Some insurance carriers grow but do not create value. Others shrink but still create value. Some fail at both.

Then there are the “intelligent growers”—those that succeed at both, not only growing but also creating value.

Intelligent growers— that’s the term to remember from the latest insurance carrier study from the industry’s standards and data organization ACORD, a study focusing on the link between premium growth and value creation.

For the study, ACORD CEO Bill Pieroni and his team looked at 20 years of data from the 200 largest global insurers that write $2.4 trillion in premium, or 46% of all the world’s premium dollars. This study, Intelligent Growth: Intent, Decisions, Outcomes, was sponsored by Duck Creek Technologies.

Pieroni presented some of the findings to member companies at this year’s ACORD Connect. Conference in Boston in October. He also discussed the report in more detail in an interview with Wells Media.

The crux of the study was matching global premium and market share growth versus value creation. Value creation was measured by one of two economic factors: combined ratio for property/casualty insurers and by return on assets for life insurers.

For property/casualty writers, the average combined ratio over the 20-year time period was 99.8, or a thin margin of only two cents of every premium dollar. The average return on assets for the life writers over this time period was 0.9%, less than a percent a year.

Of the 200 studied, there were 93 carriers that actually had superior economics based on combined ratio or return on assets and there were 107 that had inferior economics.

When looking at just the P/C insurance industry globally, there weren’t wide variations in combined ratios. “There’s a number of hypotheses we have there—price transparency, the fact that if you think about supply and demand economics, if one carrier is doing extremely well, it’s relatively easy in the P/C segment to actually go in and compete those profits away,” said Pieroni.

However, there were “wild extremes” in terms of market share losses and gains.

The researchers grouped carriers into several categories:

  • Of the 200 carriers, 73 were called waning carriers. These are carriers that have inferior combined ratios or return on assets and actually lost market share globally. “They may have grown; they just did not grow strongly enough to increase market share.”
  • Second is the category of 34 insurers exhibiting unsustainable growth. They are growing but they’re not making money.
  • Also, 38 carriers exhibiting unsustainable profitability. They are essentially the inverse of the above – they’re creating value, but shrinking.
  • Lastly, are the 55 global insurers categorized as intelligent growers. These carriers not only gained market share over the last 20 years but also achieved better combined ratios and profitability. They both grew and created value.

Value Creation Beats Growth

If ACORD’s study shows one thing, it is that choosing growth over profitability is not an intelligent strategy.

In one analysis, Pieroni looked at return on equity for the 139 of the 200 that are publicly traded. The other 61 are mutuals, reciprocals or cooperatives.

Pieroni said he understands that carrier CEOs may experience relentless pressure to grow. “I get that. But growth without superior economics is punished by the marketplace,” he said.

The group of 139 public carriers “wildly outperformed the S&P 500,” Pieroni said. Overall, the 139 public carriers had a total shareholder return within this time period of 390% better than the S&P 500 index.

The best carriers, the intelligent growers, saw share returns of 558%. Even firms that did not grow but were profitable reported a 460% return.

But those that grew but did not achieve superior economics had a total shareholder return of 204.7%, or a 186% reduction from the 390% industry average in the study.

“This proves that growth versus profitability, you are far better off achieving profitability,” he said, acknowledging that many insurers have had trouble growing over the last several years because of soft pricing, yet they have remained profitable. “It has to be incredibly difficult to withstand the pressures if you’re publicly traded to say, ‘Why are you not growing?”

Underwriting Results

On average, the combined ratio for the entire P/C group of carriers studied was 99.8. The intelligent growers came in at 96.1. “Not a huge difference, right? But it shows it is very difficult,” the ACORD executive said.

The worst performers had a 103.9 combined ratio.

Pieroni discovered that the worst performers, or waners, actually spent more money than the average on underwriting but ended up with worse results.

“It begins to indicate that intelligent growers had superior underwriting capabilities, not in terms of economics, but in terms of understanding the risk and then managing loss costs,” Pieroni said.

Strategies Compared

Pieroni identifies four strategies for insurers. The first is competing based on price. This is clearly not his favorite: “I don’t like price competition. If you compete on price, you lose on price. I think it doesn’t help consumers; it doesn’t help markets; it doesn’t help shareholders or communities.” He said it’s not an effective strategy, but some carriers still use it.

The second strategy is customer intimacy, where a carrier strives to know its customers better than anyone else and uses this advanced knowledge to deliver superior products, service and overall experience.

The third is product leadership. This company sells a unique product, one that no one else can sell.

Fourth is innovation. Here the insurer gains an advantage by doing something unique and different, faster and better than everyone else. However, Pieroni said the study suggests that there are no carriers out there anymore solely competing on innovation.

Perhaps unsurprisingly, the best carriers, the intelligent growers, manage to execute on all four of these strategies, according to the study.

“It’s our hypothesis at ACORD that as markets continue to mature, as consumers become more savvy, as non-insurance experiences affect expectations, that winning carriers are going to have to simultaneously execute against all four. And this study reinforced that as well,” Pieroni commented.

(There may actually be two other strategies, Pieroni added, perhaps half-kiddingly. Some carriers manage to fail at executing all four of the above strategies—they don’t deliver good prices, customer experience, products or innovation. Finally, there are carriers with an apparently anonymous strategy. “We don’t know what your strategy is. We look at it, it’s completely unclear to any of us,” he said.)


In terms of distribution 50% of all the carriers in the study used independent agents, 20% captive, 7% direct and 23% a mix of multiple channels. The study showed that while the direct-to-consumer model clearly is a trend in terms of premium growth, the mixed channel strategy underperformed.

