Stakeholder management as a driver of corporate performance in the insurance industry

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Stakeholder management as a driver of corporate
performance in the insurance industry

• International Insurance Society,
• 41st Annual Seminar,
• Hong Kong, July 10-13, 2005

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Agenda

• Defining stakeholder management
• Stakeholder management in insurance
• Stakeholder management as a driver of corporate
  performance
• Conclusions from a practitioners point of view

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Defining stakeholder management

• Managing the relationships of a corporation with
  relevant constituencies in its industry,
  political, social, economic and legal environment
  
• Roots of the concept go back to the 1950s
• Customers, employees, the community, and
  stockholders are the four parties to any
  business. () If the other three parties are
  properly taken care of, the stockholder will
  benefit in the long pull
• General Robert E. Wood, 1950, then CEO of Sears
• Stakeholders contribute to the wealth-creating
  capacity of a corporation and are, therefore, its
  potential beneficiaries and/or risk bearers

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Agenda

• Defining stakeholder management
• Stakeholder management in insurance
• Stakeholder management as a driver of corporate
  performance
• Conclusions from a practitioners point of view

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Stakeholder management in insurance

• As from the 1990s Increasing relevance of the
  concept in insurance
• Deregulation of terms and conditions
• Liberalization of market access
• Privatization of state-owned insurers

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The insurance industrys key stakeholders
Supervisory Authorities
Governments
Employees
Policyholders
Insurance Company
Brokers
Investors
Investors
Alliance Partners
Rating Agencies
Source Schanz
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Stakeholder management in insurance (contd)

• More recent drivers of stakeholder management in
  insurance
• Low investment yields
• Surging insured catastrophe losses
• Liability claims inflation
• Regulatory reforms and investigative pressures

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Agenda

• Defining stakeholder management
• Stakeholder management in insurance
• Stakeholder management as a driver of corporate
  performance
• Conclusions from a practitioners point of view

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Stakeholder management as a driver of corporate
performance

• Our main proposition
• A corporations ability to establish favourable
  interactions with a multitude of stakeholders
  enhances corporate value drivers and is a
  necessary condition for maximizing shareholder
  value.

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Main corporate value drivers
Reputation
Business Environment
Corporate Value
Reputation
Reputation

Corporate Strategic Positioning
Reputation
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Shaping the business environment

• Political Environment
• Changes in regulation/
• legislation
• Changing role of governments
• Antitrust regulations

• Social Environment
• Demographic changes
• Shifting attitudes towards
• risk

Industry Environment

• Customers
• New distribution channels
• Changing insurance needs
• Emergence of substitutes

• Suppliers/Intermediaries
• Consolidation
• Disintermediation
• Vertical integration

Insurance Corporation

• Competitors
• Consolidation
• New entrants (banks, capital markets)
• Internationalization/Globalization

• Technological Environment
• New technologies, e.g.
• nanotechnology
• Declining cost of
• communication/information
• technology

• Economic Environment
• GDP, inflation, interest rates,
• stock markets
• Growing complexity/inter- dependence of
  economic
• environment

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Enhancing the firms strategic positioning

• The Balanced Scorecard offers an attractive
  approach for measuring the
• effectiveness of stakeholder management
• Financial perspective
• Customers perspective
• Internal perspective
• Learning perspective

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A typical Insurers Balanced Scorecard Strategy
Map
Internal Processes
Human Resources
Shareholder Value
Customer Value

Premium Growth
Price
Client Relationship Management Process
Underwriting Skills
Underwriting Profitability
Terms Conditions
Innovation Capability
Marketing Skills
Capital Efficiency
Services
Underwriting Process
Financial Skills
Investment Returns
Quality of Relationships
Business Process
Claims Manage- ment Skills
Cost Efficiency
Brand Reputation
Learning Growth Perspective
Financial Perspective
Customer Perspective
Internal Perspective
Source Kaplan/Norton (2001), amended by Schanz
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Stakeholder management helps create and sustain
competitive advantage

• The capability of a firm to create and sustain
  competitive advantage depends on the competitive
  effectiveness of its value chain
• The competitiveness of the value chain, in turn,
  is heavily influenced by the firms relationships
  with clients, shareholders, employees and other
  stakeholders

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Competitive advantage is determined by the
corporate value chain
Claims Liability Manage-
ment
Asset Liability Manage-
ment
Product Design Develop- ment
Under- writing
Distri- bution
Policy Admini- stration
Marketing
Source Schanz
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Two fundamental strategies for competitive
advantage

• Main sources of competitive advantage (according
  to Michael Porter)
• Cost leadership
• Controlling cost drivers
• Reconfiguring the value chain

• Differentiation
• Supplier linkages
• Channel linkages
• Institutional factors

or
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Stakeholder management as a source of competitive
advantage (contd)

• Stakeholder management can support both
  competitive strategies (cost leadership and
  differentiation) by lubricating the value
  chain!

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Agenda

• Defining stakeholder management
• Stakeholder management in insurance
• Stakeholder management as a driver of corporate
  performance
• Conclusions from a practitioners point of view

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Conclusions

• In order to maximize the benefits from
  stakeholder management an integrated stakeholder
  communication approach should be adopted by the
  insurance industry
• Stakeholder management activities should be fully
  aligned with strategic corporate goals

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Integrated messaging for an insurance company

• Industry Context
• Competition
• Regulation
• Legislation
• Economic Development
• Social Trends
• Technological Trends
  
• 
  

• Corporate Strategy
• Vision
• Mission
• Strategic Objectives

• Financial Performance
• Operating/Net income
• Premium growth
• Combined ratio/operating margin
• Investment income yield
• Shareholders equity
• Return on equity
• Cash flows

Source Schanz
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Aligning corporate strategy and stakeholder
management

• Benefits from aligning strategy development and
  stakeholdermanagement
• Effectively influencing key parameters of
  corporate strategizing
• Resource base
• Industry structure
• Socio-political environment
• Enhancing strategy development by stakeholder
  feedback (outside-in perspective)

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Summary

• Stakeholder management in insurance has rapidly
  gained in importance due to seismic changes to
  the sectors business environment
• Effective stakeholder management can enhance
  corporate value drivers
• Stakeholder management and the corporate strategy
  should be fully aligned

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