Introduction:
As part of an ever-changing insurance market, carriers have had to take a good look at their business strategies in order to keep up. We researched the top 10 insurance carriers to analyze their business strategies in 2017 and 2018 to see what their main strategic initiatives have been in today’s market.
In this article, we examine each company through their annual reports and conduct an overall analysis. It was interesting to see if these carriers had followed through on their stated strategic priorities for the following year.
We conducted a side-by-side comparison of goals, examined strategic initiatives that remained the same from 2017 to 2018, and looked at how the companies’ language changed from year to year. The comparisons can be seen in the tables listed below. New strategic goals can be seen in bullet points.
Our research revealed that the majority of the strategic initiatives remained the same. However, we uncovered two common themes that continue to come up throughout the analysis: customer experience/service and excellence in underwriting as strategic focal points for 2018.
Overall Top-10 Carriers Analysis:
Relevant information from the 2017/2018 reports revealed that most of the carriers’ core strategies remained the same from 2017 to 2018, with one or two new goals. The three main themes that stood out from all the companies’ strategies are the focus on a) Underwriting excellence b) Good customer experience c) Growing use of data and data technologies.
All 10 carriers mentioned the focus of data and technology. Only one carrier had a different main goal than all the others: USAA’s main strategic goal was to rely on its financial strength. The only overlap for this carrier was its plan to invest more in technology, which was also a common goal among all of the other carriers.
Main focus by carrier:
The Travelers Companies, Inc. – Customer experience/service
Chubb Limited – Excellent underwriting
The Hartford – Excellent underwriting
Nationwide Insurance – Customer experience/service
AIG – Excellent underwriting
Allstate – Customer experience/service
Berkshire Hathaway – Excellent underwriting
USAA – Financial strength
The Progressive Corporation – Customer experience/service
Liberty Mutual – Customer experience/service
In this analysis and the chart below, two main strategies appear among the various top insurance companies. Five out of ten carriers focused on customer experience/service as their main strategic goal for 2018, while four out of ten carriers made excellent underwriting their main strategic focus for 2018.
While all carriers focused on one main strategy, there was a clear overlap of subgoals, which can be seen in the chart below.
Five out of the ten top insurance companies mentioned technological advancements as one of their top strategic priorities. While the other 50% of carriers mentioned various other subfocuses, such as excellent underwriting, strong net income and global footprint optimization, the focus of technological advancement was mentioned in all 10 strategies at some point.
From this analysis, it is clear that technological advancement is still a top priority among top carriers in today’s changing insurance market.
Let’s take a close look at each carrier:
The Travelers Companies, Inc.:
Travelers 2017 Annual Report
“Investing in intelligent automation, data and analytics, predictive modeling”
“Providing a great experience for our customers, agents and brokers (investing in technologies)”
Travelers 2018 Annual Report
“We continue to extend our advantage by investing in areas like predictive modeling, advanced analytics, robotic process automation, machine learning, artificial intelligence and new products.”
“We are focused on becoming faster, easier, more nimble, more digital, more mobile and more personalized.”
The main strategic focus of the company, which didn’t change over the years, was its focus on customer experience and the technological enhancements that will lead to better experiences for customers, agents and brokers.
It is interesting to note that it did deliver on its innovation agenda by developing new initiatives and relationships, such as creating the industry’s first digital storefront on Amazon and “exploring how connected devices can address construction-related injuries and property losses” through a collaboration with Gilbane Building Company and Triax Technologies.
Analyst Reports further elaborate that Travelers has managed to deliver strong retention, higher premium renewals and higher amounts of new businesses. They continue to focus on technological enhancements including artificial intelligence (AI) to simplify its new business and policy renewal process.
Chubb Limited:
Chubb Limited 2017 Annual Report
“Excellent underlying underwriting performance
… strongly believes in the noble profession of underwriting.”
“Record net investment income for the year
… we are predominantly fixed income investors and have built a well-balanced portfolio diversified by asset class and issuer with a strategy focused primarily, though not exclusively, on predictable, repeatable income versus alpha or capital gains, although both contribute to growth in book value.”
“The Chubb brand stands for exceptional service…”
“… to transform ourselves to thrive in a digital age…”
Chubb Limited 2018 Annual Report
Underwriting performance: strongly believes in the noble profession of underwriting
“Record net investment income for the year:
We are predominantly fixed income investors and have built a well-balanced portfolio.”diversified by asset class and issuer with a strategy focused primarily, though not exclusively, on predictable, repeatable income versus alpha or capital gains, although both contribute to growth in book value.
“Our commitment to citizenship
Good corporate citizenship lies at our core: how we practice our craft of insurance, how we work together to serve our customers, how we treat each other and how we work to help make a better world for our communities and our planet.”
“We are continuing to execute on our strategic plans to transform ourselves to ensure Chubb is compelling in a digital age.”
Chubb focuses on excellent underwriting performance and net income performance. Strategy as a whole remained the same from 2017 to 2018, with the addition of a focus on its commitment to ethics (as seen above under the “commitment to citizenship”).
