The hype around big data has made numbers particularly fashionable. Huge server farms suck up terabytes of data to reveal hidden patterns, predict behavior and generally promise to provide all the answers we’ll ever need.
But you don’t need the sweeping stature of big data to appreciate the power of your own numbers. More modest numbers can tell a story: simple numbers, ratios, percentages, additions, subtractions, variances. Used well, numbers can offer an elegant shorthand and penetrating insight to help you build a successful strategy.
Strategy is about focus and differentiation. It is about creating a dominant advantage that competitors are unwilling or unable to follow. Yet when asked to describe their business strategy, many insurance agency principals will speak in generalities. “Our mission is to be great risk managers,” they’ll say. Or, “We aim to be a one-stop shop for all our clients’ insurance needs.” Or, “We compete on service and build lifetime relationships with clients.”
These “strategies” beg essential questions:
- What metrics can be used to gauge whether the firm is executing effectively?
- How do you measure what makes great risk managers, one-stop shops and service platforms?
- How do you know your firm’s strategy is distinct, focused and on track?
For many organizations, the first level of managing by the numbers begins with simply trying to track submission statistics, premiums and retention, and profit and loss by business line or unit. Often getting good data out of systems that don’t communicate well is a fundamental challenge.
For those who have figured out how to get basic data from their systems, the next level of evaluating strategy involves casting light on business issues. You can do this by asking why:
- Why was our quote-to-bind ratio so low this month?
- Why are we remarketing 90% of our accounts, only to switch markets 5% of the time?
- Why are our loss ratios increasing in this class of business?
The answers may not be readily apparent, but the data will tell you which questions to ask.
The third level of statistically driven testing provides more accessible answers to these questions and suggests new ways to deliver innovative services. These metrics track activities that clients care about most, measure efficiency and quantify account profitability. They indicate where processes are breaking down, where standards are not being followed, and where misalignment between team members or between producers and carrier appetites cause inefficiencies, uncompetitive offerings, errors or declinations. They indicate where you set priorities for process improvement efforts.
Whatever the firm’s strategy, defining practices that can be measured and managed is key. Returning to the proposed strategy of “being great risk managers,” these practices could include requiring client-industry specialization, providing total-cost-of-risk analysis, developing a robust loss-control program and delivering annual stewardship reports. Incorporating all the levels of managing by the numbers would mean you could determine which accounts receive this full service, at what cost and with what contribution to the bottom line.
Figuring out which activities drive value, versus cost or waste, is critical and becomes more obvious as the essential numbers that drive the business are better understood.
The story of how Billy Beane transformed a major league baseball team, the Oakland Athletics, is instructive. The subject of Michael Lewis’ book Moneyball, Beane discovered an inefficient marketplace for buying players, in which sluggers were often overvalued and players who did not hit for a high average but had a high on-base percentage were undervalued.
Beane believed that buying players with a high on-base percentage was a more efficient strategy to win games than buying players based solely on their batting average. In the movie “Moneyball,” Beane’s assistant Peter Brand sums up the A’s approach: “Your goal shouldn’t be to buy players. Your goal should be to buy wins, and in order to buy wins, you need to buy runs.”
And a high on-base percentage led to more runs.
Beane’s analysis of the data enabled him to understand the critical numbers behind the game better than others and to execute his strategy with more discipline and effectiveness than anyone else in the game. He veered away from the intuitive way teams were assembled and used statistics to guide his decision making.
Running an insurance firm, like building a baseball team, lends itself to numerical analysis. To find your own critical numbers, start by defining what a win is for your organization.
If profitable growth is the win, then what is a run? Logically, to achieve profitable growth, one must write and retain profitable accounts. Measuring this is complicated. How many organizations know what the break-even cost of an account is by department or line of business? How many accounts have segmented service levels by revenue, complexity or profitability? How many managers can identify which daily activities create waste versus creating value for the client and the agency?
Achieving the runs—on-boarding and servicing accounts profitably—helps connect activities that clients care about to activities that producers and service professionals perform. These activities, performed day after day, accumulate into the agency’s business strategy. If these daily processes are unmeasured and unmanaged, there is no strategy, regardless of management’s best intentions.
Managing by your numbers empowers management to bring to life a focused, differentiated strategy. It informs priorities, uncovers bottlenecks and indicates which processes should be streamlined. It tells you whether you are doing the right things in the right way with the right people. Ultimately it aligns your clients, your teams and your markets to eliminate waste and boost performance.
What stories do your numbers tell?