The Crucial Role of Value System Choices In Optimizing Insurance ProductStrategy

Executive Summary

In strategic planning, insurance professionals typically focus on three primary Where-to-Play (WTP) dimensions: geography, customer segments, and product offerings. However, Roger Martin’s insightful analysis in his article, The Hidden Where-to-Play Element in Strategy, reveals that a crucial yet often neglected element exists, the value system stage. This concept pertains to the breadth of activities within the value chain a company elects to own or outsource, ranging from end-to-end control to specialization in a narrow segment. For insurance companies navigating a rapidly evolving landscape, understanding and applying this fifth dimension is essential to optimizing competitive positioning and operational efficiency.

The article underscores that the value system stage is not simply about choosing to own more or less of the process but about aligning this choice with the company’s overall strategy and capabilities. Some firms succeed through vertical integration, while others excel by focusing narrowly and outsourcing strategically. For insurers, this means rethinking traditional boundaries, whether underwriting, claims processing, customer engagement, or technology platforms, to create differentiated value and sustainable advantage.

Key Insights

• Beyond Geography and Customer Segments: Incorporating Value System Choices
  While insurance leaders often debate which markets to enter or which products to offer, the decision about which parts of the insurance value chain to own or outsource is equally strategic. This includes underwriting, distribution, claims management, policy administration, and technology infrastructure. Recognizing this dimension broadens the strategic lens beyond “where” and “what” to “how broadly” the insurer participates in delivering value.
• Strategic Outsourcing Can Enhance Competitiveness
  Outsourcing certain activities to specialized partners can increase value and reduce costs if those partners possess superior capabilities. For example, insurers may partner with insurtech firms for AI-driven claims analytics or outsource cloud infrastructure to reduce technology overhead. This mirrors the example of Qualcomm’s royalty licensing strategy, leveraging external parties to amplify reach and profitability without diluting core competencies.
• Vertical Integration Remains a Viable Strategy When Aligned with Core Strengths
  Conversely, some insurers may benefit from owning additional stages of the value chain, such as direct-to-consumer distribution or in-house data analytics, if these enhance differentiation and customer experience. Tesla and Apple’s examples highlight how vertical integration can fuel innovation and competitive advantage, a lesson for insurers considering captive distribution channels or proprietary underwriting platforms.
• Value System Decisions Must Align with Winning Aspirations and Capabilities
  Any choice about value system breadth must be consistent with the insurer’s winning aspiration, how-to-win approach, must-have capabilities, and enabling management systems. The decision to insource or outsource cannot be made in isolation but must reinforce the overall strategic direction.
• Mitigating Risks of Partner Dependence
  Outsourcing critical functions requires careful assessment to avoid overdependence on third parties that could extract disproportionate value or create bottlenecks. Insurers must structure partnerships that preserve strategic control and flexibility, similar to Herman Miller’s selective outsourcing of design while maintaining brand leadership.

Insurance Industry Applications

• Underwriting and Risk Assessment: Insurers can choose to develop proprietary underwriting models or rely on third-party data analytics providers. For instance, partnering with insurtech firms specializing in telematics or behavioral data can enhance risk selection without the insurer bearing full development costs. However, firms with strong actuarial teams may integrate these capabilities in-house for competitive advantage.
• Claims Management: Claims processing is a major operational cost. Insurers might outsource routine claims adjudication to specialized vendors to improve efficiency, while retaining oversight of complex or high-value claims internally to maintain service quality and customer trust.
• Distribution Channels: Deciding between traditional agent networks, direct online sales, or hybrid models reflects a WTP distribution channel choice. Vertical integration through captive agents or digital platforms may differentiate customer experience, whereas partnering with aggregators or brokers can expand reach with lower fixed costs.
• Technology Infrastructure: Cloud services, policy administration platforms, and customer engagement tools can be outsourced to reduce capital expenditure and increase agility. However, insurers must align these decisions with cybersecurity requirements and regulatory compliance demands.
• Product Innovation and Branding: Similar to P&G’s approach of outsourcing advertising copy while owning the brand, insurers may collaborate with external creative agencies or fintech startups to co-develop innovative products while maintaining brand leadership and strategic control.

Conclusion and Recommendations

Insurance executives should expand their strategic framework to include the value system stage as a critical Where-to-Play decision dimension. This requires a nuanced evaluation of which activities to own versus outsource, based on the potential to create value, cost efficiencies, and alignment with core capabilities. Rather than defaulting to either full vertical integration or maximum outsourcing, insurers must tailor their value system participation to their unique strategy and market context.

Practical steps include conducting value chain analyses to identify activities where the insurer can sustainably differentiate, benchmarking capabilities against partners, and designing flexible partnership models that protect strategic interests. Embracing this deeper WTP dimension will enable insurers to sharpen competitive positioning, optimize resource allocation, and accelerate innovation in a dynamic market.

For a comprehensive exploration of these concepts, insurance professionals are encouraged to review Roger Martin’s original article, The Hidden Where-to-Play Element in Strategy, available at https://rogermartin.medium.com/the-hidden-where-to-play-element-in-strategy-7cb355c9f9b7.

Original Source: https://rogermartin.medium.com/the-hidden-where-to-play-element-in-strategy-7cb355c9f9b7