Conduct a situational analysis of the Conseco’s current state of affairs
Conseco is an insurance company providing long-term care (LTC) insurance policy. It became involved in a questionable matter with a case of denying a payout claims of one of the clients. On the whole, the company is experiencing certain problems, and it is necessary to analyze and evaluate its current situation. One of the ways to conduct a situational analysis is to provide a SWOT analysis which includes information regarding the strengths, weaknesses, opportunities, and threats that the company experiences.
One of the strengths of Conseco’s company is the fact that it is one of the big players in the insurance market that reaches its clients through independent agents. Thus, it can cover broader audience and inform people on the opportunities the company provides.
A weakness of Conseco roots back to its history that influenced the reputation of the company. In addition to extravagant personal life of one of its CEO’s, the company also became known for mismanagement and greed within the staff that led to the loss of customer’s trust.
There are some opportunities that can be used by Conseco to improve its position. First of all, it is advisable to review HR strategies and improve relations among the staff members. Secondly, the company should probably shift from LTC to other aspect in insurance business to attract new liable clients and develop business.
A threat that is real not only for Conseco but for other players in insurance business in the aspect of LTC is the fact that market itself has been decreasing. Moreover, the estimated life expectancy of the population is increasing and is expected to grow further within the following decades. This tendency negatively effects profitability of business focused on LTC.
Conduct a top-down risk exposure diagnosis of what got Conseco to its current state
Risk-exposure diagnosis comprises analysis of macroeconomic, industry-specific, and company-specific factors that have impact on the development of the company at different stages. Macroeconomic environment is significant for all industries including insurance (Brokesova and Vachalkova 63). For Conseco, the major macroeconomic factors influencing its activity comprise inflation which is connected with change in interest rates that are important for insurance companies; overall income of population that influences their ability to pay for insurance service and probably changes in the GDP that may not have a direct impact on the company but have influence on the economy in general and thus indirectly stimulate or slow down all industries.
One of the industry-specific factors influencing risks of the LTC industry is the increasing number of older adults involved in insurance projects. Healthcare and emergency care improvements led to the increase of life expectancy and, as a result, to growing expenses for intensive care before death. High competition in insurance industry made insurers establish too low premiums initially. Thus, after some time, they face the necessity to raise premiums to provide financial viability. Also, the sphere of LTC insurance is significantly influenced by such economic factors as morbidity rate, interest rate, persistency, longevity, and medical inflation.
The company-specific risk factors that have a negative impact on Conseco’s position are related to it stuff. The history of extravagant personal life of Conseco’s CEO and a his very high salary, together with information concerning corporate greed and misunderstanding involving financial aspect, negatively contributed to the image of the company and led to financial losses.
Identify and discuss the various types of risk (e.g. operational; market; financial; regulatory; reputational; strategic… etc.) that caused Conseco’s crisis and the potential for contagion {i.e. one risk leading to another].
The first risk to consider for Conseco company is financial. It is related to the need of life-long care for people aged 65 in the context of the current tendency of increasing life expectancy (Frank). Another risk to mention is reputational. This type of risk is probable for the companies that pay little attention to their business reputation (Allen 41). In case of Conseco, reputational risk was mainly associated with the activities of its previous CEO. This situation caused problems with the rate increase requests that led to a regulatory risk because the company had difficulties with regulating customers’ complaints. This risk was also connected with inefficient policy administration and long time for resolving customer questions thus again negatively influencing the reputation of the company. Finally, problems with finance, regulations, and reputation could lead to a market risk. In insurance industry, market is changing and highly competitive (Cummings and Santomero 6). Thus, a company experiencing diverse problems such as Conseco, could not avoid significant losses.
Recommend the first steps that C. James Prieur and the rest of the senior management should take to rectify the New York Times article crisis
The New York Times article crisis could be possibly rectified in the following way. First of all, the company should legally apologize for the incident. It will positively influence the image of the company and its reputation. Moreover, it is likely to assure existing and new clients that the company is ready to acknowledge its mistakes and is open to cooperation. Secondly, it is advisable to spread the results of the case investigation to show that the company is interested in eliminating any mistakes in the customer service and is going to provide its clients with the best possible service in the future. Another step contains a technical aspect. It is necessary to update customer databases and upgrade the equipment to avoid similar computer errors in the future. Generally speaking, the main task of the company in this situation is to make efforts to avoid the repetition of technical problems and return the trust of its customers. Probably, the company can provide some insurance plans with bonuses for new customers and introduce some advantages for the current clients.
