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1、 2023 Boston Consulting Group1Heres the good news on the US property and casualty(P&C)market.Companies in the segmentespecially P&C leadersare doing pretty well.US P&C companies delivered average annual totalshareholder return(TSR)of 10%from 2018 through 2022,compared with the disappointing globalav

2、erage annual TSR of 4%for life and health,multiline,P&C,and reinsurance combined over theFor US Property and Casualty,Okay IsntGood EnoughThe 2023 Insurance Value Creators ReportJULY 13,2023 By Nathalia Bellizia and Paul NelsonREADING TIME:15 MIN 2023 Boston Consulting Group2same period.Top-quartile

3、 US P&C companies did even better,notching a five-year average annual TSRof 20%among the highest in any industry or sector.US P&C leaders resilience throughout the economic turmoil of 2022 was rooted in their focus onunderwriting results and in the resulting strong return on tangible equity(RoTE),wh

4、ich correlateshighly with TSR.Indeed,it appears that US P&C leaders cracked the insurance value creation codeand BCGs insurance industry value creators reports have documented the success of the topcompanies over the past several years.Their principal challenge going forward is to stay the courseand

5、 continue generating superior results.But warning signs are flashing.The P&C segment is undergoing a structural shi.Future underwritingexcellence will hinge on companies ability to foresee and adapt to significant macro-environmentalchanges,such as geopolitical instability,supply chain disruption,an

6、d the expanding effects of climatechange.Underwriting excellence will also depend more than ever on carriers ability to embraceadvances in digital capabilities and AI.If they are going to continue to outperform,top quartile USP&C companies must take a hard look at their portfolios strengths and obje

7、ctively assess what is likelyto change over the next five years and by how much.Although leaders must stay focused on the fundamentals,they must also recognize that doing so maynot be enough to guarantee that they remain on top.As our 2023 insurance industry value creatorsreport points out,relative

8、TSR performance across companies fluctuated strongly over the past tenyears.Only 16%of insurance leaders maintained their performance,meaning that only one in six top-quartile performers in the period from 2012 to 2017 retained that ranking in the 2018 to 2022 period.This article looks at the US P&C

9、 segment and what companies need to do to continue to outperformtheir insurance industry peers and the market as a whole.The Fundamentals MatterAs we have observed many times,TSR for insurance companies has three drivers:growth in tangiblebook value(TBV),change in the multiple of price to tangible b

10、ook value(P/TBV),and the contributionfrom cash flow(dividend yield and share buybacks).In the long term,TBV growth and cash flow arethe major contributors to TSR.In the short to medium term,changes in the P/TBV multiple mattermore.Improving RoTE is critical to increasing P/TBV multiples.The insuranc

11、e industrys global average annual TSR of 4%reflects positive contributions from TBVgrowth and cash flow and negative contributions from contracting P/TBV multiples.From January 2018to December 2022,the global insurance industrys market capitalization(which can be calculated astangible book value mul

12、tiplied by P/TBV)remained roughly flat at around$2.2 trillion.(See Exhibit 1.)Market caps of Asia-Pacific companies declined by some$126 billion,led by shrinking multiples formultiline and life and health players,while North America market caps increased by a similar$128 2023 Boston Consulting Group

13、3billion,driven primarily by P&C insurers.Progressive and Chubb were the main contributors to theexpansion,accounting for$43 billion and$24 billion,respectively.For US P&C insurers,TBV growth was the largest contributor to TSRand for top-quartile performers,it played an even bigger role.(See Exhibit

14、 2.)Cash flow was a second major contributor.2023 Boston Consulting Group4In last years insurance value creators report,we emphasized that there is no substitute for profitablegrowth.The difference in overall RoTE between top-quartile and bottom-quartile P&C companies inthis years rankings underscor

15、es this point.(See Exhibit 3.)Top-quartile insurers tend to stick to theirknitting:they focus on specific aspects or areas of the market in which their knowledge and expertiseprovides a competitive advantage.For example,Kinsale,the top TSR performer in this years ranking,is an excess and surplus spe

16、cialist that focuses on hard-to-place risks for small accounts.Second-ranking Progressive,a consistent top-quartile player over the past ten years,concentrates on autoinsurance.Selective and Cincinnati are regional players that delivered strong performance.Thesecompanies select,assess,price,and tail

