The past five years have been challenging for U.S. commercial insurers. In 2012, for example, the level of premiums written by commercial insurers was 13% lower than it was in 2008. Current projections indicate slow growth of one to four percent for the industry over the next five years.
Interestingly, however, a group of three commercial insurers outperformed their peers over this period. Between 2007 and 2011, these "Alpha" high-performance insurers consistently fared better than their competitors in three fundamental performance measures: combined ratio, market share growth, and total return to shareholders.
These Alpha companies made the right strategic decisions, choosing markets and distinctive ways to compete. Although they are significantly different from each other in their market segment focus – with some in specialized niche markets and others in broad-based multiple lines – they share four significant differentiating attributes worth closer examination. These are:
1. Underwriting discipline (despite business growth pressures): On average, loss ratios for the Alphas over the past five years were consistently seven to 12 percentage points lower than their competitors' loss ratios. These companies have systematically invested in three key capabilities.
- Underwriting process excellence. The Alphas developed consistent, repeatable underwriting processes through continuous improvement, driven by insights from periodic audits and analysis. They reduced deviation from best practices through process definition, communication with frontline staff, and systems to monitor process compliance. They also improved communication with brokers about the types of business to pursue while enforcing underwriting discipline at the point of agents' submissions.
- Data-driven decision making. Alphas made better use of data to understand, segment and price risks. They have invested (and continue to invest) in rules-based engines and predictive modeling to more effectively mine data and improve risk selection.
- Industry focus. The Alphas restructured underwriting to be more industry-focused by assigning industry experts to specific customers and segments, and fostering collaboration with cross-industry functional specialists. Deeper industry understanding avoids commoditization, aligns with targeted customer segments, differentiates products, provides superior levels of service and simplifies the sales process.
[For more, check out Accenture's previous contribution, 5 Ways to Get the Most Out of Underwriting Investments]
2. Targeted broker relationships and service.: The Alpha companies also stand out through the strength of their relationships with selected broker partners. Recognizing that services, time and attention are too valuable to spread across low-return agents, these commercial insurance leaders invest selectively in high-performing agents that are aligned with their market strategies and have the capabilities necessary for growth. Common themes of focus across Alpha companies in this regard include:
- Responsiveness and robust information. All of the high performing insurers have consistently invested in greater responsiveness and superior information exchange with clients and business partners. For example, in 2011, a multi-line Alpha made key changes to improve its online capabilities and to make information more readily available for brokers. It introduced a unique Web-based portal that allows nearly a thousand of its risk managers and brokers to manage key aspects of their insurance programs online. By becoming easier to work with, the carrier is driving increased business with brokers and marketplace growth. Because the online tool is mostly self-service, the insurer is seeing a decrease in call volumes along with lower costs.
- An array of products and consistency of risk appetite. The risk appetites and product and service offerings of the Alphas have been highly consistent over the last several years, increasing the probability that a broker will earn a return from investing time, talent and marketing dollars to acquire those types of risks. Deploying capacity and pricing consistently, and being known for expertise in certain lines of business, send a positive message to brokers. This supports longstanding relationships and encourages the sharing of knowledge.
- Ease of doing business and superior claims handling. Furnishing certain capabilities that enable broker business such as self-service, single points of contact for issue resolution, consistently accurate reports with online access, and value-adding communication have positioned these market leading companies to become preferred carriers for getting a first look at business opportunities. Brokers also place high value on superior, customer focused claims service. The Alphas display differentiating customer claims experience traits, such as being slow to litigate, and regular and effective closed-file claims audits which enable closed-loop feedback and operational improvement. Streamlining the claims process for fairness, speed and exemplary customer service not only strengthens broker relationships but can also measurably improve customer experience and renewal rates while lowering costs.