BearingPoint: The adaptive insurer is the flexible insurer

To break through the traditional conservatism of the insurance industry, 84% of insurers that have greatly outperformed the competition did so through the adoption of adaptive business models, find a recent analysis from BearingPoint. Through understanding their customers, bringing relevant products and services to market quickly - in response to a measured understanding of current conditions - was correlated with setting these insurers on the path to success.

In a recent report from BearingPoint, titled ‘Adaptive insurance: finding the extra 10%’, the consulting firm explores the kinds of practices that set high performing insurance companies out from their less well performing competition. In a world full of volatility created by, among others, disruptive technologies, demographic changes and the growth of wealth in emerging markets, the traditional reserve of insurance companies is being called into question.

In the BearingPoint’s survey of 25 of the larger insurance companies between 2009 and 2013, the firm sought to identify what set the top performers, those whose share-price jumped almost 300%, from low performers, whose share-price remained flat over the period.

Adaptive performance
As part of the research the consultancy considered the kinds of business practices that were correlated with high performance in the industry. Finding that a “compellingly 84% of the insurance companies categorised as ‘outperforming’,” had, what BearingPoint characterises as, an “adaptive operating model.”

The firm identifies three key leavers with very high mean scores in high performing players with respect to responsiveness and readiness; strong customer orientation (4.45), rapid product and service development (4.00) and early warning indicators (3.92). While capex/opex adjustability (2.42), advanced analytics (3.00) and cloud based sourcing (3.00), have significantly lower adaptability scores.

Adaptive technique
The most powerful adaptability score, ‘strong customer orientation’, creates the conditions in which businesses are able to better understand the needs of their customers, which includes changing the perspective from products to services to customers, consolidating customer information across product lines and ensuring that customer needs are treated holistically. The second most powerful adaptability technique deployed by high performing insurers is the ability to recognise the customers’ desire and initiate ‘rapid product and service development’ to meet that desire with a relevant product offering.

The third powerful adaptability practice is to have an ‘early warning system’ in place which effectively and rapidly identifies trends that affect the market to produce, and was cited as important by almost 80% of respondents. The consultants note that such early warning system would provide information on things that starts to go wrong regarding individual customer and policy criteria or broader questions such as national and international events, as well as creating the opportunity to create or modify products and services, and/or to engage with customers and prospects.

Supporting adaptation
With underperformance, insurance companies have been looking to streamline their operations through cost cutting exercises that aim at high levels of efficiency. While high levels of efficiency are not necessarily negative for a business, they can come at the expense of flexibility – and thereby adaptability. BearingPoint highlights that a level of ‘slack’ needs to remain which is able to provide room for adaptation, with for every €10 an organisation looks to save in short-term efficiency and performance improvements, roughly €1 should be put back as an investment into the capabilities required for mid- to long-term adaptiveness.

With the world starting to move faster and faster, and technological, demographic and emerging conditions changing rapidly – a move to an adaptive model sooner than later is posited by Matthias Roeser, Partner at BearingPoint Zurich: “Time is running out. If organisations already underperformed when their strategic reviews were running in two-year cycles, their challenges only increase as cycles move to six months or even shorter.”