By all accounts, the “new normal” for the economy looks pretty bleak, with reregulation, shrinking global markets and correspondingly low expectations for future growth.

The economy, we've been warned, may not go back to 2002-2007 levels for the foreseeable future. For the insurance industry, in particular, a “perfect storm” of soft pricing, loss and expense-ratio increases, and a low-yielding investment market add to the existing capital challenges, distribution-channel changes and capital-markets valuation issues—all of which make charting a course for insurance company directors and executives seem almost impossible. 

What should insurance industry executives and board members do in these challenging times?

They should confront the new normal with more thoughtful, decisive and significant actions. Many management teams and boards of directors determine an appropriate response to challenging times by effective use of strategic-planning exercises.

WHY STRATEGIC PLANNING?

While we have no way of predicting how long it will take to get the national economic house in order, insurers and brokers need to move forward assuming that the new normal economy will not provide relief on its own.

Strategic planning enables management and the organization to move decisively to preserve and solidify a company's industry position. In general terms, the process involves evaluating current strengths and weaknesses against opportunities and threats of the new economy. Strategic planning is also necessary for the board and the management team to demonstrate that they manage the business with care and duty.

Strategic planning goes beyond defending a balance sheet and simply avoiding all risk. The process prepares companies to address market forces that threaten them with lost market share, contraction and ultimately business failure. Two examples illustrate how strategic planning makes a meaningful contribution to a company's success.

EXAMPLE 1: DISTRIBUTION CHANNELS

 A strategic plan for an insurance company will almost always focus attention on an insurer's distribution channel and its relation to the carrier's future direction and goals. It must go beyond a traditional agency review, however, which would typically consider only these questions:

• How much business has this agent generated in the last three years?

• How profitable has that business been?

• Who else does this agent represent, and where does the company rank with respect to those carriers?

These are all interesting questions, but they contribute nothing in the way of determining whether the agent will help the insurance company achieve strategic goals or minimize future threats.

To compete in the new economy, company management must know whether an agent's strategic vision matches with the products the insurance company wants to sell or the territories it wants to enter. Issues that would be examined as a result of the strategic-planning process include:

1. Will expanded government regulation impact the company's ability to meet the service efficiency required by this agent?

2. Will outdated technology impact the ability to meet the service expectations of this agent?

3. How does the company's technology compare with competition in terms of ease of doing business?

4. Does professional staff turnover impact a long-term sustainable relationship with this agent?

Further, as the number of agents shrinks, companies need to evaluate how they are positioned with their agent force. Companies need to be positioned to be the carrier that an agent keeps as it reduces its number of preferred carriers.

EXAMPLE 2: LEADERSHIP AND WORKFLOW

A second area in which strategic planning assists insurance companies is with employee performance. The challenges posed by the new normal economy provide the opportune time to review organizational structure and to create and nurture strong employees to build the next generation of leadership.  

Strategic initiatives that introduce special challenges can test and stretch potential leaders. Rarely does the implementation of a strategic plan fail to identify and prepare new leaders.

Strategic planning also provides an opportunity to improve operations by reorganizing departments and workflow to maximize productivity and minimize expenses. When expense ratios damage core carrier profitability, the strategic-planning process will naturally lead to an examination of workflow and process.

The new normal economy is likely to be with us for a while. There are alternatives to defending the balance sheet and finding that big rock to hide under. Now is the time to build a foundation based on solid choices about where the company will be in the future and how it will survive and prosper.