ARE RACETRACKS SUSTAINABLE?
by Mike Manes
Although Insurance middlemen continue to do well, the landscape has already changed. If the industry doesn’t adjust now brokerages will fall behind.
In a recent article, I compared insurance producers and production to racehorses and horse races. Let’s continue with this metaphor and ask a few more questions worth considering, regardless of your role in the insurance industry.
Is your “racetrack” sustainable? Is there a better way? In the future, will the people (niches) you serve still spend time and money at your “clubhouse” or “betting window?”
Horseracing might be the sport of kings, but we’re no longer a monarchy. Today, some racetracks have closed, others are struggling, and some are successful because of subsidies from slot machines. Tomorrow, EA Sports or some other videogame magician might create virtual races with folks betting from their La-Z-Boy via PayPal.
Our world today is far more democratic and less autocratic. The global economy, the Internet, and the knowledge and information that it delivers have created sophisticated consumers with unlimited options. Such a new world of consumers will define the industries that serve them and not be defined (held hostage) by traditional methodologies.
Although racetracks might always be a niche, this won’t be enough to sustain the traditional methodology that has developed through the decades. Racetracks must change. The insurance industry must adapt and change.
In his classic article, “Marketing Myopia,” Theodore Levitt pointed out, “Every major industry was once a growth industry.” Mr. Levitt further stated that industries decline not because of market saturation.
“It’s because there has been a failure of management,” he wrote.
I could tell you more, but Mr. Levitt does it far better than me. I urge you to read his article.
Here’s reality: Most firms in the manufacturing and distribution end of the insurance business have done and continue to do well – very well. We aren’t motivated to change. For us, the good old days mean two old white guys (OWG) drinking at the City Club and doing a deal. Our system is producer defined and producer driven.
We sell products that include our compensation packaged inside. These products “cover” the risk of loss from physical peril – the stuff we know and understand. Unfortunately, the product is a promise to pay in the future for losses that most buyers can’t understand in a language that they don’t know ... We’re comfortable with what we sell, but buyers aren’t comfortable with what they buy.
The world is changing, but for the most part our industry hasn’t. Today, the client’s decision-makers often wear a skirt or are of a different color, generation, or ethnicity; and they might not be enamored with our tales of drinking beer and chasing women. We’re in a conflict of interest with them: It’s best for us if they buy a policy first, and best for them this purchase is the last step in their process.
Although our system focuses on t transfer of physical perils, the marketplace today needs more: management of a broad range of risks (strategic, operational, geopolitical, fiscal, people, competitive marketplace, environmental, reputation and credibility). (What if? What next? When?).
Today, we sell risk transfer – but perhaps we need a greater focus on the avoidance and reduction of loss and finally a funding mechanism for all catastrophic losses. Before you laugh, realize that some day we might well offer policies without exclusions because that’s what courts have decided.
Too often risk management has been a euphemism for insurance sales; yet in practice, it should simply provide a process of maximizing good and minimizing bad in our organizations. I’m guessing that if we could get into the hearts and heads of our clients, we’d learn that they place a higher value on people and services that can help them become better in business than those that help them feel better after a loss.
We will have arrived when our diverse team of professionals includes an expert for each client and its industry, rather than focusing solely on product sales or insurance coverages. We’ll work for “tips” (fees) because clients will hold us accountable and pay us for the value we deliver. We won’t sell products; we’ll facilitate acquisition of solutions.
Tomorrow, we won’t be driven by the individual personality of a producer, but rather by our “talent teams” that listen to clients, design, and build what they want at a price that they’re willing to pay. We will become client defined and client driven.
Don’t believe me? Let’s go to the City Club for a drink. We can discuss it there. The racetrack has closed.
Michael G. Manes can be reached at Square One Consulting, 625 Weeks Street, New Iberia, LA 70560; (Cell) 337-577-3885; e-mail: [email protected]; Web Site: www.squareoneconsulting.com. Reproduced, with permission, from Michael Manes “Brokerage” column in Risk & Insurance magazine (http://www.riskandinsurancecom).