The High-Performance Insurer of the Future
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The high-performance insurer of the future By Hendrik C. Jahn, Alexandra Gazendam and André Schlieker Contents Contents 2 The changing face of 26 competition Executive summary 3 1. The return of the broker 26 High-performance insurers of 4 2. The rise of the aggregator 26 today 3. New players 26 4. From payer to provider 26 Five forces shaping the industry 7 The new normal 28 Shifts in growth 8 1. Slow GDP growth 28 Aging populations 9 2. Low long-term interest rates 28 New infrastructure investments 9 3. Increased regulation 29 Rising middle class 11 4. Commoditization 29 Low-income rural communities 11 5. Stronger role of intermediaries 29 Attractive growth markets and segments 12 Impact of the new normal 29 Consumerization of IT 16 High performers need agility and 30 flexibility 1. Going mobile 16 2. Digital marketing 17 The high-performance insurer 31 3. Analytics 18 of the future Market-related requirements for high 31 Increase in risk and regulation 20 performance 1. Increased frequency of catastrophic 20 Business models for high-performance 32 events insurance 2. Risk inherent in the lucrative 21 Industrializers 2.0 33 emerging middle classes Value Pickers 35 3. Demographic shifts in core markets 21 Global Conquerors 36 4. Uncontrollable social media attacks 21 Emerging Titans 37 5. Increased regulatory intervention 22 Risk Masters 39 6. Increase in cyber crime 23 Brokers 2.0 40 Changes in consumer behavior 24 Success not assured 40 Loyalty on the decline 24 Different models: common principles 42 Clear channel preferences 24 Conclusion and outlook 43 Heterogeneity in emerging markets 25 Multi-dimensional view of customer a 25 necessity 2 | The high-performance insurer of the future Executive summary The last decade has been quite opportunities for insurers as they are usher in a “new normal”, and determine successful for the insurance industry. to pose a threat—are shifts in the which strategies are likely to be Across the globe we have seen relatively sources of growth, changes in successful in the future. stable growth rates in all lines of consumer attitudes and behavior, business, and profitability levels higher and the consumerization of IT. Using this analysis, we have developed than in many other industries. High six business models which we believe performers have yielded returns on The key question for insurance will help insurers make progress in equity of 20 percent and above over companies worldwide is how to their journeys toward high performance a long period of time. take appropriate counter-measures over the next few years. Each model is to improve costs and profitability, made up of several dimensions, such However, times have changed. With generate growth, and stay on course as operating model, governance and the financial crisis the pressure on to achieving high performance under defining capabilities, allowing insurers growth and profitability has risen changed market conditions. to compare their current model with and will increase over the next years the ideal state represented by the through slow gross domestic product The ongoing Accenture High Performance different models. Of course, given the (GDP) growth, commoditization, low Business research initiative recently five-year horizon, none of the models long-term interest rates, intensifying concluded specific research into the represents an exact recipe for success, competition from intermediaries, insurance industry. Building on that but they do act as clear indicators and an increase in regulation. As a research, we have analyzed which of direction. consequence, insurance will be less forces will shape the industry over attractive to investors. the coming years and how they will This report provides a broad overview affect competition and performance of the major trends and forces affecting Other factors that are likely to have a in different regions and different lines the insurance industry, and offers some profound effect on the industry—but of business. These forces will change possible models for future success that which are as likely to create new the rules of the game quite dramatically, can open up a very fruitful discussion within the senior management team. 3 High-performance insurers of today What does high performance mean Figure 1. Metrics for high performance in insurance and how can organizations increase their chances of becoming high- Criteria Definition Period performance businesses? Growth Total premiums Three years compound annual growth rate These are the driving questions behind Total premiums One year an ongoing Accenture program of Growth in capital Three years compound annual growth rate original research that is now entering its eighth year. Accenture is