Climbing the power curve to win in Insurance

Every year, strategic planning activities take place in insurance organizations all around the world. They aim to chart a bold new course, but in insurance, as in nearly every other industry, they frequently succumb to incrementalism and strategic inertia. 

Indeed, according to research conducted by our colleagues, the amount of capital given to each business unit in multidivisional organizations is practically the same from year to year; the mean correlation is.92.

There are a variety of reasons for this, ranging from fear of taking risks to corporate politics to the futile search for the perfect plan that does not exist. There’s also an empirically supported way out: understand that strategy is all about playing the odds. 

Although not every decision will result in a win, businesses that improve their batting average are more likely to succeed. Rather than being deterministic, strategy is probabilistic. 

According to a multiyear study effort by our colleagues that resulted in the release of Strategy Beyond the Hockey Stick in 2018, this is also true in every business.


Rather than being deterministic, strategy is probabilistic

This research was recently expanded and strengthened by a deep dive into the insurance business. Our findings show that insurers can take specific, evidence-based steps to move in the correct direction and, in the long run, improve their chances of long-term success. 

Purposeful, bold measures targeted at shifting resources, increasing underwriting margins and productivity, and executing a series of programmatic M&A agreements can greatly improve an insurer’s chances of reaching the top quintile of economic profit over a ten-year period.


The power curve: what it is and how to use it

During that time, the wealthiest 20% of insurers made an annual average of $764 million in economic profit. The middle 60%, on the other hand, made an average of only $26 million in profit. While the intermediate insurance businesses didn’t produce or destroy much value, the poorest 20% destroyed $976 million per year. 

Our colleagues investigated the universe of all companies and found a pattern similar to this.

These findings may serve as a wake-up call for insurers who are outside the top quintile, but attempting to rise up the power curve is difficult. Companies in the bottom quintile had a 17 percent chance of advancing to the top quintile over ten years from 2012 to 2021, while companies in the middle had a 10% chance of moving to the top. 

However, insurers can still advance up the power curve, resulting in a significant rise in the amount of value created.


Foundational factors

These elements determine the carrier’s starting place and the external environment with which it interacts, but they are not necessarily under the carrier’s control in the short term:

  • Endowment refers to a company’s existing position in the market, including its size, financial flexibility, and previous technology and product development investments.
  • Trends are headwinds or tailwinds in the insurer’s markets that make moving up the curve easier or more difficult. This encompasses both geographical and industry-wide trends.


Bold moves

  • Shift resources between firms in a dynamic way.
  • A significant portion of cash is reinvested in organic growth prospects.
  • Pursue thematic and programmatic mergers and acquisitions.
  • Improve the underwriting margins.
  • Make productivity improvements that are game-changing.

Endowment and trends underpin these efforts, which are controllable parts of strategies that boost an insurer’s chances of climbing up the power curve. While the magnitude of these efforts required to influence a carrier’s position on the curve is daring, they are not irresponsible. Instead, these maneuvers must be calculated and deliberate.


How insurers should pursue the five bold moves

While the five bold acts may appear intuitive, and many firms may already be doing them in some form, there are two aspects that distinguish these activities. First, size and scope matter; these attempts push insurers to abandon their conventional investment and initiative prioritization processes. 

Even if a corporation does something in each of these areas, the amount of work it does makes a difference. To put it another way, strategy isn’t only about the directionality of actions; it’s also about the materiality of those moves.

Second, these actions have a cumulative effect. Companies that use three or more of these strategies in tandem are more likely to advance up the curve. 

Our findings suggest that organizations that focus on many actions over time may learn from and adapt to them, allowing them to reap even greater rewards.


Shift resources between firms in a dynamic way

Some carriers provide clients with an excessive number of legacy items that do not generate a profit. Distribution, product development, and policy administration all suffer as a result of these old items. Companies should instead reallocate resources to operations with greater return-on-equity (ROE) and away from lower-ROE lines of business. 

Given the extremely competitive price climate in the sector, proactive steps are essential.

Not only should resource allocation be used across several strategic lines, but also across goods. The criterion for outperformance, according to our analysis, is the reallocation of 60% of surplus created over a decade. Insurance companies that optimize their business mix accordingly have a higher chance of climbing the power curve. 

This criterion is consistent with our findings across industries, which show that dynamic resource allocation gains three to four percentage points more overall return to shareholders every year than low reallocators.


A significant portion of cash is reinvested in organic growth prospects

Reinvesting money in successful and well-performing firms is a surefire method to boost profits, but many insurers have struggled to discover these opportunities over the last ten years. 

Companies achieve the benchmark in this area if their strategic reinvestment relative to new business premiums is in the top 20% of the industry; typically, this means spending 1.7 times the industry median.



Insurers who can change their business models in the face of an efficient market and inject newfound objectivity into their strategy procedures can improve their economic profit. Indeed, insurers with a strong endowment, a good understanding of industry and geographic trends, and a willingness to take risks will be well positioned to ascend the power curve.