Identify the various stakeholders that were aggrieved, for example: employees; customers; regulators; society; creditors; competitors; …etc. Specifically discuss how each of the parties you identify was aggrieved
In the case of Conseco company, the major stakeholders that were influenced by the company crisis are the company management, its employees, customers, and creditors. The management of the company had to take actions to stop the company’s decline and avoid bankruptcy. Such a big corporation as Conseco had a lot to lose and thus the task of the management was responsible. The employees are inevitably influenced by any crisis or change faced by the company. They frequently are at risk of losing their job or decrease in wages. The customers of the company probably had some reasons for worries because they could not be sure if they do not get into the same situation as the woman from the story. Moreover, with Conseco company in crisis, they could not be sure they would get the necessary life care according to the agreement with the insurer. Finally, the creditors were at risk of losing their investments in case the company is bankrupt.
How should Conseco go about addressing each party’s issue? Who should be the priority for Conseco? Why?
It is evident that the customers should be a priority for the company in such a situation because insurance companies are totally dependent on the clients who come for insurance programs and would lose their competitive ability if customers prefer other insurance providers. Thus, Conseco should assure the customers that the problem is resolved and that actions are taken for it not to be repeated. Moreover, to attract new clients and provide liability of the existing ones, it can be useful to introduce some beneficial insurance plans.
To address the problems faced by the management of the company, it can be useful to invite a new specialist, for example a crises manager, to develop a plan on risk management and overcome the existing crises. As for the staff, they can receive some guarantees that after the company overcomes the crises, they would retain their positions and salaries. Also, the company can provide additional education for its employees to improve the level of the service they give to the customers and thus address two issues at the same time. Finally, the creditors should be addressed as well. The company can assure them that after the crisis is over and the risks are managed, all the agreements they have will be in power.
Make specific recommendations for Conseco to take as it recovers from this public relations dilemma: Use the post-loss risk management objectives that we discussed in class
After Conseco company recovers from the public relations dilemma presented in the case, some post-loss objectives should be addressed (“Risk management”). First of all, it is necessary to outline strategies that would provide survival of the company. They can include financial and managerial decisions that would take the company back to the insurance market as an active participant. Secondly, it is important to decide on the continuation of the company’s operation. Since the risks are managed, it is possible to introduce new development strategies. To provide the company’s operation, it is necessary to identify the types of remaining risk and thus manage the possible damages, including financial that usually cause the greatest problems for the company in crisis (Shaffer). I fact, risk management is one of the most efficient interventions because it allows to define, eliminate, and manage the remaining risks to provide sustainable development of the company.
Another significant post-loss objective to consider is stability of earnings. It is necessary because one of the goals of any company involved in business apart from providing service to population is gaining profit. To address this objective, it can be recommended to introduce new beneficial insurance plans to attract clients and retain them as liable that finally will provide the company with constant earnings.
One more objective to address is the continued growth of the company. In case of Conseco, it can be done through enlargement of the customer base that can be achieved due to broadening of insurance products. Thus, the main focus can still be on long-term care, but new insurance plans are necessary to keep the company competitive on the market. Moreover, it is crucial to monitor the insurance market at least once a quarter to trace the changes and meet the demands of the clients.
Finally, the company should minimize the effects that a loss will have on other persons and on society. It is important because such cases can negatively influence trust of population for insurance companies. Thus, it is advisable to bring the resolution of the case to public to demonstrate that insurance companies in general and Conseco in particular are interested in their clients and make efforts to satisfy them. The complex of interventions is likely to contribute to the sustainable development of the company, restore its reputation, and continue its activity on the insurance market.
Works Cited
Allen, Steve L. Financial Risk Management: A Practitioner’s Guide to Managing Marker and Credit Risk. 2012, John Wiley & Sons.
Brokesova, Zuzana, and Ingrid Vachalkova. “Macroeconomic environment and insurance industry development: The case of Visegrad group countries.” EL-CEREI, vol. 19, 2016, pp. 63-72.
Cummings, David J., and Anthony M. Santomero. Changes in the Life Insurance Industry: Efficiency, Technology and Risk Management. 2012, Springer Science & Business Media.
Frank, Richard G. “Long-Term Care Financing in The United States: Sources and Institutions.” Applied Economic Perspectives and Policy, vol. 34, no. 2, 2012, pp. 333-345.
“Risk management.” The Insurance Surveyor. 2013. Web.
Shaffer, Girija. The Importance of Pre Loss Prevention and Post Claims Management.WordPress. Web.