17、or coverage to risk,and they leverage best-in-class expertise,data,and technology to generate long-term value.2023 Boston Consulting Group5Although performance and its underlying drivers vary across subsegments of the market,the TSRresults are uniformly positive.(See Exhibit 4.)Spreads between top-q

18、uartile and bottom-quartilecompanies were widest in specialty lines(ranging from 26%to 17%)and personal lines(22%to 5%).(See Exhibit 5).Two insurers whose business is approximately evenly split between personal andcommercial lines(Travelers and Hannover)delivered an annual TSR of about 9%in the peri

19、od.2023 Boston Consulting Group6 2023 Boston Consulting Group7Top-performing players applied disciplined expertise to their target segments and leveraged technologyas a differentiator,whether by establishing an expense ratio advantage,providing a superior client andbroker experience,or assessing ris

20、ks more accurately.Kinsale leverages proprietary technology anduses analytics to drive profitability and operating efficiency.Progressive,which has long set the industrystandard for usage of data and analytics,continues to expand its use of telematics to push theboundaries of how technology and data

21、 can inform underwriting,pricing,and claims.Bottom-quartilecompanies,in contrast,were disproportionally affected by catastrophes and weather-related events orhad high exposure to challenging lines of business(such as nonstandard auto and medicalmalpractice).Personal lines carriers delivered an avera

22、ge annual TSR of 13%,a 4-percentage-point drop from theprior five-year period.This result primarily reflects stronger market headwinds,including the spike ininflation,supply chain challenges,and continued adverse impact from climate change,which boostedthe severity of claims.(If we remove Progressiv

23、e and its 22%TSR from the calculations,theperformance of personal lines drops to 6%).It is an understatement to say that 2022 was a challengingyear.US P&C carriers recorded a staggering net underwriting loss of$26.5 billion,compared with a$5billion underwriting loss in 2021,according to AM Best.From

24、 2021 to 2022,the gap between top-andbottom-quartile performers in the segment widened by 10 percentage points.2023 Boston Consulting Group8Mutual insurers,which we cannot include in our TSR analysis,are big players in the US personal linesmarket,writing almost two-thirds of the total premiums in ou

25、r sample and accounting for five of thetop ten carriers.Comparing of mutual companies and stock companies poses multiple challenges,oneof which is their differing missions.Mutuals tend to pursue longer-term strategies and oen emphasizeKPIs other than profitability.Mutuals lagged publicly traded insu

26、rers by about 65%in total valuecreation,owing largely to their lower return on surplus(4%versus 13%),which stems from highercombined ratios,lower investment returns,and capital inefficiencies(the inability to buy back shares,for example).Overall,the challenging environment in 2022 demonstrated that

27、insurers that execute their strategydeliberately and act decisively on risk selection,pricing,and costs can navigate market turmoilsuccessfully,protecting their returns and increasing their competitive advantage.(See Exhibit 6.)Thequestion is,what will it take for them to continue to do so?The Chang

28、es Are Coming Big and Fast 2023 Boston Consulting Group9In 2022,US P&C companies faced a combination of changes at the macro and industry levels unlikeany other in modern history.We expect these conditions to continue and to generate additionalvolatility in performance going forward.Increased Uncert

29、ainty.Underwriting and managing aggregations of catastrophe exposure havebecome more important than ever.Shiing weather patterns,an increase in large weather events,andan ever-growing number of people living in weather-exposed areas present one set of challenges.Whencombined with loss costs that out

30、pace inflation and a difficult reinsurance market,these concerns areleading some big insurers to pull back and even exit some markets.Both State Farmthe largest P&Cinsurer in the USand Allstate have announced that they will no longer issue new homeownerspolicies in California.Several other big carri

31、ers had already stopped writing new homeownersbusiness in the state in 2022.Regulation is part of the problem.Regulators in California require insurers to base their home-insurance rates on historical loss experience rather than projections of future losses.But commercialproperty insurance and homeo

32、wners insurance are also becoming harder to secure in other largestates,such as Florida and Texas,as companies manage their exposure to risk and regulation.The constricted appetite of reinsurers is another factor.Last year saw the first full-year decline inreinsurance capital(by almost 16%to$355 bil

