Business planning and knowing your numbers

I had a great opportunity to talk with a group of advisers last week on the subject of business planning and the power of knowing you numbers. I won't reproduce all the material but understanding the basics before engaging in, say, a discussion about acquisition, replacing systems, hiring staff, I think is absolutely fundamental. These apply no-matter how big your adviser business:

Do you know your numbers?

  • What capital is employed in your business?
  • What is your margin?
  • What is your cost to acquire a new customer?
  • What is your cost to serve a customer?
  • What is the cost of a new adviser desk in your business?
  • If you have another $100k, $500k, $1m, $10m do you know what you would spend it on?
  • How would that change what you do?

Sometimes you can have a great conversation with your accountant about these numbers, but they are more demanding than they may appear. The top question alone requires some thought to work out what the right basis for assessing the capital employed by your business is. We find that the number in smaller adviser business accounts is rarely a good guide - as it often undervalues or fails to consider the capital value of your client base.

Those questions about cost to acquire a customer and the cost to serve a customer can vary a lot. A less engaged customer with a product which does not need a lot of revision may be every low cost to serve. A demanding customer with a high-engagement product - such as a business client with a group scheme for staff - maybe in a different category altogether. That question is addressed really well by this post, which was brought to my attention by Tony Vidler: link.

 


Facilitate deeper and more meaningful conversations with your clients

As you are probably aware we use (and are very proud of) a value-based research methodology, meaning that we put more weighting on items that are more valuable to your clients. As an example in Trauma insurance, cancer claims account for about 44% of all male Trauma claims and a whopping 70% of female Trauma claims, therefore it is important that what you are recommending has good cancer wording over something more trivial or much less likely to be claimed on such as Creutzfeldt-Jakob disease.

Quotemonster has five report formats to help you understand and explain the differences between products with your clients:

  1. Benefit Overview: A simple report with ticks and crosses to show clients which items are included and excluded from the policy.
  2. Heatmap Report: A visual experience that quickly shows clients which features are better via colour-coding and single words.
  3. Star Rating Report: A report outlining even the smallest differences between products whilst making it clear which items add more value to a policy.
  4. Summary Head to Head: A simple comparison between two companies with a snapshot of pricing differences, material product differences, and similarities between products.
  5. Detailed Head to Head: Designed to drill down into the detail, providing you another great tool to help educate customers about any criteria within the policy wording that could have an impact at claim time.  

Have you seen each of these reports? Why not log in now and check them out. Alternatively, call us and we will show you how.

Between the different report options available to Research subscribers you will always have one to suit your client’s ability to understand what the differences are between the products, whether they are looking for a quick overview or an in-depth comparison. Our reports assist you in explaining how the products fit the needs of your client and allows you to engage in deeper conversations about the importance of suitability and the importance of some benefits over others. 

If you wish to gain a better understanding of our value-based methodology or take a look at the reports we offer please get in touch by calling us on (09) 480 6071 or email info@quotemonster.co.nz.


Business planning: first, subtract

That's right, start by removing something from your business, rather than adding something. Originally this concept was introduced to me about twenty five years ago by a business coach who was helping me with time management. It came as something of a revelation to me to begin with the question "what will you cut out this year?" Looking at the diary for an individual this is an iron rule. Each person only gets 24 hours a day. Of course, I could delegate, or hire more people, but already that assumes I will stop doing something and make that the responsibility of someone else. You get the picture. 

Recently I was reminded of the concept by a couple of tweets by Ethan Mollick, a professor of innovation and entrepreneurship. The first was a reminder that Han Solo is just a cowboy without a hat. It might strike you as a silly example, but in the crowded world of entertainment Han Solo has become one of the most recognisable and loved characters. In this important, visual dimension, he is less than his predecessors. Something was removed to make him look different, in this case, the hat. Over time our services often become more complex as we add things in order to deal with new situations that arise or cater to new groups of customers. That creates plenty of room to create new services by reducing complexity. It is worth exploring. Also, you have a lot of freedom to invent micro-services, or easy 'building block' approaches to financial planning that could even be gamified. Imagine a full review completed in a series of micro-steps each of which only takes about five minutes.

The subtraction game can also be applied to your internal team. Perhaps there have been too many meetings? Too many projects? Too many people invited to each meeting. If you are not sure you can ask. Which meeting could you treat as optional? Which meeting would each staff member rather happened fortnightly rather than weekly and so on. This can be a useful tool to tackle presenteeism and performative work culture. 

This year, before I ask what can be added to the business, I am going to be checking what can be subtracted first. Debits necessarily come before credits. The time and focus I give new projects this year has to come from somewhere. It's about creating room to breathe. 

 


Planning for 2021: how optimistic are you? Why?

In planning for 2021 I found myself researching optimism as an approach to checking assumptions about the future. Why? The Insurance industry has had some pretty awful quarters in terms of production - yet we know some fundamentals about the sector are strong. Is this a bad patch, and if so, when will the recovery begin? Or is this something more persistent, and if so, can anything be done?

Before I tell you my views, let me share a good question. Not my own, but based on some research about examining possible futures, which I will adapt as: "It is helpful to make a distinction between our outlook on the underlying course of events and our ability to influence them."

