Four-Step Plan Helps Firms Thrive Despite Tough Times

Navigating today's challenging times requires courage and determination. But beyond that, it demands a focus on the common-sense business practices that have been the hallmarks of the insurance industry since Benjamin Franklin formed the Philadelphia Contributionship in 1752.

Now, with unsettling financial news available with every refresh of your Web browser, insurance companies are finding that, while current conditions call for creative answers, the most enlightening solutions are found in a four-step approach emphasizing the basics--dealing with reputation, risk, reform and realignment.

o Reputation. It takes years to build, and seconds to lose!

One casualty of the current market downturn has been a loss of trust and the sense of uncertainty about the future by the consumer--a perception that can weigh down a company's ability to operate successfully over the long run.

Leading insurers are discovering ways to win back the faith of stakeholders with a top-down examination approach encompassing everything from governance, resources and risk policies to reporting and training, among other factors. But a focus on communications is at the revival's center.

From the C-suite to the boardroom, to the audit committees, shareholders, employees, consumers and media, the industry appears to be reaching out to key constituencies with clear, concise information about situations as they unfold, thwarting false rumors and inaccurate perceptions.

Beyond educating stakeholders and differentiating themselves in the market, some leading carriers are also ramping up their customer experience management, knowing that insurers held in high esteem by the public tend to enjoy brand loyalty, expanded ability to act as a one-stop-shop for customer services and products and--because they are perceived as market leaders--attract top talent.

According to a Forrester Research survey, the insurance industry has been doing a good job in this area, but there is room for improvement. The poll--which asked 5,000 consumers about their interactions with companies across several industries--revealed that insurers came out near the top of the pack, with an overall Customer Experience Index of 71 percent.

However, subset results showed that while customers may have perceived insurers doing well overall, most found their experiences were not "enjoyable," with a majority of the 14 carriers included in the index having received "poor" or "very poor" marks in this category.

A recent Gartner report supports this finding on customer service, asserting that while stability and trust have been thrown off track by financial market conditions, an increased customer-centered focus can help financial services firms regain ground.

This can be achieved by undertaking measures that include: improving access to accounts 24/7; reinforcing the perception of the company's financial strength and its ability to pay claims; investing in better customer experience management to retain clients; and looking outside the financial services industry for clues about how to do a better job with technology.

o Risk: It's time to embrace an enterprise risk management culture!

Interest in ERM has risen in scope and breadth as recent events have demonstrated the critical role it can play in driving value for an organization by providing senior managers a 360-degree view of exposure.

The holistic ERM risk assessment process has gained in popularity in recent years, as companies have sought ways to manage all categories of risks, from existing assets to operational exposures.

However, the current financial market turmoil highlights the importance of having intense, comprehensive risk models to ensure a core focus on fundamentals, such as governance, transparency, risk identification and control, and an embedded consideration of risk in the decision-making process.

For insurance, the effects of market turmoil have led to losses across the operational spectrum, including investments and underwriting. But it has also created a unique opportunity for insurers to adopt ERM processes and procedures. Efforts in this area now might lay the foundation for an improved reputation in the post-crisis environment.

Results from a recent Towers Perrin survey show that, of 360 industry principals responding, 52 percent of European companies report having a documented risk appetite. Conversely, only 40 percent of North American insurers reported having the same. Twenty-three percent of North American firms said significant work is needed to manage market risk exposure, while just 7 percent of European firms believe the same.

Clearly ERM offers a competitive advantage as well.

o Reform: What you don't know will hurt you!

As 2009 will likely usher in significant regulatory reform, insurers are making it a point to be at the table early and often as events unfold, with discussions ranging from federal oversight of insurance to the fate of IFRS (International Financial Reporting Standards). They have a strong interest in ensuring that measures taken by lawmakers strengthen the system without hampering its ability to serve the public.

Consider federal vs. state regulation. Of particular concern for insurers is the prospect of extensive new regulation, with layers of new federal rules being hoisted atop existing state mandates.

Also up for consideration are fair-value accounting, principles-based reserving, Solvency II regulatory reform in Europe and IFRS--all of which will likely add to insurers' need for regulatory infrastructure.

o Realignment: Less is more!

Managing the current financial crisis will mean realigning by focusing on the basics of the insurance business, which includes keeping one's financial house in order, as well as refocusing on key areas such as growth and cost reduction.

Also important are realignment strategies involving customer experience and distribution management, both of which are driven largely by talent and technology.

As mentioned previously, customer experience management is being used in marketing to retain current clients and attract new ones. But leading insurers are also embracing it as a way to better understand and meet customer needs across segments.

One way is by working to improve distribution channels to increase product offerings in a customer-friendly, no-hassle way that encourages consumers to see their insurer as a one-stop-shop for products and services.

Meanwhile, technology plays a major role in both growth and cost reduction. It is in this area where smart companies are finding results by replacing and/or upgrading legacy systems to improve automation and data management.

Through predictive modeling, for example, data-mining techniques are used to improve risk segmentation and portfolio management. This may lead to other benefits, such as increased market share and higher retention of desired risks, along with profitable growth and differentiated servicing.

Information technology helps drive efficiencies through areas such as claims management, call centers, agent/broker automation and customer experience.

While growth in IT spending is expected to decline in 2009, IT's ability to drive improved internal operations, organizational processes and procedures, software use, and project management may be cause for reconsideration.

Also serving to drive growth and cost reduction is a strong focus on talent. From a recruiting standpoint, in today's environment, it is a buyer's market. People who carriers could not previously afford or attract are now looking for jobs. Forward-thinking firms are leveraging the current market conditions in recruiting new hires and working to retain top performers.

Going forward, staying ahead of the game means much more than just responding to current conditions.

By being proactive in shoring up reputation, embracing the 360-degree view afforded by ERM, staying smart about items such as technology and upcoming regulatory changes, and striving to focus on the basic building blocks that made the insurance industry strong, leading companies will likely position themselves to not only prevail in weathering the current economic downturn, but to secure competitive advantage going forward.