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Reinventing the Business Model.

Growth is now an imperative. To achieve it, insurers have to look beneath the surface of the flat market for fast-growing or underserved niches.

At the beginning of the 20th century, life insurers ranked among the titans of the world's financial institutions. The largest were American icons, deeply rooted in the country's history and powerful drivers of its future. Smaller insurers were important in their own right, and it seemed that insurers would always be prominent contributors to U.S. economic life.

Today, that future is clouded. Core life and property/casualty markets are flat and overcapitalized. While insurers have huge capital and customer bases, they are seeming more and more like specialists playing on the edge of the competitive battle for the future--particularly given recent action in Washington. Furthermore, the risk of e-commerce start-ups re-creating the industry to the detriment of existing players is a major threat.

If insurers want to secure their places in the new millennium, "growth" must be their watchword. It is critical in terms of building market value and retaining the best and brightest employees. Unfortunately, insurers have not fared well recently along the growth dimension. Banks have grown 40% faster and investment firms 60% faster than insurance companies over the past five years. Growth is possible, even in this difficult environment, but to achieve it, insurers will need to know where opportunities can be found, what it takes to get them and what, ultimately, will differentiate the winners from the losers.

There are several ways insurers can find growth opportunities. Companies can target pockets of growth beneath the surface of the flat market. There are segment, channel and product categories growing much faster than the market overall. Or, insurers can target underserved market segments or address unmet consumer needs. For example, moderate income groups are increasingly underserved because nearly every institution focuses on affluent baby boomers.

Insurers also can break new ground by identifying and serving unmet market needs. Although demand for many of today's life and property/casualty products is flat, that does not mean that underlying needs have declined. To the contrary, individuals are being forced to take on greater responsibility--and risk--for their own financial well-being as employers, governments and even families provide less of a safety net. Insurers have the capital and expertise to price and absorb these risks. The challenge is creating new products that respond to consumer needs in an understandable, cogent way. The success of state-sponsored prepaid tuition plans offers a glimpse of the potential of simple products to meet growing needs.

Another opportunity to break new ground is reinventing the business around emerging e-business models. Increasingly, the online world simply will become where financial-services companies do business. Insurers spend significantly less than banks and investment houses on their e-business efforts. And most insurers have not linked their Internet efforts to overall business strategies.

Companies that are serious about finding growth opportunities need to follow three steps to make growth happen. First, they'll need to realistically assess growth prospects for the initiatives they are considering, making sure there is a real consumer need and competitive space for the company to be unique and make money. This does not mean that only large opportunities are attractive. Rather, new opportunities are often only visible on the fringes of the market, meeting the needs of a small segment of consumers--either beyond or under the radar screens of major competitors.

The second step is understanding what is truly required to win. This means having an objective view of what consumers and channel partners will require to win their business. There is great pressure to leverage current infrastructure, products and processes in the name of efficiency, even if they don't match the market needs. This leads into the third step of establishing an appropriate organizational and operational structure to maximize the chances for success. An autonomous company may be needed to pursue a new opportunity successfully.

The primary differentiator of winners and losers will be leaders' willingness to transform their organizations around one or more growth engines. Growing companies feel different than stagnant ones. Winners will create a vibrant marketplace of ideas within the company to ensure that the best ideas rise to the surface and can attract enough capital and talent to make it all the way to the marketplace.

Larry Altman, a Best's Review columnist, is a vice president in the New York office of Booz Allen & Hamilton.
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Article Details
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Title Annotation:life insurers
Author:Altman, Larry
Publication:Best's Review
Article Type:Industry Overview
Geographic Code:1USA
Date:Jan 1, 2000
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