In our January article The Risk of Doing Nothing HauntsInsurance Industry, futurist David Smith warned that “It'sincredibly dangerous in periods of high change to not have avision. … Doing nothing is no longer safe—it's probably theriskiest thing you can do. If you're not changing business modelsfundamentally, then you're not changing. That's insurance.”

Smith's comments struck a chord with many readers—including JoeBeneducci, CEO of ProSight Specialty Insurance. “I was particularlymoved to have this discussion” with PropertyCasualty360, saidBeneducci, who “grew up in insurance, started as an underwriter,and worked at Chubb and Fireman's Fund,” where he served in variousleadership roles including president and CEO.

“People talk about distribution, standard products, rates, theinvestment environment—our industry is dominated by thesetraditional topics—yet all around us the world is changing at lightspeed,” he explained. “It's amazing that we have such little changein our business—that there are so few examples of companies thattake advantage of the change and do something about it.”

We talked to Beneducci about why insurance companies remainstuck in the middle of what he calls “The Great Divide”—and how heintends to avoid that fate for ProSight, the company he founded in2009. Following are excerpts from our wide-ranging discussion onthe future of the insurance industry.

PropertyCasualty360: Why does change pose such achallenge for so many insurance companies?

Joe Beneducci: Our industry, for so long,has been positioned for distribution. Customers obviously willalways need insurance. Because of this, we've been complacent—theindustry hasn't been forced to innovate because there's always beena demand for insurance.

Can you cite a time when our economy and society have gonethrough such massive change because of the progress of technology?Yet because our customer base didn't appear to be changing all thatmuch, the insurance industry remained very static in its approach.There is a widespread attitude that the P&C insurance cycle isa mysterious force that comes and goes by a strange, unpredictable,indiscriminate forces with which we can do little to nothing toinfluence. We refer to this at ProSight as being in the middle of“The Great Divide.” We have an industry in large part that's campedout in the middle – in basecamp – because it appears to be thesafest. Couple that with the restrictions insurance faces—veryregulated industry, outdated technology in mature companies—andit's a monumental effort to move out of the middle.

The insurance industry was set up to try to grant as much accessas possible. It becomes an enormous obstacle to delivering value;you can't be a real expert if you're distributing in a generalistformat. That is what The Great Divide is all about.

David Smith says insurance is ripe to be digitizedand can be delivered almost entirely over the internet—but you'retalking about more than just technology disruption. How does thisrelated to your concept of “The Great Divide”?

Consider our industry much like the music industry and others,in this one grouping in the center. As time has gone on, technologyhas created new efficiency in purchasing products and alsoincreased the customer's understanding of the value of thatpurchase. So customers gravitate to one side or the other dependingon what they want. One side is low-cost providers, who offer speedand efficiency in getting something done, and that's where theircustomers see value. The other side is the value side of theequation – offering high value in what you're delivering thecustomer. Because technology savvy customers, with increasing riskcomplexity, will pay only for value they know they willreceive.

What won't be allowed going forward is staying in the middle.It's not safe in the middle.

Insurance is a bit more complicated than music. We have anenormous opportunity to differentiate value to customers who willbe smarter and better informed than ever. Still, our industry isn'tprepared, even though we are consumers just like our customers are,even though we operate our smart phones the same way. So manypeople in our industry still come to work thinking the industrywill continue to work the way it always has worked, believing thisis just a storm that will pass.

ProSight Specialty Insurance has taken the route ofthe high-value provider. Do you see other companies doing a goodjob moving to either the low cost or high valueside?

First mover [advantage] on the low-cost provider side is done.In personal insurance lines, we are seeing the low-cost providersemerging—companies like Geico and eSurance that's now part ofAllstate—but on the other side, there aren't many examples of thosewho have built a business on delivering inherent value to thecustomer.

I believed so much in this that I went out and founded acompany, and now we're doing this on a global basis, that's ourwhole business proposition: to distinguish substantive value forour customers with our very exclusive and expert brokers and tooffer a value proposition that is much more substantial andextremely deep compared to where the rest of the P&C industryoperates.

So many insurance companies struggle to change whileefficiently managing current operations—they are forced to workwithin the marketplace's predominant business models yet mustsomehow reinvent themselves while maintaining their currentbusiness. How does ProSight juggle thischallenge?

We operate with all the same sorts of challenges, but there area couple of differences. Because we built a company from the groundup, we weren't bound by legacy issues of outdated technology,excessive distribution, and so on. At the same time, we don'thave a culture working against us. In building a new company, beinga specialty insurer is our M.O. When new people come into ourorganization, we screen people based on their understanding of justwhat this specialist position means. ProSight products aren't foreveryone, because we're not seeking customers on thelow-cost-provider end of the spectrum. It's the same for ouremployees. We recruit unique people who aren't just talking aboutrates going up and down, but making a commitment to actuallydeliver that unique value—we call this the ProSight X-factor.

We do have to keep balanced. We talk about operating ourbusiness within regulatory requirements, for instance, but at thesame time, we provide equal time talking about The Great Divide. AsCEO, I put as much time and energy into how we develop our cultureand recruit new people as I do focused on what we need to do to runa P&C company.

How about outside the walls of your company—how haveyou cultivated a customer base and a distribution channel that arealigned with your company's specialty strategy?

We only sell through brokers that sell business in the same waythat we build innovative solutions that go beyond traditionalinsurance services to focus on unaddressed customer needs. Thereare only 42 brokers or Managing General Agents in the U.S. thathave a ProSight appointment, and they must be able to provide ourcustomers very unique value with deep products, deep expertise,extensive solutions. We go through regular reviews of theprograms that we write with our brokers and spend a lot of timebrainstorming concepts and solutions. We conduct focus groups withour customers, asking them “what keeps you up at night?” And inconjunction with distributors, we build new products and solutionsthat together we can bring to the end client that not only addresstheir insurance and risk management needs, but can help themenhance their overall business.

We are laser focused on our specific client bases—in our nichesand target spaces, our customers know who we are. We are connectedwith them online, managing the digital environment, making sure ourmessage is clearly conveyed, working with brokers that only focuson specialty delivery. We don't write business with anyone elsewithout that laser focus.