumers only hear from their insurers when they receive an invoice. A small percentage might interact at the time of a claim. But these situations do not present a lot of time or the proper context to build a relationship — or even to tell them who you are. For these reasons, as a consumer, I have a stronger relationship with eBay and Amazon.comthan I do with my insurer or broker.

4) In the eyes of your clients, Company A is the same as Company B

We’ve worked with scores of companies and asked them what differentiates them in the marketplace. Inevitably, they all tell us it is their:

• service;

• relationships; and

• expertise.

If they were all right, maybe our customers wouldn’t hate us so much. (See above.)

Everyone can’t be right, if indeed any are, and this helps us to understand why price remains a consumer’s primary means of differentiating between companies.

5) Our products are all the same

I challenge anyone to put their product side by side with that of their biggest competitor and demonstrate the two products are more than 2% different. Everyone says they don’t want to be a capacity player; and yet, by selling basically the same product, isn’t that exactly what we have become?

Oh well, at least we have our service, relationships and expertise to make us different.

6) Companies are afraid of their channel partners. Channel partners are afraid of the companies

There is a cold war going on right now between insurers and their brokers. Underwriters want to try some new ideas but worry about what their brokers will think. Brokers are worried underwriters are going to cut them out of the equation and otherwise react badly to any changes in the status quo.

The cold war ends when both sides star trusting the other. Maybe it’s time for a bit of glasnost in the war between insurers and their brokers, so both sides can bring down that wall of fear separating them and make some meaningful change to the industry.

7) Product development is undertaken by people who also have a day job

It never fails. Each January, we meet with companies that tell us they want to launch “three new products this year,” with the first targeted to go live “by March.”

It turns out the project leader also has a day job, and he or she ends up squeezing the research and development for their project into an already busy schedule. March becomes “spring,” spring becomes “fall,” and by late November we are rushing to launch the new product before the holidays.

By this time, whatever visionary approach the underwriter — and it is usually an underwriter charged with launching a product (see Point Number 1 above) — wanted to achieve disappeared months before in favour of just “getting something out there.”This usually means using a photocopy of another company’s contract, making some minor edits to specific terms or coverages.

It seems to me that if a company wants to develop cutting-edge products, they need to put the resources behind them to help guide it along.

8) It’s too easy to make money

Ah yes, the crux of the matter: insurance companies and brokers make a lot of money regardless of any of the above failures. With that in mind, it is not a surprise that many in the industry are willing to coast a bit.

But the industry has been coasting for a while now. And now that other players have inched forward to join our cartel, it behooves us to start thinking about our shortcomings and begin plotting some real strategies to keep the Barbarians at the gates from changing the industry on their terms.

At least that’s my opinion.

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I am humbled to report that I can’t think of a truly innovative product or approach that has come about in the past decade.