Financial Services Practice

Journey III: The Next Frontier in Property and Casualty Insurance
The Challenge of Profitable Growth

Journey III: The Next Frontier in Property and Casualty Insurance
The Challenge of Profitable Growth

Contents

Introduction
Dramatic improvement and a paradigm shift

1

A Paradigm Shift The exit of undisciplined capacity Strengthened risk management skills Stronger foundational pillars The Implications
The risk journey continues – with profitable growth as the new frontier

7 9 10 13 17

Continuous improvement of risk management Growing profitably in a competitive industry Lessons and barriers Levers to drive growth Upgrading the foundational pillars Conclusion
Looking forward

17

21 28 38 43

Journey III: The Next Frontier in Property and Casualty Insurance The Challenge of Profitable Growth

1

Introduction
Dramatic improvement and a paradigm shift

In our first Journey report, covering 1979 to 1993, we reached three main conclusions about performance in the property and casualty insurance industry:
1. Risk management is the primary driver of success, not investment performance, expense management or financial leverage. We suggested that risk management had four components: enterprise risk management, capital management, product market management, and transaction excellence. 2. Performance is remarkably consistent and selfreinforcing. Winners keep winning, while persistent underperformers tend to be acquired or go out of business. 3. Winners capitalize on counterintuitive “ironies of risk.” They seek rather than avoid risk, bridge underwriting and claim silos, focus rather than diversify the book, and ignore rather than try to game the cycle.

We updated our analysis in The Journey Revisited
In 2003, we examined the causes of poor industry profitability in absolute terms and relative to other