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Commercial insurance underwriting strategy: The key to high performance


Commercial insurance firms face a turbulent, highly-competitive market. But according to PwC’s Insurance Performance Measure a sustainable underwriting advantage clearly leads to outperformance. Top property and casualty (P&C) insurers have pulled away from the pack by strategically diversifying their underwriting portfolio and fueling cross-functional collaboration while keeping an eye on expenses.

IPM commercial underwriting - PwC

Underwrite your way to the top

When it comes to success in the commercial insurance space, the path is clear. Smart and focused underwriting separates top firms from the pack, according to our analysis using the Insurance Performance Measure, or IPM.

We analyzed the top 100 commercial lines P&C insurers in the US using PwC’s IPM, which gauges an insurer’s operating performance while accounting for the volatility of its results. We divided the insurers into three groups based on how they performed over the five years from 2013 to through 2017:

  • The IPM Laggards: the companies whose performance was one standard deviation below the mean, or more
  • The IPM Pack: those who fell within one standard deviation of the mean
  • The IPM Leaders: those whose performance exceeded the mean by at least one standard deviation

The IPM Leaders stand out by letting underwriting focus their business decisions, from pricing and policy terms to risk selection and identifying optimal reserve levels. In order to maximize their success, firms should put data analytics, automation, and artificial intelligence at the core of their decision-making process.

But is it the only way?

Companies outperform the market over the long term by sustaining superior underwriting profits through hard and soft markets. Some have managed to keep this underwriting advantage for as long as 20 years. But success is due to more than just underwriting. We found that the IPM Leaders successfully used a combination of techniques to boost their bottom line:

  • Strategic diversification
  • Effective management across business units
  • A lean operating model, including an emphasis on expense management

But, above-average expense management and superior investment returns haven’t been the key drivers for industry leaders, according to our analysis. Expense management matters, but not for its own sake. In fact, across-the-board cost cutting can backfire if it doesn’t coincide with sharpening an underwriting advantage. There are specific actions that firms can take to gain an edge in this competitive marketplace, and the first place to look is underwriting policies.

Strategize your way there

Leading firms target where to grow their business segments through a focused review of their capabilities. They seek diversification and optimize the balance between volatility and expected return. They also know how to effectively use capital, weighing the volatility and returns of individual business units and their relationship to the overall portfolio.

Leaders identify and seize on the most promising growth opportunities. They avoid unforeseen risk exposures/concentrations by aligning all functions toward improving underwriting insights. Strong underwriting provides the biggest competitive advantage, and we expect it will remain the key to outperformance in the years to come.

Although commercial insurance companies face sizable obstacles, their best path forward is clear. Establishing an underwriting advantage—both for day-to-day activities and as part of broad strategic portfolio management—is increasingly vital for outperformance.

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How PwC can help

Our teams in asset and wealth management, banking and capital markets, and insurance are helping our clients tackle the biggest issues facing the financial services industry. With professionals across tax, assurance, and advisory practices, we can help you find ways to thrive even in a period of uncertainty. Whether you're preparing for regulatory changes, putting FinTech/InsurTech to work, or rethinking your human capital strategy, we work together with you to deliver value to your business.

For more information on how PwC can help, reach out to one of our leaders below or explore our insurance services.

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Francois Ramette

Principal, Insurance Consulting, PwC US

Katie Klutts

Director, Insurance Advisory, PwC US

Joe Calandro

Managing Director, PwC US

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