How the nimble insurer enhances organizational flexibility to capitalize on market opportunities
Property and casualty (P&C) insurance operating models can be complex and constraining. To capitalize on market opportunities, agility is key. Our five-element framework can help multiline P&C insurers become more nimble and capitalize on market opportunities more quickly and effectively. The nimble P&C insurer can generate higher returns and outpace the competition.
P&C insurance: Why become more nimble?
As insurers scout for avenues to achieve sustainable top- and bottom-line growth, they have a significant opportunity to generate higher risk-adjusted returns and outperform the competition. They can achieve this by changing their P&C operating model to capitalize more swiftly on shifts in the market. If multiline P&C insurers can fine-tune their business mix to scale down in underperforming lines and ramp up to capitalize on those that appear poised to outperform, they should be able to achieve an improved return with lower overall risk.
Here is a case in point: A large national P&C insurer had invested significant time and money in mapping the age and quality of roofs as part of a larger initiative to improve risk selection in its homeowners’ line of business (LOB). With an expectation of above-industry returns, the company increased focus on its homeowners’ sales. As a result, the company outperformed the industrywide combined ratio by a healthy seven percentage points, and its return on equity increased by 10 percentage points year on year.
Main elements of the nimble insurer transformation
Similar to any other transformation program, making the P&C operating model more nimble has several moving parts. That means there may not be a single, set formula. However, in its purest form, a nimble insurer initiative should help companies respond more quickly and decisively when faced with two fundamental strategic questions: “Where to play?” and “How to win?”
- “Where to play?” requires carriers to bolster their forecasting capability so they can determine with sufficient certainty which businesses are likely to outperform before their competitors do, assess potential market opportunities against their capabilities, and plan accordingly.
- “How to win?” is about developing and implementing nimble capabilities in distribution and other core functions, which can help the carrier reap maximum benefits from this initiative.
The nimble insurer approach suggested here posits a new strategic framework featuring five key building blocks that can infuse greater flexibility and agility into the P&C insurance operating models. The objective is to affect a series of adjustments in an insurer’s day-to-day operations, while creating a competitive advantage that could be sustained over time.
Five elements of a nimble insurer’s flexibility framework
We define below a “flexibility framework” featuring five elements that can help multiline P&C insurers navigate through this transformation and become more nimble.
- Flexibility in governance and management
Becoming a nimble insurer requires commitment from stakeholders across the organization. One way to accomplish this may be to expand the executive team to operationalize the nimble initiative by forming a “flexibility committee,” comprised of CXOs and line of business (LOB) heads. - Market sensing
This step calls on insurers to develop an innate understanding of the profitability drivers for all products at different price points and coverages across several parameters, such as industries, customer segments, and geographies. - Product portfolio analysis
P&C insurers need to develop an integrated view of their current and forecasted portfolio performance, based on the leading indicators of volume and rate trends, as well as broader macroeconomic developments, which can be sliced and diced and viewed in multiple ways depending upon the intended audience. - Flexibility in distribution
To translate decisions on portfolio shifts into effective outcomes, carriers likely need to adjust various levers for demand management. - Flexibility in core operations
The fifth element deals with infusing flexibility into an insurer’s core day-to-day operations. Keep in mind that potential choke points include sales and marketing, call centers, policy administration, underwriting, and claims.
