3. Executive Summary
The Property and Casualty insurance industry has been » everage existing technology, making only
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navigating tumultuous waters, churned by dramatic failures in selected, well-justified purchase decisions
the financial sector, a surprisingly rapid and severe recession, » nvest in innovative analytics that improve data
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and a chain of unexpected, catastrophic storms. The financial quality and create business value
impact of this “perfect storm” of events had a dire impact on » ontrol and gradually expand the use of contact
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the industry: centers, but at a modest pace
» mprove Internet use, emphasizing distribution
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» Net premiums have dropped reflecting the drop in channels and other business partners
consumer income and financial difficulties
» fter tax income has continued to drop as a result
A This report provides a detailed review of executive responses
of a multitude of worsening factors to key questions, further enhanced by expert analysis and
» eturn on equity has dropped by a over 80% com-
R insights into current trends and practices provided by Nolan
pared to prior years industry experts.
» ombined ratios continue to run in the 104 to 107
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range for Personal and Commercial Lines The common theme of executive responses is that companies
» olicyholder surplus has dropped measurably
P plan to stay the course with well-thought-out strategies.
Success requires that this philosophy be retained and executed
The challenges of these turbulent times amplify the demands as the underwriting and economic cycles follow their
facing most companies, creating an intense pressure on lead- market turns.
ership to bring dramatic improvements in customer-centric
competitiveness and transactional efficiency. How will top
insurance executives overcome these challenges?
The Nolan Property and Casualty Survey captures top ex-
ecutives’ strategies and priorities as they maneuver through
these trying times, which also represent an opportunity for
those with vision. More than 100 executives responded to the
survey, providing their views on the industry’s most pressing
issues and their companies’ plans for tackling and overcoming
the challenges of the current volatile insurance environment.
Not surprisingly, the top priority remains clear: maintain the
underwriting discipline necessary to sustain profitability in
the current state of the insurance market. Operational
strategies support this priority by focusing on a select set
of foundational objectives, including:
» Exercise close management of expenses to ensure
appropriate allocation of resources
» mprove customer-centric service, focusing on
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differentiation in the marketplace
» rive organic growth where possible, building on
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existing relationships and products
» nvest in talent management, upgrading staff skills
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and productivity, and improving employee
satisfaction
www.renolan.com | ROBERT E. NOLAN COMPANY 2
4. Introduction
“Pricing, profitability, growth!” and “Price, price, price!” These clear-cut comments pro-
vided by executives participating in the Nolan Property and Casualty Survey exemplify the
priorities that will drive companies’ actions. Specific operational initiatives vary, but some
strong common themes emerged from the survey.
Responses reflect the realities of the property and casualty (PC) industry today.
Company leaders are determined to continue the two-year string of record underwriting
profits, but unfortunately, with premium growth slow to negative, it appears likely that we
are facing a period that may see the first underwriting losses since 2005.
Who Participated?
A diverse group of
Job Title of Respondents
over 100 insurance
executives participated
Nolan Insight in the survey, with
almost 60% at the
Despite a diverse AVP/Director/Other - 14% senior vice president
company representation level or higher.
EVP/SVP - 17%
in terms of size and
distribution methods, COO/CFO/CIO - 18%
responses were
remarkably consistent. CEO - 23%
This indicates that VP - 28%
the challenges facing
company leaders are
somewhat universal in
nature. Any responses
differing significantly by
company type and size
will be specifically noted The respondents
Type of Company
in this report. include a good mix of
PC companies, with
solid representation
from mutual
companies, many
selling under $500
Other - 6.6% million in direct
written premium.
Stock - 26.7%
Mutual - 66.7%
Property and Casualty survey report 3
5. The split between Commercial and Personal Lines is fairly the Internet, at 7% vs. Commercial Lines at 1%, while Com-
even, with a slight majority in terms of premium going to mercial Lines has a higher degree of general agents at 12% vs.
