The Search for True Competitive Advantage in Insurance

Building a strategy that achieves competitive advantage in insurance

Having a compelling set of competitive advantages sits at the heart of a great company strategy and are the pillars on which company vision, operating model and departmental strategies should be built. 

These should be capabilities that the company can effectively leverage, using skills, assets, knowledge or processes that are clear strengths versus the company’s competitor group. They must also be capabilities that are useful in creating products, propositions or services that customers want and value. 

What is competitive advantage?

“Competitive advantage is the extent to which a firm is able to create value for its customers that exceeds the cost of producing that value and does so better than its competitors.”

John A. Parnell, Strategic Management: Theory and Practice

The output of a true competitive advantage should be upper quartile returns versus competitors, resulting in superior shareholder returns.

Sources of competitive advantage for UK insurers

Competitive advantage can be generated in many ways, but some typical areas might include:

Low cost:

Efficient operations, effective claims processing, access to low input costs, cheaper sources of capital.

Good customer experience that aims to exceed customer needs:

Strong brands, quality insurance products, marketing skills, high levels of customer satisfaction.

Skilled people & process:

Agile ways of working, operational efficiency, highly skilled people, rapid test-fail-learn culture that drives continuous improvement.

Intellectual Property:

Learnings that competitors struggle to replicate or that can be protected by law.

Technology, Artificial Intelligence, and Digital Transformation:

Either contributing to cost reduction, customer experience and access, digital interactions, or enabling capabilities such as accurate and dynamic risk pricing.

Data and Analytics:

A critical area in the insurance market, where advanced analytics and a detailed understanding of the customer now and over recent years is key for identifying trends relevant to pricing but also distribution and fraud detection

Whatever a company’s points of competitive advantage are, they all must be strengths versus competitors, enable activities that improve trading performance and be sustainable as an advantage over the time horizon being assessed.

Do you have a real competitive edge in the insurance market?

When asked if a company has competitive advantage points, the answer is typically a confident ‘yes’, but the real picture is often more complex. Some of the most common gaps or misconceptions could be:

• Is it a strength? Capabilities that create competitive advantage need to be a strength versus the competitor peer group. A company might have recently upgraded a capability or addressed an underperformance issue but that doesn’t necessarily equal a strength. If competitors were in the room reviewing the capability, would they be envious?

• Does it make a difference to market performance? Strengths that might have been historically useful may have faded in impact over time. For instance, an ability to design great products for brokers is of little use in a market that’s significantly gone direct. Similarly, great pricing analytics using traditional techniques can no longer be used to create advantage in a market that’s shifted to machine learning models.

  
  

Are your competitive advantages sustainable?

A competitive advantage today is useful to trade in the here-and-now. But is it sustainable over the full extent of the planning horizon? What about beyond that? If technology is set to diminish a capability’s relevance or consumer trends are moving away from the status quo, then today’s competitive advantages may not hold-up in tomorrow’s market.

Identifying and building the Competitive Advantages that are right for your organisation

To build robust competitive advantage that can support a long-term strategy requires detailed understanding of a business’ capabilities today, the capabilities being built for tomorrow and the market environment that the business will be operating in over the plan period. This leads to two areas of investigation:

1. Internal: Identifying which capabilities can create advantage and assessing how those compare against the peer group. Competitive advantage should be built around differentiating capabilities that are at least upper quartile.

2. External: Assessing the market environment, covering market dynamics, competitors, customers and macro trends

   
   

Any competitive advantage points that are identified should be strengths that make a difference today and in the future market. For example, this could be a unique leading data set that drives market leading pricing, a supplier value chain that enables low cost claims fulfilment or brand management that achieves greater cut-through than competitors for target customer groups.

Once Competitive Advantage points have been identified, sustainability can be assessed to narrow the list further and identify the true, robust pillars on which to build a strategic vision and action plan.

Need help discovering your competitive advantage?

Camelot’s Strategy experts can help you to identify and refine your view of competitive advantage, review against competitors and provide methods for assessing sustainability in the future. Our experienced experts use cross-sector insurance knowledge to offer a range of services to help take the firsts steps on this journey, such as:

• Initial interviews with senior management

• Review of existing strategies and internal competitive environment materials

• Workshops to analyse and diagnose the current business model and prepare for the future

• Ultimately, identify the key areas of advantage that can make a material difference to profitability over the plan period.

Please get in touch to discuss how we can work with you and take the next steps. We pride ourselves on the flexibility of our model – we always look for a solution and a way of working that’s tailored to each client’s needs.

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About the author

Chris Hazell has spent 20 years in the insurance industry advising business leaders, executives and Boards at major insurers. Chris has led internal Strategy and Corporate development teams in the Insurance industry and worked as an external consultant.