33、lion at year end)since 2008.Together with significantlyhigher premiums,capital erosion dropped the sectors solvency margin ratio(capital divided bypremiums)below 100.Terms and conditions are more restrictive,too,particularly for less attractiverisks.Stubbornly high inflation in 2022 has added uncert

34、ainty to insurers ultimate claim costs,affecting notonly long-tail lines but also historically less vulnerable short-tail lines,owing to such factors as thelabor shortage and rising material costs.Different lines of businesssuch as workers compensation,directors and officers liability,and propertyse

35、em to be at different points in the insurance hard-and-so cycle,intensifying the need for insurers to rethink their portfolio approach to managing risk andpricing to achieve target returns.The dramatic moves by big companies such as State Farm,Allstate,Nationwide,and Farmers lead to abig question.Wh

36、at if a significant share of customers can no longer afford to obtain insurance?Although insurance is oen either directly or indirectly required by law for everyday items(such ashousing and autos),some P&C products could become unaffordable for some customers(as in thecase of home insurance in some

37、coastal areas)not unlike what has occurred in the health insurancemarket.Climate Change.The near-term outlook is challenging,but longer-term prospects are even moredaunting,as climate change is likely to lead to higher weather-related losses and volatility.Swiss ReInstitute estimates that insured lo

38、sses from natural catastrophes,which have risen at an annual rate 2023 Boston Consulting Group10of 5%to 7%since 1992,will continue at this pace,driven primarily by the rising severity of individualcatastrophe events.According to the National Oceanic and Atmospheric Administration,the severity and fr

39、equency ofweather events increased notably from 2020 to 2022 compared with the previous ten years(2010 to2019).The average number of events increased from 13 to 20 per year(65%),and the average annualloss from these events jumped from$94 billion to$145 billion(55%).Near-record losses of$165 billiono

40、ccurred in 2022(only 2017 and 2005 were worse),led by damage from Hurricane Ian.As ThomasBlunk,board member of Munich Re,said about natural disasters,“Climate change is taking anincreasing toll.The natural disaster figures for 2022 are dominated by events that,according to thelatest research finding

41、s,are more intense or are occurring more frequently.In some cases,both trendsapply.”Social Inflation.The growth in attorney representation and enormous jury awards in civil cases arenot news.An analysis by the Insurance Information Institute found that the impact of social inflationon commercial aut

42、o claims in the US over a ten-year period increased almost threefold,from$1.4billion in 2012 to$4 billion in 2021.But these big and fast-rising numbers are now attracting newsources of funding.A report by Swiss Re detailed that third-party litigation financingby hedge funds,family offices,and other

43、investorstotaled some$17 billion in 2021,an increase of 16%over thecorresponding figure for 2020.The US accounts for more than half of the global market.Investment islikely to continue to grow at about 9%yearly,and we estimate that it may exceed$30 billion by 2028.Litigation management is more impor

44、tant than ever,and underwriters need to equip themselves withthe tools to properly manage this risk.New Sources of Competition.P&C insurers no longer have the competitive playing field tothemselves.Auto manufacturers,for example,are beginning to leverage proprietary advantages toenter the insurance

45、sector.In 2020,General Motors launched OnStar Insurance,aimed at tailoringinsurance rates to consumers on the basis of individuals driving behavior and use of vehicle safetysystems.The service collects data on driving patterns such as hard braking and acceleration.InJanuary 2022,GM filed a trademark

46、 application for GM Financial Insurance Company.Tesla offers real-time driver data insurance in seven states,basing premiums,in part,on a vehicles“safety score”a continuously updated,automated assessment of driver behavior.As the role ofsoware in cars expands and as manufacturers introduce more assi

47、sted-driving features and(ultimately)autonomous vehicles into the market,the flow of data to OEMs will increase.Cars maytake on smartphone-like roles in their owners lives,giving expansion-minded manufacturers theopportunity to offer customers a range of new service options.Aer four years of breakne

48、ck growth34%a year on averagefunding for insurance technology(insurtech)startups decelerated sharply in 2022,falling by 50%,as investors hit the brakes hardthroughout the tech sector.Nevertheless,P&C insurtechs remain a factor in the industry.From 2018 2023 Boston Consulting Group11through 2022,they

