McKinsey says insurers must narrow product offerings to 'break the sub-100 combined ratio barrier'

Insurers need to narrow their product offering if they want to consistently achieve combined ratios of less than 100, according to research by consultant McKinsey & Company.McKinsey said: "With strategy, the key word is focus - companies that want to improve performance cannot realistically provide all products to all customers."The first step is to assess the current portfolio, analysing both the attractiveness of each region/segment and a business unit's ability to compete in it."McKinsey said such an analysis would reveal which parts of the business were creating value and which were not. The consultant said this process was important if insurers wanted to "break the sub-100 combined ratio barrier and remain there".McKinsey said that, while the combined ratios of most large insurers were at or below 100, this performance was driven by an upturn in the cycle "fostered by post-11 September rate increases"."The reality for European P&C insurers is a bit more sobering: top players are experiencing little or no actual performance improvement, while those in the bottom tier are clearly destroying value."

What is causing insurers to perform poorly?Other problems causing insurers to perform poorly, according to McKinsey, include:

  • Insurer reluctance to outsource claims processing functions
  • Too much emphasis on keeping market share - reluctance to cede volume in order to maintain profits
  • Insurers trying to improve performance by lowering expenses rather than making underwriting and claims administration more efficient.
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