Chubb believes that the industry has been operating with inadequate pricing and that rising costs and a difficult risk environment have added to the industry’s deteriorating results.
Based on analysis of Q3 reports, Chubb managed to improve commercial insurance pricing, prudent underwriting, higher policy renewal and new business volume growth. Reports also confirm that Q3 property and casualty net premiums written of $8.01 billion rose by 6.2% year over year, with underwriting income of $754 million, up 13%.
The Hartford:
The Hartford 2017 Annual Report
“The Company relies on the dividends from its insurance companies and other subsidiaries as the principal source of cash flow to meet its obligations, pay dividends and repurchase common stock.”
The Hartford 2018 Annual Report
“The Company relies on the dividends from its insurance companies and other subsidiaries as the principal source of cash flow to meet its obligations, pay dividends and repurchase common stock.”
2017:
- Maintain strong margins and underwriting discipline in Commercial Lines and Group Benefits.
- The Hartford has successfully executed its strategy to exit capital market-sensitive businesses and focus on underwriting businesses.
2018:
- The Company is working to increase efficiencies through investments in technology.
The Hartford focuses on being an underwriting business. This focus remained the same going into 2018; however, the strategy elaborated on working to expand its insurance product offerings and increase investments in technology.
According to the Q3 results, its net income rose by 16% year over year owing to improved new investment income, increased net realized capital gains and a better underwriting profit.
Nationwide Insurance:
Due to the fact that Nationwide isn’t a publicly traded company, we couldn’t find comparables between their reports from year to year.
2017:
- “Responding to the emerging needs of our members.”
- “Introducing new ways to invest.”
- “Encouraging safe driving with smart technology.”
- “Making it easier to protect the things you care about.”
- “Innovating to solve retirement challenges.”
- “In times of crisis, Nationwide is there.”
- “We’re a big company, yet we have big hearts.”
- “Giving is a part of who we are.”
2018:
- “We’re there for when you need us most.”
- “Business solutions that make your life easier.”
- “We’re there for your family and your future.”
- “Offering flexible choices for your lifestyle.”
- “Meeting your needs behind the wheel.”
- “Making a difference in the world around us.”
- “Strengthening our communities together.”
Nationwide’s reports focus more on their key values as opposed to strategies. Their values remain the same from 2017 to 2018 with the main focus being on the customers and community. Everything that is done always has the community and their needs in mind. Always striving to provide value.
AIG:
AIG 2017 Annual Report
“… we named 2018 the ‘Year of the Underwriter.’”
AIG 2018 Annual Report
2017:
- “World Class Insurance Franchises that are among the leaders in their categories, providing differentiated service and expertise.”
- “… we will continue to position AIG as a growing, profitable leader in the insurance industry, known for being a top-performing underwriter, with the best talent, armed with the best tools and technology, and working across a global footprint.”
- “… we updated our organizational structure to more logically reflect how business is marketed and underwritten.”
2018:
- “Improving operations that help employees evaluate business and serve customers while strengthening essential corporate system security and efficiency”
- “Using newly implemented framework and guidelines – while further integrating underwriting, claims and actuarial – to enhance the portfolio”
- “We recognized in late 2017 that our legacy reinsurance strategy had substantial shortcomings with respect to managing volatility across return periods and protecting against tail-risk events. … made initial decisions to reduce the net risk in the portfolio, which provided meaningful recoveries in the second half of last year.”
In 2017, AIG made the strategic move to update its organizational structure to focus more on underwriting. Its goal was to be considered the best insurance company in underwriting in 2018. It also focused on how it can better leverage its existing global footprint.
In 2018, its main focus was still underwriting, but the company strived to take a deeper dive into underwriting in order to improve its performance. It also noted that its reinsurance strategy had some shortcomings, so the company revised the strategy to reduce the net risk in the portfolio, which helped with recoveries in the second part of the year.
Reports show its strategy has shown efficiency in underwriting in the general insurance segment.
Allstate:
Due to the fact that Allstate isn’t a publicly traded company, we couldn’t find comparables between their reports from year to year.
2017:
- “Create long-term value by serving our stakeholders, taking appropriate risks, and leveraging our capabilities and strategic assets.”
- “… how to effectively capture opportunities presented by changes in the automobile industry, including autonomous vehicle technology and ride-sharing.”
- “Investment income was strong, reflecting equity and fixed income market appreciation and increased allocations to performance-based investments.”
2018:
- “Provide employees, agency owners, financial specialists and licensed sales professionals fulfilling opportunities, personal growth and performance-based rewards.”
- “Allstate’s strategic goal is to increase its market share in protecting people from life’s uncertainties.”
- “Use consumer insights, data, technology and people to better serve customers and generate growth.”
- “Be a learning organization that leverages successes, learns from failures and continuously improves.”
- “Put the customer at the center of all our actions.”
