Beyond Rate Increases: New Avenues for Growth

For the previous years, growth in commercial property and casualty (P&C) insurance has been driven by significant rate hardening. As a result combined ratios have been positive across most lines of business. But as premiums start to soften, insurers need to look beyond price increases to maintain their top and bottom line at healthy levels. Thereby it seems that how insurers play is significantly more important than where they play. McKinsey argues that 60% of financial performance is tied to operational strategies and only 40% by the lines of business it participates in. Hence, insurers must place an exceptional focus on modernising underwriting models, distribution chain and technology to have the largest impact on differentiate themselves from the pack.

Three Drivers for Superior Performance

1. Targeted Growth Strategies: Successful insurers seem to compete where they have distinct advantages and focus their efforts on areas with the highest potential for sustained advantage. As a result, leading insurers are, according to McKinsey, twice as likely as lagging peers to have publicly announced clear and targeted growth strategies. The top-performing insurer benchmark exhibits as well loss ratios an average of six percentage points lower than other insurers and are almost twice as likely to have made significant investments in underwriting operations relative to peers in the bottom performance quartile. Hence, be clear about your direction and focus the business on its execution.

2. Changing Distribution Landscape: As distribution channels evolve, insurers must rethink their strategies to leverage brokers and delegated authorities effectively. Broker relationships tend to become even more critical for achieving profitable growth in a shifting market. Insurers should invest in tools like APIs, self-serve platforms, and marketing support to improve ease of business for strategic partners. Competitive compensation structures can further align interests and strengthen partnerships. Managing general agents (MGAs) are as well continuing to grow in popularity, placing larger volumes and shares of overall premiums. Insurers must embrace these models while ensuring underwriting oversight to sustain long-term success. To drive profitability, insurers should enhance connectivity across their agent and broker networks, focusing on consistent, high-quality growth.

3. Operational Efficiency Through Technology: Advanced technologies, including generative AI, are transforming the insurance value chain by reducing costs and enhancing service quality. Leading insurers maintain administration expense ratios two percentage points lower than their peers, but industry-wide ratios remain higher than five years ago when adjusted for rate growth and inflation. To sustain profitability, insurers must eliminate inefficiencies, with nearly $10 billion in expenses needing reduction to match 2018 levels. Future success will require building efficient, scalable operating models that align with each insurer’s growth strategy. These models should enable flexibility to meet changing market conditions. By prioritising streamlined operations and leveraging AI innovations effectively, insurers can navigate a softening rate environment while remaining agile and competitive.