49、 attracted the largest share of venture funding,raising$15.8 billion.A recent reportby BCG and venture capital firm QED found that P&C remains the most attractive segment forinsurtechs,with segment revenues expected to grow at a CAGR of 27%,reaching$200 billion in 2030.AI Developments.The biggest wi

50、ldcard for insuranceand every other sectoris the rapidly evolvingimpact of generative AI(GenAI).We wrote in May 2022 that ignoring AI is risky business for insurers,since the technology is breaking down the industrys historically high barriers to entry and laying barethe imperative for every insuran

51、ce CEO to build AI-ready organizations.The advent of plain-speakingGenAI,which puts AI capabilities within anyones reach,heightens the urgency.GenAI could transform every aspect of the insurance business,with massive implications for risk pools,distribution,underwriting,claims management,and talentt

52、o name just a few factors.Commercialand personal insurers need to come to grips with the immediate implications and project potentialwhat if scenarios.Potential benefits are plentifulfor example,using AI-powered tools andplatforms to streamline and augment core process such as underwriting and claim

53、s,or improvingcustomer satisfaction through efficient and personalized service.AIs breadth of applicability and itsability to process and learn from vast amounts of structured and unstructured data mean that slow-moving companies could soon find themselves playing catch-up in the wake of early adopt

54、ers.How US P&C Insurers Can Stay on TopInsurers can learn a lot from their peers and competitors,but they should also pay attention to whatcompanies in other industries are doing,particularly with respect to uses of advanced technology suchas GenAI and new initiatives such as sustainability-related

55、programs.US P&C management teamslooking to stay in the top TSR quartiles or move up the rankings should pay special attention to fourareas.Stay focused on the fundamentals.It is hard to deliver sustained value creation over time withoutprofitable growth in the core business.In last years insurance v

56、alue creators report,we documentedthat for top-quartile performers over periods of three,five,and ten years across the full insurancesector,TBV growth accounted for 59%,65%,and 74%of TSR,respectively.For P&C companies,profitable growth depends on underwriting excellence.Our April 2023 analysis ofres

57、ults for US P&C commercial lines showed that companies with top-quartile combined ratiosgenerated 13 percentage points higher return on equity and 7 points greater annual premium growththan companies in the bottom quartile.But as we said then,there is no one-size-fits-all way to achievestrong underw

58、riting results,particularly in commercial P&C.Moreover,as underwriting becomes morechallenging,the importance of data and technological capabilities increases.Combining expertjudgment and other human skills with the power of data and technology is key.Top performers willcontinue to adopt advanced un

59、derwriting tools and platforms that leverage data and technology to 2023 Boston Consulting Group12improve decisions and streamline workflows.Keeping up with the science(by integrating new datasources and investing in tech systems)will become table stakes,while excelling at the art(by attractingand r

60、etaining top specialized talent)may become the differentiator.Embrace data,advanced analytics,and GenAI.AI and,in particular,GenAI may be a wildcard,butthe uncertainty surrounding it involves only the type and nature of the disruption it poses,not thedisruption itself.AI has already demonstrated tha

61、t it is far superior to conventional analytics atcombining complex and large data assets,capturing nonlinear patterns,and developing granularinsights.US P&C companies that adopt a wait-and-see approach toward AI are likely to find themselvescontending with and losing out to faster,more efficient,mor

62、e capable competitors.GenAI is poised totransform all core insurance functions,improving operational efficiencies and outcomes inunderwriting,claims,and customer service.Likewise,advanced data and analytics will play an evermore important role in revealing advantaged insights and enabling forward-lo

63、oking approaches to riskassessment and pricing.There are four prerequisites for harnessing the power of GenAI:establish a data-driven culture withinthe organization;develop strong data management capabilities;put the necessary talent in place;andensure that the operating model is fit for the future.