Meanwhile, “independent agents achieve some superior results as well,” according to Pieroni.

Globally Challenged

It is not uncommon for an insurer to be in a growth market geographically yet fail to achieve the economics that create value. In fact, 62% of all the carriers that grew but didn’t create superior economics were global.

“What this indicates is that perhaps carriers trying to go global can achieve superior growth, but achieving superior economics is a very challenging thing,” Pieroni said, noting that many ACORD members operate in multiple countries. “It is a non-trivial thing to operate on a global basis and simultaneously achieve growth and economics,” he said.

Midsized Advantage

Pieroni said that in ACORD’s studies he always wants to look at scale to test an hypothesis of his. “When you’re big, it becomes very difficult to execute, change, allocate resources, focus management talent,” he said.

For this study, he broke the intelligent growers into categories from largest to smallest. On average, the 200 carriers wrote $12 billion per annum in premium. On top among the intelligent growers were 25 carriers averaging $35 billion in premiums a year. They actually did not garner a share of the intelligent growers’ premiums commensurate with their numbers. On the bottom were carriers that write only 3% or $1 billion on average. They captured a share of intelligent growers’ market about the same as their numbers.

In what came as a surprise to Pieroni and his researchers, it was the carriers in-between the extremes, those writing about $8 billion a year, that punched above their weight and accounted for more than their share of intelligent growers’ writings.

“It’s not that larger property/casualty carriers pay less for construction costs or have economies of scale around loss adjustment or get better access to capital markets and returns. They have dozens of policy administration systems and every technology imaginable, yet find it’s difficult to develop insight. It’s also not that if a company is really small, it has to work harder unless it’s in a niche segment to develop meaningful insights to act upon.

Pieroni interpreted the results as suggesting it can be difficult for the biggest carriers to both achieve market share gain and economics. At the same time, being smaller is no guarantee even though they may have more freedom and flexibility.

Why did the midsized carrier fare so well? “Our hypothesis here is that it’s about data. It’s about insight,” Pieroni said. The carriers in the midsized category have the “critical mass of resources to invest in the data infrastructure and the ability to execute around that.”

Intelligent Growers

What did the intelligent growers do that made them so successful?

“It’s common sense,” explains Pieroni. “We, as an industry price a product, sell a product, manage loss costs, get a decent investment return and round and round we go. The thing is they did it and they did it for 20 years, day in, day out. And all of the stuff may look trivial, but it’s hard work to do on an annual basis.”

From a strategic standpoint, the intelligent growers have an explicit strategic intent, the essence of which is resource allocation. “If your strategy is to have a really differentiated product or really understand consumers and deliver a superior experience or do all of it, are you allocating resources to get it done? They did.”

The winners think about growth in horizons into the future, not one-time goals. They are interested in laying the foundation for future growth, being a real steward for the organization, despite the fact that shareholders may want a dividend, according to the findings. “These leaders, these organizations have the discipline to systematically invest,” he said.

According to Pieroni, CEOs can choose to increase earnings per share in the quarter or invest

for growth. “It’s always easier to buy back stock and declare dividend than to invest. And that strategy works until it doesn’t and you’ve systematically under invested in infrastructure and you can no longer compete,” he said. “Which is why in most industries change occurs as by the exit of existing firms and the entry of new. These firms are investing for continuing renewal.”

In terms of products and markets, these carriers have a “defensible business model,” which Pieroni describes as having a moat that protects them from into price competition, an economic shock or a big change in the marketplace. Their brand positioning and customer loyalty are such that consumers are not going to leave to save 5%.

“We’ve experienced a number of strategic inflections, some regulatory in nature, some macroeconomic, some technology related. These intelligent growers managed these inflection points far better off, going back to the change concept,” Pieroni said.

These organizations value both organic growth as well as growth via mergers and acquisitions. They didn’t avoid M&A but neither did they didn’t solely rely upon M&A as a source of growth.

Other Characteristics

While the insurance industry may be slow moving in some ways, over the past 20 years it has experienced a lot of change. The intelligent growers maintain strategic flexibility and adaptability.

They also balance efficiency versus effectiveness. “I’ve been a part of some incredibly large organizations and yes, you could always take a little more cost out, right? You can take more meat out of the sausage and substitute sawdust and keep going,” he said

A carrier needs to be efficient, but it also has to be effective. “It has to make a meaningful difference to your independent agents, your customers, your third parties that you do business with,” he said.

These carriers are also engaged in winning over the best talent. “These organizations attract, develop and retain high-scale high-will talent at a rate 10X everyone else. The values of the organization are aligned to the people.”

These organizations use outsourcing strategically. For capabilities that were strategically and operationally important and they were very good at it, they would insource it. For capabilities that needed to be there simply as a function of doing business or from a regulatory standpoint, but they weren’t very good at, they outsourced it.

They even “upsourced” some tasks that were important but they were not very good at. They partnered with someone else who was good at it until they learned and acquired the skills themselves.

Finally, as a rule, these carriers tend to be more centralized than typical insurers. “In the end, [we saw] that having some level of centralization and articulating the exact behavior-based changed that you want, allocation of resources, leads to superior results,” he said. These carriers have incentives and are very good to their employees and enjoy high levels of loyalty, while also making it clear there are implications like firing for not doing the job.

They are “unrelenting” in terms of managing that talent and providing both leadership and management. “Leadership is about vision, direction. Management is about day-to-day operations. How do you balance that? Most carriers are over-managed and under-led. So lots of metrics, but no real vision. These organizations balanced both.”


As for the waning carriers, why did they wane? Why didn’t they grow and why did they achieve inferior economics? See related sidebar, “Loser Lessons

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