In the third quarter 2008 edition of The Nolan Newsletter, we published part one of a two-part discussion around characteristics of successful mid-size insurers. Since then, changes in the political environment, along with the economic crisis, have consumed much of the headlines and have introduced new dynamics into the market. A lot has changed since Part 1, and I appreciate those of you who have asked for Part 2. I have been waiting for some measure of calm in the market before publishing Part 2. While calm is a relative term, I think now is the right time for Part 2.

Building on Part 1, the Nolan Company has the good fortune of working with all sizes of insurers and financial services companies, from the largest multibillion-dollar entities to those whose revenue and premium are less than $100M. It is common to hear about the accomplishments of very large companies. Less is heralded about smaller companies and what makes many of them so successful.

From Part 1, we noted three core themes for successful mid-size companies:

    Their ability to identify and exploit niche markets;

    Their ability to maintain a close pulse on the market through intimate relationships with channel partners, customers, and the local marketplace; and

    Their ability to listen carefully to the market and act swiftly.

Not surprisingly, leadership is at the top of the list for Part 2. The carriers we see have leaders who create a culture and environment of high-performance standards and constructive behaviors. They ask tough and probing questions of their teams, their employees, and yes… their outside advisors. Executive managers are not command-and-control characters, but rather those who excel at delegation, holding their people accountable, and staying close to the issues at hand. These companies have very strong and loyal cultures where it takes years to develop people and their management teams. Many hire and promote almost exclusively from within. The most successful executive teams stay close to the issues not only to ‘trust and verify,’ but also to coach and help their teams work through the issues. Modest-size organizations can’t afford to immediately terminate or move someone aside who has the capacity to get the job done, but simply lacks the training or exposure. It is also true that these carriers are often in smaller communities, which constrains the talent pool, requiring more focus on internal development versus outside hiring.

The next theme is around focused use and leverage of technology. With scarce resources and often niche market positioning, it is critical for the mid-size carrier to be laser-focused with investments in technology, especially where technology is key to supporting the business strategy. These carriers have strong internal agreement on the role of technology (e.g., Support vs. Enabling vs. Driving), as well as investment and delivery plans.
Next is a deep-rooted dedication to ongoing learning and continuous improvement. An example of this is strong representation at many of the industry conferences. Mid-size carriers are hungry for ideas and lessons learned. Rather than following textbook fads, they look for what works and what will fit their situation. They have a culture that asks “Why?” or, “How can we do this better?” at every level of the organization. And, they are willing to share their ideas and successes with others.

The last theme is mid-size companies’ long-term versus short-term commitment to their customers, market, partners, and business plans. This is especially true for mid-size private versus public companies. For example, mid-size mutuals take a hard look at the long-term viability of their business. Modest-size public companies tend to be much more bottom-line focused and reactive to fickle market attention, which can result in greater efficiency, but fewer products and services, which leads to longer-term growth and viability challenges. Taking a short-term view can lead to decisions that limit long-term prospects, which leads to further consolidation…and, you know the rest of the story; i.e., a self-fulfilling prophecy of following the leader and being gobbled up by the larger competitor.

In a world filled with jargon attributing successful business strategies with words like scale-driven, consolidation, outsourcing, off-shoring, commoditization, and meeting short-term earnings commitments, there is a contrasting and successful business model, which can be described as local, personal, niche, entrepreneurial, relationship-based, and committed to the long-term. Mid-size carriers have the distinct advantage of being able to pursue these values on their own terms. We salute the many successful mid-size carriers who are proving it during these exceptionally challenging times.