Some pretty big divergences between views can be traced back to either a perception of the underlying conditions and likely outcomes based on those and also whether we believe anything can be done about them. When separated out it can help to explain a lot of conflicts: the big differences in views between new and old insurers, also some big differences in views between dealer groups, between older advisers and newer advisers, and finally between many advisers and insurers. It all depends on where you stand.

More work on this will come in the next quarterly life and health report - due at the end of March. Inspired by the work of Peter Hayward and Stuart Candy, published in 2020 as The Polak Game. 


The missing customers, the missing new business

This article from The Economist discusses how companies from Silicon Valley are creating products that are much more suited to males than females, alienating half of their potential customers. This is in some surprisingly obvious ways: most mobile phones and gaming devices are simply too big for most women's hands to use with as much comfort and utility as the average man using the same device. This is my my wife persists with her ancient, but correctly sized, iphone SE, rather than choosing to upgrade. It's a huge lost opportunity. If you read the article you can easily feel smug - as I did - about the silly mistakes these silicon valley geniuses make - like trusting the design decisions to teams that are 75% male. But there's another part of me worrying - what are we missing? Here are two examples: 

We're missing out on women. Looking at several hundred thousand quotes, 43% of quotes arose from couples and 57.4% arose from quotes for single adults. Men were quoted for insurance on their own at a rate twice that of women. Increasing the engagement of women quoting alone to that of men would be a 20% boost to quotes for the industry. In the advised channel we are not quoting single women as often, and when we look at cover levels for women, they remain lower than for men. Remember that with declining marriage rates women tend to remain single, or if in relationship, financially independent, for longer, which expands the impact of this industry weakness. There is nothing like this skew in direct insurance.

In Auckland we're also missing out on adequately serving the multi-adult household, which now accounts for 30% of all households in this region, by featuring mainly traditional families. We're missing out on women, big time. The  We're missing out on genuine connection to client needs - by talking about insurance all the time, and not about health, risk, or the great purpose of financial risk transfer. Where there are people with a financial dependence on each other, there is usually a need for insurance. Marketing to that segment with a new solution to the challenge of making sure the benefit goes for its intended purpose would help. 

There are more, and they require detailed evaluation. The solutions to accessing ignored segments is not straightforward. All change is difficult. It's an example, however, that the industry needs to change to reflect changes in society around us. While it might be embarrassing to be talking about selling more to single women in 2019, it would be even more embarrassing to be still talking about it as a problem in 2029. While the housing crisis has been in the news almost every week for the last five years, we do not appear to have recognised one of the most obvious consequences: more shared housing. 

More details will be in the Quarterly Life and Health Sector report. 

 


Rising insurance premiums

RBNZ has warned that rising insurance premiums could hit property values in their latest Financial Stability Report. RBNZ Governor Adrian Orr said, our financial system is resilient to current risks – but risks remain elevated. In the case of the risks associated with climate change, like average world temperatures, they are slowly rising. Insurance premiums could play a valuable role as a price signal in making the risks, and their costs, real to more people. Click here to view the report. 

Image from the RBNZ report.

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Planning series: innovation

Looking at 2019 and planning to do things differently inevitably brings us face-to-face with the need to innovate. But innovation is a widely misunderstood concept. First, ideas are not equal to innovation. To innovate we must do more than think of a cool new way things could be done, the idea must also work. The whiteboard exercise means nothing until the new thinking delivers value. Second, innovation is rarely a lightbulb moment - it generally emerges from organised and disciplined search. If you have identified a need to innovate, and you are wondering how to start, you could do a lot worse than ponder the seven sources of innovation identified by Peter Drucker in his 1985 classic "Innovation and Entrepreneurship - practice and principles".


Planning series: slow change

Slow change can be a great ally. Take any large project, break it down into many small steps, and you can win by gradually tackling each one over time. Whatever your 'elephant' sized business problem is - digitising old records, preparing for the new compliance regime, or establishing content creation skills within your business - slowly but surely, 'eating the elephant' can be made possible.

Slow change can also be a great enemy. The classic personal example is how weight tends to creep up slowly over time. The classic business example is failing to keep your skills up to date. Underinvestment in personal skills does not show up straight away - in fact it looks like a gain: you can spend that time on something else, maybe something with a short-term payoff, while the cost savings fall to the bottom line. But it is really a question of making a withdrawal from the long-term value of the business.

Sooner or later a reckoning comes - and then perhaps the bill falls due all at once: income falls, or you have to make a large investment of time and money to catch up.

 


Planning series: the dangers of seeking a silver bullet

A silver bullet, the quick, simple, solution to your number one problem. The thing that will kill the vampire. The only thing is that while you're searching for the silver bullet, which may not even exist, the solution that was always available was ignored. It was ignored because it looked too hard, too complicated, or required skills your organisation doesn't have right now. But most really difficult problems require those sorts of solutions. The kind of problem that can only be fixed by difficult work, investment, and adding new skills is a blessing. That kind of problem contains the gift of competitive advantage - because once you have cracked it, it remains hard for someone else to copy.

Inspired by Seth Godin's article on difficult problems.