Digitisation and core operations were two of the key drivers for top insurance providers in 2022, according to a leading industry study of the P&C sector, by ACORD.
Titled The annual Property & Casualty Value Creation Study, ACORD’s research measures and analyses value creation among the top 100 US P&C insurance carriers over a twenty-year period. The study leveraged in-depth financial analysis, data-driven research, and interviews with industry leaders to assess carrier performance and the strategies that support success.
ACORD - which stands for the Association for Cooperative Operations Research and Development - facilitates fast, accurate data exchange and efficient workflows through the development of electronic standards, standardised forms, and tools to support their use.
As part of the study’s research, the company analysed the P&C insurers and the value they created or destroyed through both underwriting and investment, with the total value created by the top 100 over the study period totaling $182bn.
Assessing key drivers for the insurance industry
ACORD also organised carriers into three categories based on their performance. These were classed as namely, Sustainable Value Creators, Hollow Value Creators, and Value Destroyers Each group was further assessed to identify the strategies, tactics, and capabilities that lead to high performance.
ACORD engages thousands of insurance and reinsurance companies, agents and brokers, software providers, financial services organisations and industry associations in more than 100 countries and has offices in New York and London.
Increased digitisation leads to a more successful outcome for P&C providers
Speaking about the findings, ACORD President & CEO Bill Pieroni explained: “We see an increased emphasis on modernization, with the critical role of digitalisation clearly understood across the industry.”
He said the COVID-19 pandemic, and the resulting necessity for digitally mediated interactions, “made even the most ardent digital skeptics accept the importance of digital capabilities. However, this also means that the bar is continually being raised for digitally mature carriers to stay ahead in performance metrics.”
The updated study contains data and insights current as of this year. Key insights from the 2022 edition of the U.S. Property & Casualty Value Creation study include:
- Advantages of scale: While scale and scope economies tend to be elusive across the global insurance market in general, ACORD’s research did find that the largest carriers tended to generate more sustainable value in the U.S. P&C market. This is likely the result of being able to devote resources to the consistent development and renewal of digital capabilities over the long term.
- Importance of talent: Sustainable Value Creators are clearly winning the “war for talent,” a critical issue facing our industry. Insurers classified as Sustainable Value Creators, on average, had the highest levels of employee retention and satisfaction in the study. Moreover, colleagues at Sustainable Value Creators had the highest levels of productivity and corresponding value creation.
- Unsustainability of relying on investment: Lower investment returns over the past several months, compared to the average over the twenty-year period studied, impacted value generation across the industry. In a reversal over previous years, Sustainable Value Creators generated more value through underwriting than through investment. Many previous Hollow Value Creators failed to generate adequate value, and sank into the Value Destroyer category.
Pieroni added: “These results highlight the risk of relying on investment returns to offset underwriting losses. In this year’s study, we saw the vulnerability of Hollow Value Creators to market fluctuations. This inevitable volatility of investment returns illustrates the peril of relying solely on investment-based value creation — it is not sustainable. It is necessary to generate value through underwriting as well.”