Commercial Lines. Personal Lines at 6%. These differences illustrate variances in
complexity between the lines that lead to alternative uses of
Nearly 60% of the companies distribute through independent secondary distribution channels. While both lines show 13%
agents, followed far behind by exclusive agents at 13%, leav- distribution by captives, the trend over the past few years has
ing 27% for direct response, general agents, the Internet, and been away from captives in favor of independents.
brokers. Personal Lines does show a higher success rate on
Direct Written Premium of Respondents Personal Lines Distribution Channels
Brokers - 5%
$500 million to $1.0 billion, 21% General Agents - 6%
$1 billion to $2.5 billion, 9.5% Internet - 7%
$2.5 billion, 6.6% Direct Response - 11%
Under $500 million, 62.9% Exclusive Agents - 13%
Independent Agents - 58%
Product Mix Commercial Lines Distribution Channels
Brokers - 5%
General Agents - 12%
Personal Lines - 42% Internet - 1%
Commercial Lines - 58% Direct Response - 9%
Exclusive Agents - 13%
Independent Agents - 60%
www.renolan.com | ROBERT E. NOLAN COMPANY 4
6. Underwriting
Not surprisingly, profitability is clearly the top underwriting concern. What is surprising
is the relatively low ranking of organic growth and service, which, while consistent with
the industry results in 2007, reflects potential shortsightedness in differentiating in an
increasingly competitive market. With the financial turmoil of 2008 continuing into 2009,
the profits of earlier years are unlikely to continue, putting increasing pressure on pricing
in order to retain market share. On the expense side, internal investments in new tools
and improved staff training are priorities in an attempt to leverage existing
intellectual capital.
For the smaller companies, there is little interest in mergers or acquisitions as a means of
growth, although in reality these companies may well end up being targets of larger finan-
cial enterprises searching for diversification and economies of scale.
The appeal of outsourcing, particularly with respect to the knowledge-based underwriting
functions, is nearly non-existent despite the need to cut expenses. Most companies recog-
nize this function as a core competency and are focused on retaining it internally.
Nolan Insight
For many companies,
the solution to
competitive pricing is Overall Underwriting Objectives (lower scores = higher priorities)
being found in better
0 1 2 3 4 5 6 7 8
market segmentation,
with credit rating- and Achieve / Maintain Profitability
mileage-based rate Organic Growth
plans showing an
Improvement in Customer Service
increasing popularity.
Forward-thinking Expense Improvement
companies continue Introduction of New Tools / Technologies
to find unique ways to Training
segment their customer
Growth Through Acquisition
base in terms of pricing
and service. Outsourcing
Nolan Insight
The key to success remains focusing on internally controllable factors, including careful
evaluation of risks, underwriting quality, competitive pricing by segment, differentiation of
customer service, and careful management of internal and external expenses.
Property and Casualty survey report 5
7. Personal Lines Underwriting
Respondents feel that the greatest impact on underwriting re- These trends will necessitate refined and more robust Inter-
sults will be achieved through the use of better analytical tools net-based support for agents and brokers. For those carriers
and leveraging the collection and analysis of detailed and lagging on the technology curve, lost market share and missed
accurate customer data. The path to sustainable underwriting opportunity are the most likely outcomes.
profits will be through optimized matching of pricing to risk,
which can be achieved through the use of complex models One other notable finding regarding the Internet is that the
that differentiate rates at behavioral and demographic levels. use of Internet-based services by policyholders seems to be
Technology will provide the means to collect and analyze data gradually accelerating in terms of sales, account information,
from various sources to derive predictive information. Along and self service. Experience has shown that consumers have
with this approach, the respondents indicated an increase a threshold for conducting online transactions; if a transac-
in plans to use vendor-supplied information, such as credit tion is perceived as complicated, consumers prefer to talk with
information, motor vehicle reporting, and claim information, someone. Thus, at present, there are a limited number of self-
as sources of data for the predictive models. serve transactions and inquiries that policyholders are willing
to initiate online. Innovative companies are recognizing this
need, adding services and transactions to their Internet sites
as the market matures, and improving accessibility and service
Nolan Insight levels while shifting costs away from labor-intensive internal
support. Internet use will continue to increase as the next
generation of policyholders, accustomed to online
Technological investments are required to develop and
interactions, grows.
constantly modify the predictive models, which will become
the industry norm as increased integration of internal and
vendor-supplied information becomes the source of rate plan The responses in Personal Lines are similar across all com-
competitive differentiations. pany sizes, with two notable exceptions. First, smaller com-
panies are placing more emphasis on upgrading front-line
underwriting skills, predominantly through increased efforts
Responses regarding extending or replacing existing technol- in hiring, training, and retaining underwriting talent, as well
ogy were split, indicating that technology remains a prior- as improved processes. Second, mid-size companies—those
ity and a concern for carriers that have not kept pace with with $500 million to $1 billion in written premium—have not
advances in underwriting automation. Such concern is well indicated that obtaining new underwriting technologies is
founded, since automation upgrades are typically quite costly a priority, in part because many of them have already made
and disruptive. These factors are intensified when a protracted the necessary investments and are now engaged in leveraging
reliance on outdated systems has resulted in the proliferation those investments.
of shadow systems, workarounds, and process inefficiencies.
