High and Dry

To my surprise, I’m finding that insurance leaders I’m meeting in both the property-casualty and employee benefit market share optimism over the state of the industry. Leaders in the property-casualty world are hopeful that the economy is improving, but they’re more confident about the “hard” market. I would not be so bold as to call this a hard market without the quote marks, so let’s call it a “soft” hard market. Regardless of the definition, it’s clear we are moving forward from nearly seven years of soft market conditions.

For employee benefit firms, maybe the optimism is not as strong, but it is clear that many industry leaders have accepted the Patient Protection and Affordable Care Act and are developing strategies to succeed in the changing healthcare industry.

However, what I find interesting is that, while many are optimistic, when I ask them what they are going to do differently, I often get the deer-in-the-headlights response. Of course, these leaders talk about competitive advantage, differentiation, and value proposition, but when you begin to peel back the onion, I truly wonder how they are really different and if they have really positioned their firms for consistent growth and profitability.

The reality is that in most service industries—particularly professional service firms—it is very difficult to increase revenue and profits without the benefit of external market factors such as a hard market. That’s why most companies in the insurance industry cannot sustain growth over an extended period of time. The simple answer is that most firms “ride the wave” generated by external factors that influence their bottom line. Very few create their own profit wave that leads to sustained growth. When you look at the few that do, you see some common traits. What is the key theme that many high-performing firms develop? It’s market leadership.

Being a Market Leader

Differentiation is clearly an overused term in the insurance industry. Let’s face it, most companies say they differentiate from their competition, yet for most leaders, their greatest fear is fee transparency and someone else coming in with a lower price. If that is your fear, then clearly you do not differentiate yourself. Top-performing firms understand what it means to have differentiated services, and not only are they not afraid of a competitor’s price but rather embrace the view that their services demand a premium price.

From my perspective, firms that differentiate themselves are characteristically viewed as market leaders, and market leadership equals credibility. There is a reason that leaders from firms at the top of their market are often the most sought after for their thought leadership. Whether they speak at conferences, talk to the press, or write articles, true market leaders are in demand for their intellectual capital.

Many of you will say that there are so many insurance agencies in each area—including many large national firms with deep capital pockets and resources—that it’s fruitless to pursue a strategy for market leadership. If you think this way, you probably believe market leadership means being the biggest. In reality, market leadership is not always defined as being the biggest, but rather as being a leader in an industry segment or niche—hospitals, real estate, architects, engineers, municipalities. The list is nearly endless.

Trumping the Generalists

What many people lose sight of is that, when service firms meet with prospects or clients, they are really looking for your expertise or specialization. It is your expertise that creates the competitive differentiation. When you are viewed as a generalist, you will win or lose business based on price. However, an insurance firm with a proven track record as a market leader in a particular arena can often command higher prices and, in the worst case, be much less susceptible to price competition from a generalist.

Since we are talking about money, let’s air out the room on this topic: repetition. When you build a business model around expertise and specialization, you also create a financial model in which you can sell the same solution (or a very similar solution) over and over again. The effect of this repetition is creating higher profit margins on an ongoing basis because, often, the prep work or infrastructure has already been developed.

The Road to Specialization

The road to specialization is not straight and flat, and it does not appear overnight. It takes hard work and dedication. Some of the building blocks on that road:

• Build competency by performing the majority of your work in your targeted niche. That does not mean all clients have to be in your niche, but you must build the foundation of competency and reputation.
• Become active in professional associations related to your niche. Join committees and work your way toward a leadership role.
• Write articles for trade publications to “get your name out there.”
• Develop and lead webinars and seminars.
• Speak at local, regional and national conferences. At first, seek these opportunities out. In time, they will seek you out.
• Be first in the market with an idea or service. This allows you to set the standards and exploit the publicity that comes with introducing something new.
• Become an author. The best of the best in market leadership positions ultimately write white papers, articles and books.

At the end of the path to specialization are great rewards—not just financial rewards, but personal rewards. Those who reach the pinnacle of market leadership are known not just as a specialist, but also as an authority. At this point, say goodbye to cold calling or prospecting. Prospects will call you. Your thought leadership is viewed as the gospel, and you will be sought out to provide solutions to those in your industry.

Defining Your Leadership

Value added. I hate the term. Where is the differentiator in that phrase? How you market your specialized services will set the tone for how you’re perceived by your clients. Personally, I like the phrase “extraordinary client experience,” or ECE. When you use a term like ECE, you set the bar high. But ECE cannot be without substance. How you create your ECE is similar to how you build a brand. Once you build a brand or create an ECE, you can truly differentiate yourself in the market. There are the four key capabilities that go into building an ECE:

• Firm-wide capabilities
• Knowledge and expertise capabilities
• Relationship capabilities
• Differentiating capabilities.

Becoming a Trusted Advisor

What does it mean to be a trusted advisor?

Next to great service and value added, the most overused phrase in the insurance industry is trusted advisor. Ask insurance people to define trusted advisor and the majority can’t, or they offer some lame answer such as “helping the client.”

To be a real trusted advisor, you need to satisfy a two-part litmus test. You need to be able to help business owners achieve their goals and objectives, and you need to be so vital to your client’s success as to be difficult to replace. The combination of these key elements makes a true trusted advisor.

It is no coincidence that a trusted advisor is also usually a market leader. Trusted advisors are able to build extraordinary confidence among clients. Trusted advisors are generally brought into critical and sensitive issues without a second thought. Their counsel and advice is sought even if the topic is outside their area of expertise or market segment. In addition, clients of market leaders who are trusted advisors are the first to provide a reference or introduction, or vouch for you with other prospects who are considering using your services. Trusted advisors have close ratios significantly higher than industry averages. It is not unusual to see ratios as high as 80%.

Market leadership is not developed overnight. It does not come easy, but it is achievable. So the choice is yours: Do you ride the external market wave of the “soft” hard market, or do you create your own wave for long-term success? If you ride the wave, it will ultimately crash, and all you can do is look yourself in the mirror and say, “Here we are again.”

So enjoy the next couple of years. For those of you who are brave, innovative and optimistic enough to become market leaders, create the wave for your firm, then hop on for the long-term success that you generated for yourself and your team.