ACORD Study Results: Loser Lessons

November 24, 2019

More from ACORD’s recent study, “Intelligent Growth: Intent, Decisions, Outcomes.” Of the 200 carriers, 73 were called waning carriers. These are carriers that have inferior combined ratios or return on assets and actually lost market share globally. “They may have grown; they just did not grow strongly enough to increase market share.” Here ACORD CEO Bill Pieroni reveals why they didn’t grow and why they produced inferior economics.

Pieroni said there are a number of reasons but the top ones include inability to execute change. The researchers reviewed announcements of consulting projects, the naming of special projects, press releases and analyst calls with CEOs and CFOs saying a transformation was underway. “If you did all of that during the 20-year time period and you showed up here, obviously you didn’t successfully navigate the change journey,” Pieroni said.

By the way, the ACORD executive said two-thirds of change efforts in the insurance industry fail. “We have that data. Two thirds fail. They fail far more here,” he said referring to the waners in the study.

Waners also failed at performance management. They did not manage people well. They didn’t have the metrics. They didn’t enforce implications for non-performance.

The third is strategic confusion. They tried to do too many things. They didn’t focus.

Grew Without Creating Value

Of those that drove unsustainable growth, meaning they grew but did not have superior economics, 100% of them had underwriting expense ratios that far exceed the norm. They spent heavily on underwriting yet still weren’t profitable. “So you overspent on underwriting and you had horrible loss results,” Pieroni said.

“In the 1970s and ’80s, there was a popular strategy, ‘Oh, we’ll just grow and then we’ll figure out how to make the book profitable later.’ That didn’t work out for anyone,” he quipped.

Another attribute of growth-focused carriers, one that surprised and bothered Pieroni and his team, is that many were high-risk specialty carriers. Their problem was they didn’t charge the right prices. Pieroni said this is bothersome because they were carriers that were focused on a product and should have been charging for it. “But what we found is that 86% of the writers in this bucket actually had a strategy where they focused on higher risk, specialty nonadmitted excess and surplus, and didn’t get the rate,” he revealed. In a later interview Pieroni called this finding on specialty writers “shocking” and indicated he wants to probe this topic further.

Next, the unsustainable profitable carriers were those that made money but didn’t grow. They actually succeeded in managing growth. They lost market share but they had the discipline to say the rate is not right. “That actually is a good thing,” said Pieroni, noting that 89% of them understood the softness and rate and decided not to grow.

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