European insurer value analysis 2021 insights for COOs and CIOs – CGI

We have recently supported a new report, European Insurer Value Analysis 2021, conducted by ACORD and Alchemy Crew – a groundbreaking study of the financial performance of 40 leading European-head quartered insurers, together representing more than €1.2tn in annual revenue.

Here, we summarise our key takeaways from the report, the ‘what’ as well as the ‘how’, and the tangible actions that leaders of insurance companies can take to improve financial performance.

Sabine VanderLinden, Alchemy Crew chief executive and report co-author, commented: “It is eye-opening to re-evaluate value creators from value destroyers within our fast-moving, digitised world using comprehensive criteria of value creation. The report not only tells us the what – it also gives us clues to the why and the how.”

The methodology used in the report was cash flow returns over invested capital. Using the cash flow metric enabled ACORD to compare the performance of property and casualty (P&C) insurers, life assurers and bancassurers on a like-for-like basis.

The five year average performance was 7.5% cash flow return on invested capital, with top-quartile performers returning 16.9% and bottom quartile 4%.

Typically smaller, often single-country focused companies outperformed large multinationals. Mutuals performed slightly better than public companies, and P&C better than life.

1. Superior performance

So what drives superior performance?

In one word: focus.

The report authors examined each company’s strategy, culture, and capital allocation. Winning strategies entailed active management of capital, proactive mergers and acquisitions, product differentiation and management of independent distribution channels.

High-performing companies exhibited a positive culture, strong leadership and board diversity. They also develop and nurture talent from within, with a focus on core capacity and competency around underwriting claims, operations and IT.

Most importantly, the high performers were very focused and selective in resource allocation and deploying their capital only where it mattered. This applies equally to product, distribution and IT investment and digital.

Bill Pieroni, ACORD chief executive and report co-author, said: “ACORD’s proprietary methodology enables benchmarking across a wide spectrum of carriers and geographies. Key findings include the role of informational scale and scope economies, talent and culture as key differentiators and the role of focused execution in value creation.”

2. Market challenges

The themes highlighted by ACORD resonate with our team. We are often in dialogue with European insurance chief operating officers (COOs) and chief information officers (CIOs), who are our core clients.

Our insurance clients face an unpredictable market environment after the 2020 pandemic shock, which has forever altered customer buying needs and behaviours. The most important ‘what’ from the report is this: the highest performing companies are the most focused and agile ones and they achieve more with less. Every invested pound or euro delivers maximum value.

3. Maximising returns from investments

So, how do we achieve – in Bill Pieroni’s words – “focused execution in value creation?” Investments in infrastructure, IT and digital are typically the largest capital investments any European insurance company would make. They are, therefore, a big determinant of the cash flow returns over invested capital, the metric ACORD uses. Translating the European Carrier Value Analysis into tangible business actions and combining with our experience, we distilled lessons learned, which the European insurance COOs and CIOs might fi nd valuable. They include:

• Be ruthless with the new investment business case – is business value well defined? Who is the sponsor? What is the return on investment? Does the business case still stand under stress tests?

• Re-evaluate investments on a regular basis – don’t be afraid to halt projects which become obsolete or don’t deliver the original value. The pounds and euros can be used better elsewhere.

• Deploy ‘state of the markets’ technology, such as best of breed – ‘bleeding edge’ might not deliver the returns.

• Buy not build – with rapid technological innovation across insurance and financial services, someone would have most likely already solved the problem you are facing – the solution might lay in banking, payments, or even government work, but it most certainly exists already.

• Find the right partner to deliver – you would benefit from their resources, know how and lessons learned elsewhere.

The ACORD and Alchemy Crew report gave us some truly deep insights into value creation among European insurers. Agility and focus on returns are the key value drivers.

We recognise the daily challenges our insurance clients face and support them to achieve maximum returns from investments in infrastructure, IT and digital transformation.