HBR say that top performing companies put purpose at the core of the strategies rather than at the periphery. This supports my point that company strategy is too often about how insurers will achieve goals rather than why the goals are important.
You often see a transition to prevention rather than cure as a strategy yet no explanation as to why. I am suspicious it is too often a recognition that margins are being threatened by commoditisation and that adding higher profit services will counter that threat. That could lead insurers into a dangerous trap. The danger that creating r joining ecosystems is a goal in itself rather than a natural outcome of the "prevention of risk" goal.
McKinsey urges insurers to allocate 20% of resources to prevention rather than cure and in "Claims 2030: Dream or Reality" lays a strategy for them to achieve integrator status. Why?
“Innovation is accelerating throughout the insurance ecosystem as insurtechs, original equipment manufacturers, weather information providers, law firms, AI service providers, IoT solution providers and aggregators and many others push the boundaries of the possible” McKinsey
In other words, to exploit the explosion of data from sensors, the IoT and increasingly connected world, insurers will have to integrate and manage data. But that puts them head-to-head with data integrators whose core strength is integrating and creating value from data.
Surely, in that case the purpose of insurers is to become data integrators in order to mitigate risk. They will be in competition with health service providers, planned & preventative maintenance (PPM) service providers. Are insurers the natural providers of PPM for aircraft engines or is Rolls Royce or GE the better bet? In which case which is the prime source for insurance?
Looks to me like insurers should make purpose a priority in setting strategy and be absolutely clear what their future purpose will be. And test the proposition against the core strengths of current and future competitors.
HBR offers an illuminating case study- Mahindra Finance in India, part of the $20billion Indian Conglomerate Mahindra Group. Its long-term strategy purpose was to improve people's lives encapsulated in the motto "RISE". In keeping with that strategy, Mahindra Finance decided to target its core offering, vehicle financing, to rural areas where it could "address the unmet needs of underserved customers in an underpenetrated market". - Rajeev Dubey group head of HR.
Serving unmet needs is a theme of many insurers and insuretchs today. Mahindra Finance had to figure out brand new ways of determining creditworthiness of customers for which there was no data. It had to develop entirely new ways to handle loans- to innovate.
It achieved this and established trust with an entirely new customer base. Now here's the really motivational lesson. Mahindra Finance stretched the value proposition to help farmers and other customers obtain insurance for their tractors, lives and health. In a country where insurance penetration is only around 3.5%.
With whom do these customers have the relationship? Mahindra Finance or an insurance company?
Insurers have an opportunity to be leaders in these new ecosystems or followers. Share the high margins or struggle on the commodity low margins.
Developing a purpose helps decide whether or not you take the high or low road. Worth reading the whole article.
Remarkably, the company managed to do all those things and established a preliminary level of trust with its customers. It then stretched its value proposition to help farmers and other customers obtain insurance for their tractors, lives, and health. In a country where insurance penetration is abysmally low (about 3.5%), this was no small feat, especially since rural residents didn’t easily part with any minuscule monthly surplus they had, even if it was to secure their livelihood.