Insurance has long been a collaborative industry—its sophisticated supply chain requires that insurers and reinsurers, brokers and agents, outsourced service providers, and other players all work together. In recent years, however, insurance companies as different as Nationwide, USAA, and Direct General have taken business-to-business collaboration to a new stage by forging strategic alliances, long-term outsourcing relationships, affinity partnerships, and other sorts of formalized collaborative arrangements.

“Partnership gives you flexibility to scale or downsize, to use your resources more effectively, and to focus on that which you do best,” said Jan Twombly, who serves on the board of the Association of Strategic Alliance Professionals and is president of The Rhythm of Business, a consulting firm specializing in strategic alliances and collaboration. “It also gives you great flexibility in enhancing your offering to customers—expanding the services you can provide, doing something a competitor can't do such as faster turnaround time, or exploiting new technologies and channels such as social media.” Benefits can include faster time-to-market with reduced investment, because “with a partner, you don't have to invest in developing that technical capability yourself.”

Partnering among insurance companies can help a carrier offer a broader range of services and increase its “share-of-wallet” from existing customers—an opportune way to grow profits and revenue from your book of business, in a soft or hard market. “USAA is a master of this,” Twombly said. “They have relationships with other insurance companies to provide, say, motorcycle or RV insurance and other specialized services, when it doesn't make sense for a company as large as USAA to have specialization in those areas.” In other cases, companies such as Direct General have integrated partnering with affinity marketing and social media strategies—working with supermarkets, title stores, and other firms to market complementary insurance services.

The Challenge: Operationalizing Alliances

However, as companies inevitably learn, building and maintaining successful partnerships requires sophisticated management capabilities and skill sets that most companies have in short supply.

“Alliances are conceptually easy, but operationally very challenging,” Twombly said. “Any alliance has to function as the intersection of two or more companies, where you are looking to bridge boundaries of different cultures, different strategies, different ways of working and processes, and you really have to create a different culture, a 'third way' of working. For many business leaders who are new to strategic partnering, it's a world they don't know, so they don't appreciate that making an alliance requires concentrated effort and processes outside of their normal business operations.”

There are many facets to consider when developing a strategic alliance. Is it just one company that faces the customer? How closely will your back-office systems integrate with your partner's? Who handles billing, and how is revenue shared? Is there competitive overlap (“coopetition” is increasingly commonplace) or do your companies have clearly distinct, noncompeting roles and market positions? And just as important, how is the relationship governed—especially when conflicts arise among the participating partners? To manage these and numerous other challenges of working between and among companies, Chubb, USAA, Nationwide, and other insurers in recent years have developed sophisticated and formalized alliance management organizations dedicated to managing the intricacies of intercompany partnerships.

The Strategic Approach Is Key

To succeed despite their intricacies, alliances and other forms of partnership must be approached strategically. The alliance strategy must align with your business strategy, and each alliance must be managed and measured to ensure that you achieve your business goals. This is true even if your primary goal in partnering is to reduce costs. For example, outsourcing a non–core competency such as IT operations. Many companies make the mistake of taking a purely transactional approach to such partnerships, when in fact their success or failure can have critical implications for the overall business.

“If you approach partnerships from an outsourcing mindset, where it's all about lowering your costs, you'll have problems,” Twombly said, emphasizing the importance of establishing a formal governance structure and maintaining appropriate lines of communications. “Yes, you will have a service-level agreement in place, but that's the baseline,” she added. “It can't be a throw-it-over-the-wall mentality, because you won't know that the silly little things you're doing are in fact preventing your partner from operating and serving you efficiently. Incomplete information, for instance, means they have to come back multiple times to get what they need.”

In their 2007 Harvard Business School book Innovation Through Global Collaboration: A New Source of Competitive Advantage, Alan MacCormack and his coauthors examined more than 40 collaborative projects. They discovered that companies make three critical errors when they apply traditional practices to collaborative endeavors:

They don't consider the strategic role of collaboration, but see it only as a tactic for reducing costs. As a result their efforts are misaligned with their business strategy.
They don't organize effectively for collaboration. Instead they treat partners like suppliers of parts or raw materials, and manage them using a procurement function.
They don't make long-term investments to develop collaborative capabilities. Instead they assume their existing staff and processes can handle the challenge.

In the new collaborative world, established business models and practices are no longer sacrosanct. Alliances and other forms of business collaboration require insurance company leaders to reexamine—and often discard—many traditional business practices, in favor of new approaches that break down business silos and foster teamwork and collaboration across boundaries both within and among organizations.

Special Reports /

Insurance Companies Partnering To Profitability

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