monitoring Profitability Return on equity after tax Three-year average more than 6,000 companies across all Return on equity after tax One year industry sectors to understand what Return on equity forecast One year it is about some organizations that Return on equity forecast Two years enables them to achieve consistently Market Perception Total return to shareholders Three years compound superior performance over a sustained annual growth rate timeframe, across business cycles Credit rating Current and industry disruptions and cycles Capital Strength Solvency ratio: premium/surplus One year of CEO leadership. Solvency ratio II: surplus/assets One year Cash Cash/total assets One year We define “high performance” as Consistency Consistency of premium growth Three years enduring or sustained outperformance Consistency of return on equity Three years of peers as measured by a set of widely after tax accepted financial metrics. These Consistency of total return to Three years/two years/one metrics each define a core and distinct shareholders year aspect of performance, and together they portray a comprehensive picture of business performance. The methodology Figure 2. Leading life insurers: profitable growth matrix (2006-2009) for measuring and identifying high Median: 1.1% performance businesses across industries 20% Aflac China Life Insurance encompasses six measurements of Great-West 15% Nationwide Life Lifeco Mediolanum high performance, namely growth, Insurance Unum Prudential profitability, market perception, capital 10% Principal Financial CNP Group Financial Swiss Life Manulife Financial Median: strength, cash and consistency. ROE 8.0% ING Old Mutual Sun Life Prudential Plc (3-year 5% MetLife Financial Aviva New York Life Insurance When applied to the insurance industry, average) Aegon 0% we define these metrics as shown in Storebrand figure 1. -5% Legal & General As part of the Accenture High Performance -10% -15% -10% -5% 0% 5% 10% 40% 45% Business research program we recently Premium Growth (3-year CAGR) defined the high-performance insurer. Sources: Accenture Research based on ISIS, Bloomberg, company data This study1 analyzed more than 70 leading carriers across the 15 key performance indicators listed in Figure 1, and gives the most up-to-date perspective on how the economic crisis has affected insurers, and how it has changed the market itself. In order to enrich the analysis, we included 4 | The high-performance insurer of the future operational metrics such as combined Figure 3. Leading life insurers: premium growth and expense ratio (2006-2009) ratios and expense ratios in our Median: 1.1% analysis of the carriers. Our analysis 0% is shown in the graphs alongside for Nationwide Life Insurance life, property and casualty (P&C) and 10% CNP Aviva Swiss Life multiline insurers. Principal Financial Mediolanum Life 20% Prudential Plc Expense Great-West Lifeco China Life Insurance Median: If we look closely at the high performers Ratio 26.8% 30% Aegon Aflac mentioned, we can observe that they (3-year Legal & General Storebrand average) ING Unum are very different in terms of their Group New York Life Insurance 40% Sun Life Financial geographic footprints, products and Manulife Financial services offered, and strategies. Never- 50% theless we identified a set of five key -15% -10% -5% 0% 5% 10% 40% 45% attributes common to all: Premium Growth (3-year CAGR) Medians: premium growth includes all the peers, while Life expense ratio excludes MetLife, Old Mutual, Principal 1. Effective customer-centric Financial and Prudential Financial. distribution. Sources: Accenture Research based on ISIS, Bloomberg, company data This distribution model includes the sophisticated use of data to analyze Figure 4. Leading P&C insurers: profitable growth matrix (2006-2009) and segment markets, and to create Median: 1.0% the right products. It also includes the 30% Sampo development of multichannel distribution 25% SulAmerica QBE strategies that give insurers a powerful Travelers 20% TrygVesta advantage in the marketplace. Mapfre, Chubb Porto 15% ACE RSA for example, has distinguished itself in W R Berkley Seguro Median: ROE Progressive 13.3% this area, securing a leading position (3-year 10% Liberty Mutual average) Allstate Insurance Australia in the top right quadrant of Figure 6. 5% PICC Property CNA Financial and Casualty State Farm Mutual It has achieved this through effective 0% Automobile Insurance branding (giving it 79 percent unaided Affirmative Insurance -5% brand awareness in 2009), an efficient XL Capital tied agent network in which 90 -10% -15% -10% -5% 0% 5% 10% 15% 20% percent of new agents contract Premium Growth (3-year CAGR) themselves to the insurer within Sources: Accenture Research based on ISIS, Bloomberg, company data a year, and a string of successful