On the other hand, those carriers
who have kept their technology
Personal Lines Underwriting will be most improved by (lower scores = higher priorities)
current indicate that they are able
to zero-in on underwriting quality,
1 2 3 4 5
leveraging their established analyt-
ics and differentiation tool sets. Upgrading First-Line Underwriter Skills
Acquisition of New Technology
As technology has matured, the
volume of activity from Internet Better Use of Claim Data in Underwriting Process
distribution channels has increased
and continues to show growth. Better Use of Existing Underwriting Automation
Given generational shifts in the
Better Risk Evaluation Tools
marketplace, the need to provide
different access and service meth- Gathering More Detailed and Accurate Customer Info
ods will continue to grow, demand-
ing a greater breadth of options.
www.renolan.com | ROBERT E. NOLAN COMPANY 6
8. Commercial Lines Underwriting
As with Personal Lines, respondents felt underwriting results would benefit the most from
investments in the discipline and rigorousness of analytics. This belief is consistent with
the direction that top carriers have taken toward data management, data aggregation, data
accuracy, and predictive analysis. Following closely behind the analytical investments
are those intended to leverage the results of the analysis, including better risk-evaluation
tools, upgrading of first-line underwriting skill sets, better use of claim data, and integra-
tion with existing technology.
Additional responses reveal that respondents have no intention of transferring either
underwriting or policy-issue functions offshore, seeing them both as core competencies
to be leveraged for competitive advantage. Along these same lines, many respondents plan
to make expanded use of vendor-supplied financial information, experience information,
and predictive analytics integrated into the underwriting and risk assessment processes.
Perhaps attributable to the nature of the business, the Commercial Lines segment has not
seen an appreciable increase in Internet activity from customers. However, activity from
distribution channels, both transactional and e-mail, has increased substantially. This
Nolan Insight trend is likely to continue and will necessitate additional investments in service process
design and enabling technologies.
Compared with the
2005 Nolan PC
survey, a few variances
deserve mention. For Commercial Lines Underwriting will be most improved by (lower scores = higher priorities)
one, respondents’
satisfaction with the 1 2 3 4 5
underwriting process
Acquisition of New Technology
has improved slightly.
There is also a greater Better Use of Claim Data in Underwriting Process
expectation that
Better Use of Existing Underwriting Automation
technology can be used
to improve and maintain Upgrading First-Line Underwriter Skills
underwriting results,
Better Risk Evaluation Tools
perhaps indicating
greater acceptance Gathering More Detailed and Accurate Customer Info
and understanding of
predictive analytics,
BPM, and rules-engine
technologies.
Property and Casualty survey report 7
9. Nolan Insight
Carriers with outdated core systems need to plan now for
a comprehensive redesign of underwriting processes and
technology, incorporating expanded use of the Internet for
distribution channels and customers. Carriers who stay at the
forefront of the trend toward increased use of the Internet by
establishing a solid technological infrastructure will have a dis-
tinct competitive advantage enhanced by swift and continuous
process improvements, e-service innovations, and selectively-
targeted, customer-centric technology enhancements.
Nolan Insight
Respondents to the Commercial Lines questions, particularly
the small- and mid-sized mutual companies, are sharply
focused on the basics of first-line underwriting skills and
quality underwriting practices as a means to maintain and
improve underwriting results. They do not believe that
“magic bullets” will emerge to accomplish this, but instead
are planning to rely on past proven techniques to maintain
underwriting quality, proper pricing, and profitability.
www.renolan.com | ROBERT E. NOLAN COMPANY 8
10. Customer Contact Centers
(Other Than Claims)
Non-claims contact centers have been opened at a modest pace in the PC insurance
industry, particularly in companies where general agencies, independent agents, and/or
captives are the key distribution channel. While customers can benefit from the service
capabilities and convenient operating hours of carrier contact centers, agents have been
reluctant to steer customers toward them. Most agents believe they should be the
primary source of service for their customers, particularly given that each contact
provides the opportunity for them to reinforce the relationship and possibly offer
additional coverage.
