Strategic repositioning and return to profitability
Our client on this assignment was a leading composite insurance company with a wide network of branches, through which it had achieved impressive growth in gross revenues over the years, attained a leading position in market share.
Despite impressive top-line growth over the years, the client was concerned about the business’ profitability. Increase in gross premiums was conversely correlated to profitability, despite a 68% claims ratio, which was within the best in class in the market. The client's general insurance business had for over three years consistently posted underwriting losses largely attributed to extraordinarily high acquisition costs, and an inordinately high claims ratio in its leading class by gross premium. Reduction of business volume in the high-premium-high-loss class would automatically shed market share and sacrifice attractive investment income; just as reduction of commissions payable in the interest of lowering acquisition costs would also likely see a decrease in premiums.
The client needed to review its business operating model in order to turn around its general insurance business and get it out of a recurrent underwriting loss position. Given various market, competitive and regulatory considerations, options available for the client were not very many, and whatever the measures the business was going to take, it was important that doubt is not cast by the market on the client's otherwise solid financial base. A decline in premium market share was not an option the board wanted to consider at the time, even with the guarantee of increased profitability.
We undertook comprehensive review of the client's strategy with two primary objectives: restoring profitability in the general insurance business and to securing long-term return on investment. We interrogated the following key areas of the business, among others in development of the turnaround strategy:
1. Make up of factors that led to recurrent loss in the general insurance business
2. Market positioning of the composite business; relative to the client's two independent businesses: life and general
3. Competitor performance in the performance areas we isolated within the client
4. The client's business development strategy
5. The agency performance management model for both the life and general businesses
In addition to these areas, we also worked with the client management to set performance targets across various areas of the business, through which the turnaround strategy was going to realize its intended outcomes.
Following effective implementation of a radical pricing strategy designed to drive re-distribute premiums across classes, restructuring of the client's revenue account, and the enhancement of various controls within the business the client returned to profitability in twelve months, repositioned itself as a value provider, consolidated its market share and significantly increased its profitability across the classes of insurance it covered. The general business was subsequently established as an independent general insurance underwriter and through it dropped two places within the top-ten underwriters, it regained its position and improved by two within the following three years.
This was a essentially a growth and profitability strategy in which we did not want to consider rationalization of the client's far flung operations, reduction of employee numbers, and other easier options that may have provided quick fixes but which would not have been sustainable.