Allstate’s strategy in 2018 changed to focus more on the customer and put the customer’s needs above all. All investment in technology and data was dedicated to the purpose of better serving the customer. This was not mentioned previously in its 2017 annual report, which mainly focused on ensuring strong investment income.
Analyst reports indicate that in order to achieve its goals, Allstate focused on better customer service, achieving target economic returns on capital, growing its customer base, proactively managing investments and building long-term growth platforms, which is also highlighted in its annual reports. The achievement of these goals led to an income increase from 5.8% to 9.5% in Q3, compared to prior years, which was driven by higher net realized capital gains and a 5.6% and 5.8% increase in insurance premiums.
Berkshire Hathaway:
Berkshire Hathaway’s insurance operations take advantage of its financial strength and it’s operational rigour to allow for great flexibility when balancing premium growth with profitable pricing.
2017:
- “At Berkshire, what counts most are increases in our normalized per-share earning power.”
- “… float has been of great importance to Berkshire. When we invest in these funds, all dividends, interest and gains from their deployment belong to Berkshire. (If we experience investment losses, those, of course, are on our tab as well.)”
- “We manage our operating businesses on an unusually decentralized basis. There are essentially no centralized or integrated business functions and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses.”
2018:
- “Our management views our insurance businesses as possessing two distinct activities – underwriting and investing.”
- “We evaluate the performance of underwriting operations without any allocation of investment income or investment gains/losses.”
- “… we consider investment gains and losses, whether realized or unrealized as non-operating, based on our long-held philosophy of acquiring securities and holding those securities for long periods. Accordingly, we believe that such gains and losses are not necessarily meaningful in understanding the operating results of our insurance operations.”
The concept of float was the main focus in 2017, while the 2018 strategy focused more on the performance of Berkshire’s underwriting operations as well as its investment gains and losses. The report mentions multiple times how the GAAP rule is completely unnecessary and that it creates risks for the company as it misleads commentators and investors.
Reports indicate that Berkshire did grow considerably in underwriting operations, which were up by 14% ($7.9 billion) for the third quarter. Furthermore,these results exclude significant unrealized gains from investments and derivatives, which GAAP now requires to flow through the income statement, which was also highlighted in Berkshire’s annual report.
USAA Insurance:
Due to the fact that USAA isn’t a publicly traded company, we couldn’t find comparables between their reports from year to year.
2017 USAA Report to Members:
- “Our diverse business model – including banking, life insurance, and investment management operations – all helped contribute positively to USAA’s net income.”
- “Maintaining our investment approach, we selectively sought relative value opportunities among various sectors near the front end of the yield curve.”
- “Diversification is another good investment strategy, that can potentially protect a portfolio from market turbulence or shifts in performance leadership.”
2018 USAA Report to Members:
- “… must maintain deep financial strength.”
- “… relied on our financial strength to invest in the technology, tools and talent to better serve a growing number of military families.”
- “Perhaps the best measure of USAA’s ability to keep its commitments to members is net worth.”
- “A key focus in 2018 was to strengthen our ability to meet regulatory expectations, over the long term enabling USAA to provide consistent member experiences.”
USAA’s strategy remained the same from 2017 to 2018 with the less focus on diversification, to ensure it remains in strong financial health and to rely on its financial strength and strong net worth.
The Progressive Corporation:
2017 Annual Report
2018 Annual Report
Progressive’s main goal in 2017 was profit and to ensure the company had enough in order to sustain a business. Another focus in 2017 was the consumers, making sure the company became the number-one choice in the eyes of the customer and that all their needs were met. In 2018, the strategy remained unchanged, with earning acceptable underwriting profit being its main goal and the focus on customer service, its secondary goal.
Reports indicate that during Q3, there was an 8% increase in new applications on a year-over-year basis in its commercial lines business. This is less than the 11% increase during the first two quarters. According to analysts, this is due to the timing in which underwriting restrictions were lifted in the prior year. Progressive still managed to improve its October net premiums written of $3.66 billion, up 12% year over year, and its net premiums earned of $3.51 billion, which was up 13% year over year.
Liberty Mutual:
Due to the fact that Liberty Mutual isn’t a publicly traded company, we couldn’t find comparables between their reports from year to year.
2018:
Information was taken from Liberty Mutual’s 2018 Investor’s Day presentation
- “We are Focused on Exceptional Agent and Customer experiences.”
- “Win with Brokers & Customers: Increase ease of doing business with strong relationships, superior distribution management and whole account solutions”
- “Develop Elite Underwriting: Enhance underwriting culture, define clear appetite, create innovative products and employ total portfolio management”
- “Deliver Best-in-Class Service & Outcomes: Deliver superior experiences and results through claims handling, risk control and integrated coverages”
- “Engage Our People: Achieve our shared vision through collaboration, continuous learning and development, and openness and inclusion”
Liberty Mutual’s 2018 strategy indicated that its main focus was excellent customer experience and service. It also focused on developing excellent underwriting skills.