64、Our cross-industry research reveals that theleaders in scaling and generating value from AI do three things better than other companies:As GenAI proliferates,the importance of ensuring its responsible usedeploying AI in a way thataligns with a companys purpose and values while still delivering trans

65、formative business impactrises quickly.Responsible AI helps management teams resolve complicated ethical questions related toAI deployments and investments,catalyze and safeguard innovation,reduce AI failures,and realizemore value.Invest in talent and skills development.BCGs recent global research i

66、nto change agendas andcorporate performance found that a small number of companies with winning capabilities invested inboth smart technology and their people,processes,and culture in ways that enabled them to realizemaximum value from their investments.In their AI investments,for example,winners ad

67、here to the 10-20-70 rule:10%of the effort lies in building an adequate AI model;20%involves making high-qualitydata available;and 70%focuses on selecting and training people,developing new business processes,and transforming business functions.They prioritize the highest-impact use cases and scale

68、them quickly to maximize value.They make data and technology accessible across the organization.They have aligned leadership that promotes collaboration and agile ways of working.2023 Boston Consulting Group13BCG studied three years data on digital transformations and the changing nature of competit

69、iveadvantage.In doing so,it,identified several specific attributes that enable companies to move into newhigh-growth markets that lie beyond the reach of less-capable players.Four of these are humancapabilities:aligned leadership;a clear ability to attract,retain,and develop world-class talent;anagi

70、le and resilient operating model;and an innovation-driven culture.Insurers should follow suit by investing in training programs and upskilling opportunities for existingemployees to equip them with the skill sets needed to adapt to evolving market demands.Companiesshould also identify and recruit ta

71、lent with expertise in emerging technologies,such as GenAI,machinelearning,and data science.The balance between art and science in insurance will continue to evolve inthe years to come.Although technical skills will inevitably take on greater weight,underwriters,claimsadjusters,and pricing actuaries

72、 will still need to apply the arts of critical thinking,leadership andcommunication,specialized expertise,and business development skills.Energize the fight against climate change.We observed last year that the insurance marketplace isin an ideal position to foster cross-industry transformation from

73、 old climate-warming assets to low-carbon,clean-tech solutions.Globally,this transition will require up to$150 trillion in investment fromthe private and public sectorscompanies,investors,lenders,builders,operators,owners,andgovernment agencies that are looking to address climate change and build a

74、more sustainable future.Insurance can support the energy transition by providing risk management solutions and financialprotection to green energy projects such as wind,solar,and hydrogen,and to sustainable businessesinitiatives.Some commercial insurers are already making bold strategic moves to cap

75、italize on this opportunity,creating dedicated energy transition units,hiring renewable-energy talent,and adjusting theiroperating models and risk appetites as necessary.They recognize that it will take time to understandthe risks,develop the necessary underwriting,risk-engineering,and claims skills

76、,and explorepartnerships and collaborations for improved data collection and sharing on new and emerging risks.There are challenges to overcome,such as the current abundance of insurance capital without strongunderwriting discipline,and difficulties in modeling and pricing risks of emerging technolo

77、gies whoseloss history is limited.But inaction is not an option.Several tailwinds are propelling the transition,including policy pushes(such as the Inflation Reduction Act and Infrastructure Investment and JobsAct),investments by incumbent energy players,and mobilized capital from private investors.

78、Moreover,energy supply is only one part of the equation:ultimately,all sectors must embark on decarbonizationjourneys.It will not be a winners-take-all market,but insurance sector laggards will struggle to replicateearly movers broker and customer relationships and developed expertise.Companies cann

79、ot builddifferentiated green capabilities organically overnight,and M&A may be neither available noraffordable in coming years.2023 Boston Consulting Group14In the US as well as globally,economic,social,geopolitical,and climate volatility does not seem to bereceding.Simply remaining good at the capa

80、bilities that underpinned past success may not be enoughto ensure top-ranking TSR performance going forward.AuthorsNathalia BelliziaMANAGING DIRECTOR&PARTNERNew YorkPaul NelsonMANAGING DIRECTOR&PARTNERChicagoABOUT BOSTON CONSULTING GROUPBoston Consulting Group partners with leaders in business and s

81、ociety to tackle their most importantchallenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it wasfounded in 1963.Today,we work closely with clients to embrace a transformational approach aimed atbenefiting all stakeholdersempowering organizations to grow,b

82、uild sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives thatquestion the status quo and spark change.BCG delivers solutions through leading-edge managementconsulting,technology and des

83、ign,and corporate and digital ventures.We work in a uniquely collaborativemodel across the firm and throughout all levels of the client organization,fueled by the goal of helping ourclients thrive and enabling them to make the world a better place.Boston Consulting Group 2023.All rights reserved.For information or permission to reprint,please contact BCG at .To find the latestBCG content and register to receive e-alerts on this topic or others,please visit .Follow BostonConsulting Group on Facebook and Twitter.