July, 2010

The latest texting shorthand? The acronym for the newest missle defense system? Not quite. BOFQ is the abbreviation for Bottom of First Quartile. Let me explain.

In many dealings with life insurers who are developing new products and competitive positions, a common strategic question is “How do you want your product to relate to the marketplace?” I have been amazed by how frequently the response is that “We want to be positioned at the bottom of the first quartile.” Notwithstanding the obvious fact that not everyone can be positioned at the BOFQ and that positioning depends on which competitors one compares against, the prevalence of this answer speaks volumes about the nature of product development and competitive positioning in the life insurance industry. To me, the implications are as follows:

1. Insurers may feel that being close to or at Number 1 implies that prices or features are overly aggressive, and even perhaps that mistakes were made in product development.
2. Being Number 1 may paint a competitive bulls-eye on one’s back and attract unsuitable or aggressive business, as well as rating agency or regulatory attention.
3. Ranking below BOFQ is feared, because it implies a lack of commitment, talent, or sensitivity to distribution in connection with the product line.
4. Ranking below BOFQ in design elements or price needs to be counterbalanced by some other element (e.g., service) in which the carrier can claim to be BOFQ.

Competitive positioning is a hallmark of our business. Yet, how realistic are insurers being when they expect that BOFQ can consistently be achieved? Anyone up for TOSQ?

Tim Pfeifer
President