All of our team are passionate about the development of capability in the insurance industry and so have asked a number of our senior contacts in insurers over the last year:
“what makes you invest your time and budget in improving the capability of your staff?”
The following points are fundamental:
- The triggers for investing in capability improvement are varied but are more likely to be related to the need to support the delivery of existing plans – either to support a growth target that has been committed to; or to fix something that is going wrong and impacting delivery of targets (a “burning platform”).
- Writing better quality business is seen as key to help reduce loss ratios – better underwriting underpins this.
- A renewed focus on mid-market/corporate commercial business is driving a need to improve capability.
- Having identified the need to improve capability, Senior Managers often need help in developing the business case to secure resource to do so.
- Understanding the market forces, the reality of short-termism and the profit dynamic help us to position the need for more capability development and to frame the request for budget in terms of a training imperative to ensure the achievement of the plan.
We explore these in more detail in the rest of this article.
With the backdrop of an environment of extended soft markets combined with catastrophe losses, investing in capability to unlock new potential opportunities is often seen as a luxury that can be ill afforded. Similarly our contacts rarely mention first the needs of their people to meet future challenges.
These responses are not always solely about cost, sometimes there is simply a lack of capacity to do any more. Any investment made however will be to ensure plans that already have been promised will be delivered. In other words, “If I don’t deliver what’s in my plan, I’m in trouble!” Another focus might in all honesty be described as self-preservation – “My business, account, department, team can’t afford any own goals.”
What is clear is that delivery of the Plan – “what I have committed to” – is paramount for driving training and development. In discussions we recognise three themes for investing in capability:
- To support growth plans that have been committed to: These commitments may be to support new product launches or entry into new markets; to win a major new deal/scheme; or simply to support a significant growth target for the business that requires new skills or a new way of working, e.g. a push to increase sales and trading capability across the underwriting population.
- To ensure adherence to new legislative or compliance requirements: This often can’t be avoided or else there is significant reputational risk/potential for regulatory fines. A recent substantial example has been readiness for GDPR. The previous one was the Insurance Act.
- To address an identified weakness: A file review, technical audit, large loss review, etc. highlights underwriting or claims leakage that could be addressed through improvements in capabilities or process.
The Short Term
A thread running through many of the conversations is the perceived need to focus on delivery of results this month or this quarter (i.e. now), reflecting the pressures on middle-management. It is unanswered whether this short term view extends to higher management, however one of our clients a mutual insurer investing in training, views its mutual status as a USP – enabling a longer term view to be taken compared to insurers with shareholders where the focus is perceived to be on the here and now. What is clear is that middle managers concentrate on delivery today, and therefore use commitment to previously agreed plans to argue for release of training budget funds.
The Profit Dynamic
For context we can also look at – How do insurers make money? At its simplest of course:
Profit (or loss) = Premiums + Investment income – Claims – Expenses (including Commission)
Over the last decade or so in general insurance there is a clear story. Looking at each element:-
- Premiums – smoothing out specific class variations, generally have been reducing with the intense competition and excess capacity (the soft market).
- Investment Income – a lengthy sustained period of low investment returns has necessitated a need for underwriting profit
- Claims – improvements through the advance of technology and risk control could be considered to have been matched by the adverse trends involved in claims consciousness, claims inflation and fraud.
- Expenses – Commission – flat at best, if not increasing due to the growth of new insurance models – on line, aggregators, MGAs, schemes, etc.
Within the Profit Dynamic insurers have pulled hard on the Expenses lever as one area within their control. Is there any medium sized to large insurer over the last 5 to 10 years who hasn’t had a challenging Expenses target to achieve and continually announced this to the stock market? Efficiency has therefore improved, but from our discussions many are of the view that costs have been cut to the bone. In fact have short term expenses savings bitten into longer term growth and profit prospects through loss of and failure to replace experience?
Pulling on the Claims lever requires better underwriting and better claims handling skills – both compared to what has gone before and compared to competitors. This investment in capability development may be harder to do and take longer, but of course just a one percent improvement in loss ratio for a large insurer equates to many millions of pounds. One has to believe that those insurers with a firm eye on both expenses and capability development to improve the top and bottom line results will win out in the market (if you like – the longer term view).
The Target Segment
One trend set to continue is the disruption caused by technology, e-business and the mechanisation of underwriting, pricing and processing. This has brought considerable changes of course to personal lines and now small commercial business. Leading insurers, brokers and aggregators in this space are now looking to trade upwards into larger and more complex commercial business. We have heard feedback from brokers and insurers alike that current players may not always be serving this segment well in terms of underwriting, pricing, risk management, etc. – so the challenge is there for both the existing insurers of commercial business and the potential new players and disruptors to develop the capability to handle this complex business efficiently, but with the quality of selection and underwriting to maintain profits. Again commitment to a plan (i.e. profitable growth of a target segment) can enable capability development.
The final point that many of our contacts have shared with us, is that once they have identified the need to invest in improving capability, the challenge is how to go about it. Internal resources are already stretched and scarce, so this option is either a non-starter or on a very slow journey. Helping Technical, Underwriting, or Claims Directors develop their internal business case for capability improvement programmes is something many would see of value.
The well-structured approach of measuring existing competencies, demonstrating capability gaps and identifying training needs seems no longer sufficient – the key requirement for investment in capability development is alignment with an already agreed Commitment.
At MAP Training we have considerable experience relating to development of capability in insurance. If you would like to discuss any of the areas raised in this article in more detail, we would love to hear from you.