How to grow gracefully, in four steps

A gracefully growing insurance book is the gift that just keeps on giving – the more premium you add, the easier it is to manage. The more claims you settle, the better you can refine your process. The more successful distribution partners you have, the more want to join.

This isn’t pencils or software – the economies of scale are mild. It’s more an ease – the more good growth you see, the more sure you are that what you’re doing is working, the better you can serve your customers, and the better your results are.

So, given that hope is not a strategy, how do you grow a book as fast as responsibly possible? Here are four steps to good growth.

1. Start with something different

Small insurance books are much harder to run than large insurance books. (Please don’t tell any new product managers this – they always get assigned the small states.)

You can draw any line through a single data point, and therein lies the problem. In a small book, you don’t have enough of anything to know if your approach is profitable for a long time. Not enough service requests, agent visits, ads served, claims, whatever, running through the system to spot patterns.

Your platform may be entirely in the cloud, you may have installed an AI-based fraud detection model, and your company swag is probably way cooler than the average carrier’s, but what are the changes you’re doing THE SAME THING AS THEM better?

Um, spotty.

At best.

All those chino-wearing mid-40s folks running around to the techno beat and purple lighting at insurtech conferences may seem stodgy, but they actually do have deep technical expertise in a freaking complicated business.

(Let it be stated that I do not wear chinos, but I may from time to time be caught bopping my head just a little to the dance groove going on while which chatting up insurance software vendors. To each her own.)

So what you need is something meaningfully different. A quantum step towards different better, not slightly lower operating costs or a slightly cooler brand – that’s same better. A bit of mispricing or bad underwriting will eat same better for lunch all day long and spit out the hoodie.

As a product manager, I’m going to gravitate towards a fresh underwriting or rating variable, or a new way of constructing coverage, but I will allow that there is virtue in other functional expertise. A new distribution placement that nobody else has, a kind of coverage that’s tough to find, a radical restructure of some kind of risk into insurance – those let you stick it to the competitors. You can either suck off their overpriced business while leaving behind the underpriced business or count on some lead time while they figure out how to copy you.

That gives you a bit of a pricing cushion, and some time to fix any truly terrible mistakes before you find that you actually won all of your competitors' underpriced business.

Note that I didn’t add brand here. Of course brand can be a differentiator and can add economy of scale (think GEICO). The issue is that GEICO spent $2 billion dollars on advertising last year. Progressive a billion and a half, State Farm a billion.

Even if you’ve got a fantastic insurtech brand, when your competitors' advertising spend approaches your market cap (or, perhaps more tellingly, your market cap slides towards their ad spend), brand isn’t the best first tool. In short, GEICO has a relatively low cost of acquisition because of their advertising spend. As a startup, you don’t.

The other differentiators I noted are available to us all.

2. But don’t be too different

How do you price a risk that you can’t quantify?

If a tree falls in the forest...

It doesn't matter. You’ll probably never get a chance to as a startup, unless it’s very high frequency and very low severity. And if something is so low risk that you can convince someone with a balance sheet that the expected claim payout is near zero, there’s every likelihood that nobody’s worried enough about it to buy your insurance. Not good.

What’s odd to the outsider is that despite much of the insurance world being super highly regulated (and in fact because of it), the industry data is easily available. The industry is “subject to limited anti-trust exceptions under the McCarran-Ferguson Act.” (I know, I know insurance people, I repeated that disclaimer in a ringing voice in my head.)

So you can actually buy data on losses for lots of kinds of insurance, by state and at varying levels of detail. You may also have telematics, or cyber breach data, or warranty claims, or some other actual loss data, and that’s fantastic.

The better you combine data that already exists with your different better idea (see above), the better your chances at good growth.

3. Have a coherent strategy from tip to toe

I have seen this before: we’re so excited about our product idea, and we’ve got someone’s balance sheet and a regulatory filing approved and some cool ads and so READY, SET, LAUNCH!

You might get lucky, but good growth in insurance means operating a coherent system, not just putting out a fantastic product at a fair price through your chosen channel.

Here’s an example of not setting up your system right: You’re aiming at a segment with a lot of churn and endemic fraud. You didn’t set up your service policies and automation accordingly, so your staff is constantly accepting partial payments, canceling for nonpayment with outstanding balances due, reinstating policies, issuing paper checks before the original credit card payment is finalized, adding and removing drivers, handling cash, paying questionable claims, etc. And your policy lifetime is only a few months. And you have no fees or earned premium at policy inception. Not good, and it’s not your pricing and coverage – it’s your overall approach.

Or take another situation: You’re aiming at a very wealthy segment. They’re calling with questions you didn’t expect – what about their other home? Is their adult child covered? There’s damage to the decorative slate roof and you think you’re going to replace a few slates with some that don’t match PRECISELY? Replace the whole roof! Now they’re angry, and your staff is terrified, and the calls are all too long. And lawyers are writing nasty letters, and the Department of Insurance is giving you ten business days to respond to a stack of complaints. Oh, and you planned on 95% retention. Not going to happen.

Similarly, not a good growth setup, and it’s because your system isn’t internally consistent.

You need to match your business needs with your customer needs where the rubber meets the road: in the actual doing of things.

Save yourself the heartache – think it all through in advance. Your life will be so much easier.

4. Drink in the data so you can guide, not overreact

Just like driving on snow and ice (New Englander here), if you skid and jerk the wheel, you’ll end up in a ditch. Gentle course corrections work better. And you can only course correct if you are paying attention to the conditions.

Often, when people talk about “the data”, they mean quotes, new policies, retention, and claims. And yes, from multiple dimensions – sliced by time, quote source, rating variable, type of loss, etc. These are all super valuable. But paying attention mostly to these? That’s the privilege of having a much larger book (and we can debate that…).

If you have a small book, you need to lay your eyes on your numbers, and also on everything else that gives you an indication of what’s going on.

This means reading applications, listening to calls, Googling yourself (well, not yourself – your company). It means talking to agents about what’s going on when they quote you, including the CSRs (who may know best). It means reading claims reports and asking your claims adjusters if they noted anything unusual. It’s looking at how many times a quoter changed their information, how often insureds are logging into your system and what they’re doing. It means reading roof inspection reports, and factory floor inspection reports, and looking at drone footage of flooding and fires. It’s taking customer calls, and agent calls, and mitigation company calls.

It’s like adjusting the zoom on your view of your operations as fast as you can all day long without getting dizzy. Because really, that’s where it’s at – holding both the details and the big picture in your head at the same time.

Then you act. Knowing without acting is useless. Tighten up a process. Adjust an underwriting guideline. Call your Special Investigations Unit on a claim that seems funny. Adjust your billing. A bit at a time, and see if you find the feel for the right spot.

So that’s it…

Like so many things, so easy to say, so hard to do. But it is doable, just in a bit different manner than the Silicon Valley-style grow at all costs and the heck with all else! Your cost of goods sold will catch up. And in a $1.2 trillion market here in the US, you aren’t going to grab it all and turn into a monopoly. But you can grow to billions of dollars, serve people in their time of need, and return big returns to your investors.

You just need to do it skillfully. Move fast, don’t break stuff.

Next week… why people who know these things sometimes don’t do them – when perverse incentives do more harm than good.