A winning strategy: profitable growth can be achieved through improved sales performance.

Following a second year of record underwriting profitability with relatively flat prices, insurers are struggling with how to sustain profitable growth. They already have re-underwritten their books of business and off-loaded noncore and underperforming products, and opportunities for acquisition are limited. That leaves better business performance as a key strategy, with the greatest opportunity in sales.

To achieve this performance, insurers are turning to more sophisticated business strategies, along with business intelligence and analytic tools, technologies and applications.

Strategy maps and balanced scorecards illustrate and visually communicate the linkage between overall corporate strategy and divisional or strategic business unit strategies and initiatives. A corporate goal of profitable growth might be supported by three strategic business initiatives: growth and diversification, product innovation and customer retention. A strategy map would show the links among these initiatives and the overall goal and the key performance indicators for each.

A scorecard enables senior and middle management to see actual performance against plan, looking at high level metrics such as written premium, policies in force, retention rate and market share. But middle management also will want to see more specific detail by business unit, which would be presented in additional graphic representations using charts, gauges and sliders in a sales dashboard. There they can see related drivers such as number of agents, applications by agent or premium rate changes. They also can do scenario analysis using moveable graphics tied to each key performance indicator or driver and set alerts to detect conditions that warrant immediate attention.

From the sales dashboard, managers or sales staff may want to drill even further into reports showing information such as number of products, average premium per product, quote-to-issue ratio-by channel, agency and producer, and even detail reports by producer.

Many companies also are improving their incentive compensation management programs. Current incentive compensation process inefficiencies combined with use of point solutions cause significant manual effort and delayed payment of bonuses. Further, sales behavior is often skewed, driven by limited metrics. New integrated incentive compensation management systems enable alignment of sales behavior with corporate strategy and more efficient and earlier incentive payments. Incentive plan models address not only standard volume measures such as number of applications taken or price metrics such as written premiums but also qualitative metrics such as insurance risk score or customer satisfaction score, providing insight into both individual sales staff performance as well as team performance plans that roll up to business unit, divisional and corporate plans.

Insurers also are re-exploring activity-based costing to achieve a deeper understanding of profitability. Activity-based costing allows better understanding of "hidden" costs that have traditionally been allocated on a broad segment or premium allocation basis. It is a proven methodology for pinpointing the most profitable customers, products, regions or channels, and for uncovering the costs of individual business processes for improvement to drive higher profit levels.

This deeper understanding covers not only pure loss costs and sales expenses but also supports underwriting, customer service and shared service costs such as information technology, human resources and finance that make up true product pricing.

Past industry forays into activity-based costing were challenged by limitations in data, analytics and technologies. Results simply did not warrant the effort because of broad customer and pricing segmentation. However, access to and use of increasingly granular internal and external data, more sophisticated pricing and customer segmentation strategies, and improved database and analytic technologies now make this analysis feasible. Leading insurers are looking to align and leverage business process analysis for both activity-based costing and service-oriented architecture implementations to speed initiative implementation and achieve greater payoff.

Ultimately capital allocation and pricing decisions made by management will determine how their companies will fare in the current soft cycle. Insurers who leverage leading practice profitability and sales performance strategies, tools and applications will achieve profitable growth at the expense of those who cannot.

Patricia L. Saporito, director of insurance solutions with Business Objects America, is a Best's Review columnist. She can be reached at [e-mail].