Profit Improvement in the Insurance Industry

In the 1990’s insurance companies’ profits were good. As a result, most firms were not focused on the bottom line. However, the industry hit an all-time low in 2001, when it reported a loss for the first time of (1.2%). Insurers awakened to a new paradigm. Recent years have showed a healthy change, where overall performance is no longer measured by revenue growth and market share. It’s measured by profitability.

Why Is Profitability Becoming More Important?

There are a number of micro and macro-economic trends that have increased operational complexity, raised demand for insurance products, and affected the overall performance of insurance companies.

Micro-economic forces that are impacting individual companies include:

• Products and services have become commoditized.
• Competition is growing more fierce, due to industry deregulation and the advent of the internet.
• Customers have become more demanding3, as they have gone direct.

It is easy to see how these trends have pressured margins. Insurers are scrambling to determine how to attack new markets, while simultaneously defending their core base. Churn is at an all-time high. For example in Europe, auto insurance churn has climbed to 18% annually.

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