Insurance industry leaders Ernst & Young LLP (EY) and ACORD have teamed to assess the current growth, risk and expense landscape across the US property and casualty industry by performing a detailed analysis of the financial filings of the 100 largest US Property & Casualty (P&C) insurers over the last 20 years, and the impact of their key executive areas of strategic focus.
The study identified four distinct value segments of insurers: market shaper, superior, investor and inferior — based on their ability to generate cash flow in excess of their cost of capital.
The study found annual savings opportunities up to $254 million for an average personal lines insurer and $851 million for an average commercial lines insurer. For the 100 largest US P&C insurers, the annual value potential across commercial and personal lines is approximately $68 billion.
According to the study, insurers in the lower ranking categories can break into the “market shaper” realm if they:
- Challenge the business model status quo: While many insurers are pursuing cost-reduction programs, significantly larger improvements to their cost bases are needed to bring about any meaningful impact.
- Establish a deeply embedded cost culture: Until and unless expense management gets woven into the fabric of an insurer’s culture, costs tend to inevitably creep back up to offset any previous gains achieved.
- Differentiate on risk selection, underwriting and actuarial: Thoughtful investments in new–gen technologies along with data and analytics at scale will be a key differentiator. P&C insurers need to embrace a mindset shift that allows them to focus on higher-value activities enabled by technology.
- Rethink traditional distribution channels: Leading insurers have not just been rethinking distribution strategy, they are going way beyond the traditional agent/broker model to make sure they don’t get left behind as mere “manufacturers” of insurance products, but instead get to own consumer loyalty.
- Focus on accelerating time to market: Insurers cannot afford to take a reactive stance toward the winds of change such as demographic shifts, evolving regulations, consumer preferences or technological developments. They need to proactively track these variables, identify demand before it shows up and launch products ahead of the competition.
- Leverage ecosystems: The ecosystems emerging today are likely to shape the future of P&C insurance in the US. Any insurer that aspires to significantly improve its performance must seek to collaborate with the right new market entrants.
The full report is available for download to ACORD members and the wider insurance industry.