One of the biggest risks to a surety company occurs when management focuses on return on investment to the detriment of the surety product. The largest sureties are controlled by insurance companies that are publicly traded. This can force company leaders to seek maximum profits, while losing sight of risk exposure.
Often times, surety companies make surety products available to existing customers that purchase other lines of insurance. Too often, these companies face credit exposures that far outweigh short term gains. These companies rarely operate profitable surety divisions over the long term.
During my tenure as a surety president, I was allowed to operate the surety company as a profit center. By focusing on the customer and committing to strong underwriting capabilities, we were able to grow to become the second largest surety operation in the world. The following are three recommendations for surety operations looking to build a profit center:
- Focus on market segments. A surety focused on growing profits should select and target specific industry market segments. Focusing on market segments allows underwriting to develop understanding of the customer’s business while constructing close professional relationships.
- Hire and develop experienced surety leaders. Often times, the person in charge of the surety division has little or no experience with surety products. Instead, this person may have succeeded in another division of the company and was then promoted to a surety leadership position. An experienced surety leader will be more inclined to support strong underwriting practices and ensure the needs of the customer are ultimately the focus.
- Analyze claim activity. When I work with a surety, I attempt to capture claim loss data. This data can provide key insights into the quality of existing underwriting. Sharing claim loss data internally can help train staff while minimizing risk exposure in the future. Refinement of claim reviews can maximize profit center results. Companies that focus on teaming with claim experts can realize reduced claim activity while growing profits.
A company that focuses on these three issues – claim activity, leadership, and market segmentation – will be on its way to developing a surety profit center. You will find that your people, from the receptionist to the CEO, will have a better vision of the company’s future and provide better service to your customers as a result.
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