Last week, a diversity, equality and inclusivity champion suggested it was time to re-consider our use of everyday idioms that come with violent undertones. Do we need to ‘pick our battles’ when we can ‘choose our opportunities’ or ‘kick the tyres’ when we can ‘test the build quality’. ‘Why kill two birds with one stone’, when you can ‘feed two birds with one scone’? Why not indeed. I’m tempted to add another to the list; ‘competition’.
As I enjoy my weekend walk to Regents Park, I pass by the toy store my grandparents owned in the 1940s (predictably now, a coffee shop). It’s closure was, I’m told, caused by another toy store opening opposite. According to this particular family legend there was only room for one toy store in town and it wasn’t Grandad’s. Competition dominates business thinking. To win, someone else has to lose.
You don’t have to have been a student of the moral and economic philosophy of Locke, Bentham and Smith to accept that individualism, free markets and competition are cultural self-evident truths that we were all born into, especially in the UK. Businesses like to think they are different to their competitors, but driven by the competitive need to cut prices they remove more and more cost and inevitably, quality, so rather than differentiate themselves, the reverse occurs; they look more and more like their competition. The result is a race to the bottom where the buyer can no longer tell the difference between one logo and another.
We see this when it comes to buying insurance. Customers flock to price comparison websites in the hope of buying at the lowest possible price, and the transparency offered by the price comparison site means that insurers are forced to reduce the cost (and product benefits) to achieve market share. The same dynamic applies to service providers such as TPAs (3rd Party Administrators) where the insurer’s procurement teams are incentivised to reduce cost as much as possible, which leads to service providers having to de-skill the claims function until it can be de-skilled no more. Economic theory says this downward spiral results in a ‘perfect’ market, which is a strange way to describe a situation where everyone loses; the insurer, the service provider, their employees, even customers, whose issues are rarely resolved at first attempt and therefore at optimal time/cost, because the right person for the job was ‘too expensive’.
Look to the long-term and competition often comes from someone slightly ahead of you in the value chain, so for insurers, the challenge isn’t from who they think their competitor is (i.e. another insurer) as much as it will be from say Revolut. By owning the relationship with my current account, Revolut is a far more natural partner to insure the products and services I buy. For a 3rd Party Administrator (TPA), their long-term competition isn’t another TPA, it’s the insurer creating a zero-touch claims process within their own apps and bringing the remainder back in-house. For a Policy Admin System (PAS) vendor you might think there’s no one up the chain (as they support the configuration of the product itself) but as the customer sits above the product, so long-term competition is likely to come from a vendor like Salesforce, who will promise that you’ll be able to configure insurance products with no-code but with the benefit of selling more by leveraging their customer insight.
So why not get ahead of the curve and beat them to it? Rather than obsess about what your competitor is doing, why not adopt a radical alternative; collaboration. When you think in terms of collaboration rather than competition, you focus on your core proposition, and augment it with complementary partner(s) that make your proposition both wider and easier to consume. As if by magic, you’re now head-and-shoulders above your competitors.
So rather than try to compete with Revolut and create its own bank, an insurer could work with a tech provider that makes the purchase of their insurance more frictionless within any banking app. Rather than compete with another TPA on just people, a TPA could find a complementary tech provider to blend the best people with the best of automation (in fact, this is exactly what the major TPAs are doing with Claim Technology’s platform and renewing and winning new business as a result). A PAS provider could benefit from strategically partnering with an analytics business that provides deep insight into customer buying behaviour to fend off a challenge from Salesforce.
The key is to focus on deepening your core capability (i.e get ever smarter at pricing risk if you are an insurer, smarter at technical claims decisioning/loss ratios if you’re a TPA or better at developing no-code configuration if you’re a PaaS provider) rather than dabble in building something new in-house that isn’t. That’s why in-house tech efforts are self-defeating when the alternative would be to partner with someone whose core competency is the change you seek.
I am often asked by VCs as to who my competitors are. The question is more than a little anodyne. It’s opposite – ‘who do I collaborate with?’ would be far more revealing on how the business is uniquely positioned and why the business out-performs. Isn’t it time we replaced competitive differentiation with collaborative differentiation? As for Grandad – if he’d thought in terms of collaboration he might have invited a couple more toy purveyors to town. It would have been what we would now call a destination.
Rather than ‘shoot me a message’ you can reach me at michael.lewis@claimtechnology.co.uk.
