Five strategies can make a world-class insurance company, says IBM
In what is reckoned to be the biggest-ever survey of insurance companies, IBM has discovered what it takes to be a world-class insurance company.
The research looked at all listed risk carriers in 90 countries with almost £2 trillion in premiums between them. It revealed that in mature markets, such as the US and UK, world class performance means a combined ratio of 96% and a total share return of 29%.
World-class performance for developing countries, such as India and China, means a combined ratio of 92% and shareholder returns of 16.5%.
Bill Pieroni, the head of insurance practice for IBM worldwide, said that the research also revealed that there are only five basic strategies: options manager, segment dominator, scale player, diversified offerer and price competitor. He explained that options managers are companies that start small operations in undeveloped markets in the hope that these might soon grow big. Segment dominators have large shares of specific market segments, scale players have large shares of broad markets, diversified offerers have multiple products and brands servicing the same markets and price competitors are lowest price sellers.
Pieroni said that many companies waste too much time and effort concentrating on new strategies, when, in fact, there are only five to choose from. He said the time and effort should be spent on investing in baseline capabilities such as underwriting, claims and policy administration.
"The best companies are investing 70%-80% into sharpening their saws and only 10%-20% on things like product innovation," he said.
Pieroni explained that far too much importance is placed on innovation. "Some of our clients have developed artificial intelligence for underwriting, but as soon as others get it, it becomes the norm. If there is a patent it takes 24 months to copy and idea and if there is no patent it takes around six months," said Pieroni.