The fallout from the financial crisis and the prolonged soft market is keeping many in the insurance industry fixated on the tactical moves necessary to keep their heads above water. This makes a long-term assessment of how a company succeeds over the course of decades still a fruitful exercise.
Recently, at the
Best-selling business writer and Stanford professor Jim Collins said that all companies, irrespective of industry, have the ability to achieve greatness if they make a conscious decision to do so. “Greatness is a function of choice and discipline,” he said.
Part of this discipline is managing growth in a responsible way. Collins cited a maxim from
Indeed, Collins said it’s hard to overstate the value of human capital when investigating what makes certain companies thrive and others die. He highlighted the example of Darwin Smith, former CEO of
To the contrary, in his presentation on the life cycle of insurance companies, Robert Hartwig, president of the
Hartwig noted that while it’s rare for businesses, like people, to live more than 100 years, the insurance industry has great deal of companies that are thriving past the 100 year mark. Indeed, some 650 members of NAMIC have reached that distinction. Hartwig said that three characteristics were most prominent among the centenarians: they were family owned, they were geographically modest, and they concentrated on one core product or business. “Diversification leads to complexity,” Hartwig said.
So how does Hartwig's endorsement of simplicity reconcile with Collin's admonition to rethink core principles? Collins readily admits that insurance is something of an odd duck among industries in that conservative business practices are endemic and often mandated by law. Hartwig also noted that it’s probably not a coincidence that two-thirds of insurers more than 100 years old have a mutual structure. “Mutualization leads to long-term thinking that is rare in the business world,” Collins said.
This complexity versus simplicity debate will likely only metastasize in light of pending regulatory changes. For example, the pending Solvency II regulations in the European Union will award more diversified operations with lower capital requirements. Post financial crisis, regulators and rating agencies here may well follow suit. The prospect of smaller insurers merging to stay in regulators good graces seems an odd perverse outcome of a financial crisis that was caused interconnectedness and sheer size of certain financial services firms.
Whether insurers choose to seek growth through diversity or instead refocus on their current niche and improve core operations such as underwriting, they need to pick a path and stick to it. “The signature of mediocrity is chronic inconsistency,” Collins said.
Bill Kenealy is a senior editor with Insurance Networking News.
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