New Benchmarks and a 2-Speed Strategy to Close Competitive Gaps – Part 1
Competitive gaps aren’t normally the result of just one issue. They are a matter of dozens of little challenges that all add up to tremendous competitive pressure. COVID-19 has exacerbated many of the challenges that have been driving leaders, followers and laggards further apart. Once the gap begins to grow, it’s tough to reverse momentum and close the gap.
Business with a Blindfold
The REAL issue, however, is that most insurers don’t know why there is a gap — there are so many factors to consider, many inter-related. Laggards may have a vague sense of what is holding them back. Followers may be trying to emulate or catch up to leaders without a complete understanding of what it will take. Even leaders may not hold the right perspective on what is keeping them ahead. It’s a dangerous spot to be in. Are insurers safely in the center of market demand, balanced with internal/external alignment, ready to capitalize on opportunities? Or…are they so far off center that they are teetering on the edge of a cliff? Most executives would like to know where they stand.
I have been looking closely at how insurance innovation has been invigorated by the COVID-19 crisis. Insurers have been scrambling to respond, picking up the pace of business transformation planning and doing. Majesco’s latest thought-leadership report, Strategic Priorities 2021: Despite Challenges, Leaders Widen the Gap, carefully examines real levels of knowing, planning and doing among surveyed insurers. The goal of the report is for insurers to weigh their own organizations against those surveyed to uncover where they are on the spectrum and then to adjust their planning and priorities to take the necessary steps to become leaders and to stay in the lead.
The first step in successfully responding to change and disruption is awareness and appreciation of internal and external challenges and knowing where your organization stands on each one relative to critical internal (e.g. strategic objectives) and external (e.g. current competitors) reference points. Leaders reveal advantages over followers and laggards in their focus on internal and external challenges reflected in the sizable gaps revealed in our Strategic Priorities research.
The 21% cumulative gap between leaders and laggards on 11 internal challenges was driven by large differences on several individual challenges, including change management (41%), digital capabilities (40%), aligning IT and business strategies (31%), legacy systems (28%), and data & analytics capabilities (26%). The digital capabilities gap highlights the unpreparedness of laggards for rapid change in a digital world, and one that increasingly makes them uncompetitive.
Interestingly, the two segments were identically aligned on aging workforce/retirements, which was 10% ahead of followers. This is not surprising given the significant legacy business processes, channels and systems dependent on those reaching retirement. The only other meaningful gaps, each at 16%, are in post-COVID work environment (covered above) and budget. Otherwise, followers are generally keeping pace with leaders with only a 7% cumulative gap. (See Fig. 1)
Figure 1: Gaps in levels of concern about internal challenges
Evidence of followers’ concentrated efforts to keep pace or narrow the gap with Leaders over the past three years is evidenced in a big jump in the gap from 2018-19 to 2019-20, followed by the gap being cut by 50% this year. In stark contrast, the gap for laggards on internal challenges nearly doubled.
Switching the Benchmark
Some insurers will look at these internal challenges and say, “Well, we know what our issues are. We just need to address those issues and we’ll move back into a competitive position.” It is not that simple. Unfortunately, it is the external issues that are driving much of the pressure and many insurers don’t completely understand how the external impacts the internal. Before we begin looking at the external pressures and how to close the gap, we should look outside of insurance for a moment at the concept of the benchmark.
In the world of investing, certain investments, such as mutual funds, use benchmark funds. The benchmark fund is a sort of mirror for mutual fund investing. If your fund beats the benchmark fund, it’s doing well. If it doesn’t match the benchmark, something might be wrong. But the two funds are normally very close in nature with an equivalent distribution across investment types.
But what if someone took one of your mutual funds and swapped the benchmark fund with an outrageously high performing fund that is focused on new market trends and demands and looked nothing like your fund at all? Would you disparage your efforts, or would you reassess your market focus and trade your investments in to find investments that look like the new, impressive benchmark?
This is essentially what is happening within insurance right now. The benchmarks that we have been using (familiar traditional competitors and similar companies within insurance) are becoming less relevant as growth indicators. There are new sources of competition in the market that are reshaping the business of insurance and have the potential to make our past investments look sub-optimal. Do we invest to hit outdated benchmarks, or do we wake up and recognize a new level of competition?
Acknowledging the potency of the new insurance benchmarks is what will spur insurers to make the investments that will close the gap. With that in mind, let’s look at the external challenge gaps.
The gap between laggards and leaders is larger relative to external challenges (Figure 2). One of the largest gaps is around new sources of competition (new benchmarks!). This is a dangerous blind spot.
In particular, the gaps between laggards and leaders are nearly 50% for these four challenges:
- New competition from InsurTech, startups, MGAs, etc.: 48%
- The rise of direct sales (B2C & B2B): 46%
- New competition from tech giants from outside the insurance industry: 43%
- Increasing competition from traditional insurance competitors: 42%
Followers are more aligned with Leaders on these four, though are behind on new competition from InsurTech (12%) and the rise of direct sales (10%). In fact, their relatively small 9% cumulative gap to leaders is somewhat obscured by an “averaging out” of small single-digit gaps on six of the issues, and slightly larger double-digit gaps on the other six issues, something we did not see in the internal challenges. The largest gaps for followers suggest potential blind spots that must be addressed to keep pace with leaders:
- COVID-19 impact on target markets: 26%
- Pace of change: 16%
- Changing customer expectations: 13%
- Growing market availability of new/innovative insurance products: 12%
Figure 2: Gaps in levels of concern about external challenges
Despite this somewhat bifurcated set of external challenge gaps, Followers cut the gap with leaders by nearly 50% compared to last year’s survey — likely recognizing new benchmarks! But, laggards continue to fall further behind as their gap to leaders grew by over 50% from 22% to 35% over the past 3 years.
Watch for part 2 of this article on closing competitive gaps where we will explore Game-Changing — A Two-Speed Strategy: Speed of Operations and Speed of Innovation.
Denise Garth is senior vice president, strategic marketing responsible for leading marketing, industry relations and innovation in support of Majesco’s client centric strategy, working closely with Majesco customers, partners and the industry.
She is a recognized Top 50 InsurTech Influencer and industry leader with both P&C and L&A insurance experience as a CIO and business executive with deep international ties in Asia and Europe through her ACORD leadership role. Denise is an acknowledged strategic thinker, innovation leader, international speaker, and author of thought leadership and articles regarding the key issues and opportunities facing the industry today to prepare for the future.
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