Recent research by ACORD, the global standards-setting body for the insurance industry, highlights key drivers of high performance among top insurers, including the advantages of scale, the importance of talent and the unsustainability of relying on investment.
The 2022 U.S. Property & Casualty Value Creation Study also underscored the importance of digitalization and core operations for U.S. P&C insurers to achieve success.
The study measures and analyses value creation among the top 100 U.S. P&C insurance carriers over a twenty-year period. It leveraged in-depth financial analysis, data-driven research, and interviews with industry leaders to assess carrier performance and the strategies that support success.
ACORD analysed these U.S. 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 totalling $182 billion.
Carriers were then segmented into three categories based on their performance, ACORD explained. Sustainable Value Creators exceeded the benchmark of required returns through both underwriting and investment activities; Hollow Value Creators met required returns through their investments but failed to generate value through underwriting; and Value Destroyers failed to generate sufficient value over the study period.
Each group was further assessed to identify the strategies, tactics, and capabilities that lead to high performance.
ACORD President & CEO Bill Pieroni, said: “We see an increased emphasis on modernization, with the critical role of digitalization clearly understood across the industry.
“The COVID pandemic, and the resulting necessity for digitally mediated interactions, made even the most ardent digital sceptics 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 include the advantages of scale, as ACORD noted that he 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 consistent development and renewal of digital capabilities over the long term.
The research also noted the importance of talent. According to ACOR 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.
Finally, the report highlighted the 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.
“These results highlight the risk of relying on investment returns to offset underwriting losses,” Pieroni continued. “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.”