Customer Call/Contact Centers
Nolan Insight
Smaller companies are With Call Centers - 56%
struggling more than
their larger counterparts Without Call Centers - 44%
in developing multi-
functional contact
centers. This may be due
to a lack of achievable
scale combined with
the cost of technology
and the complexity
of blending calls and
transactions effectively. Carriers have responded by creating agency-focused, transactional contact centers to
Mid-sized companies are provide services and information to the distribution channels. In turn, agents have
better able to achieve responded by leveraging these call centers, encouraging direct policyholder access
economies and invest for common high-volume or time-specifc functions like billing, proof of insurance,
in new technology after-hours support, and backup for overflow. The resulting blend of agent and
in order to gain the carrier support has proven successful in streamlining the customer service process and
significant benefits reducing associated costs, all while retaining the agent as the primary contact for key
resulting from multi- transactions and needs.
functional contact
centers. Respondents identified the top three challenges for call/contact centers as:
» Acquiring, training, and retaining staff
» Acquiring and using technology
» Managing contact center performance
Property and Casualty survey report 9
11. Contact Center Strategies (higher scores ranked more likely)
1 2 3 4
Contact Centers Will Serve Multiple Functions
The Use of Contact Centers Will Expand
Contact Centers Will Be Most Improved by Deploying New Technology
Contact Centers Will Be Most Improved by Better Use of Existing Technology
Many Personal Lines Underwriting Tasks are Moving Into Contact Centers
Contact Centers Will Use Home-based Employees
Underwriting is Moving to a Contact Center Environment
Many Commercial Lines Underwriting Tasks are Moving Into Contact Centers
Contact Centers will Move Offshore
Managing contact center performance requires special- Compared with the 2005 Nolan PC survey, there is stronger
ized skills in order to effectively address economies of scale, agreement that contact centers will be expanded to serve mul-
complexities of state specificity, blending transactions with tiple functions. There is also a continuing belief that technol-
calls, and scheduling coverage to ensure high service levels. ogy is not the limiting factor in expanding contact centers and
There continue to be issues concerning the implementation of that current technology can be used more effectively.
expensive workforce management solutions, with many carri-
ers choosing homegrown solutions over integrated packages. The respondents generally expressed a desire to continue to
Those without any solution have found it more difficult to base their contact centers in the U.S. as an internally provided
achieve schedule-compliance and service-level goals. service. In fact, there was strong sentiment against moving
them offshore. However, there continues to be an expanding
With a growing focus on customer centricity, some companies interest in the use of remote (including home-based) em-
recognize the importance of finding a solution that allows ployees in contact centers to address variations in coverage
direct policyholder access to services, effectively bypassing the schedules, with creative use of split shifts, shared space, and
agent. Given the inherent complications, there remains only part-time employees added into the mix.
moderate agreement that contact centers will be expanded
beyond current levels, with mixed opinions on what functions
will be added and the degree to which technology will
be integrated.
Nolan Insight
The expectations are that contact centers will continue to
increase in attention and importance as service accessibility As underwriting processes and procedures become
and competitive pressures grow. Expanding call centers into increasingly rules-based and automated, it becomes more
full contact centers improves their productivity by including attractive to selectively move routine services into the
capabilities like e-mail and Internet transactions, which contact centers, freeing underwriters for more complex risk
in turn leverage the staff ’s overall effectiveness. The key assessment. Specific transactions, such as deleting cover-
challenge remains gaining distribution-channel support for age and changing and adding vehicles, can be handled by
direct interaction between customers and the company and a contact center once appropriate technology and proce-
maintaining the balance between carrier support and agent dural support are in place.
accountabilities.
www.renolan.com | ROBERT E. NOLAN COMPANY 10
12. claims
There is confidence among the survey respondents that claims departments will meet
their objectives for this year and beyond. This confidence is expressed not only by claims
executives, but also by other senior executives and respondents who have no direct
responsibility for claims.
Claims Priorities (lower scores = higher priorities)
0 1 2 3 4 5 6 7
Improve Loss Costs
Improve Loss Adjustment Expense
Improve Customer Service/Satisfaction
Improve Legal Management
Improve Reserving Accuracy
Nolan Insight
Improve Subrogation Results
Like underwriting, the Improve SIU Effectiveness
intellectual capital Improve CAT Experience
represented by claims
staff is seen as a critical
core competency to be
nurtured and leveraged
into a competitive The main objectives identified for claims functions represent the three key measures of
advantage. claim performance which have been consistently identified in other Nolan studies as be-
ing critical: improvement in loss costs, improvement in loss-adjustment expenses, and
improvement in customer service.
Nolan Insight
There has been a shift in Tort Reform in favor of plaintiffs, which will likely accelerate due to the
change in political parties at the federal level. As part of litigation management, insurers will be
faced with additional demands driven by this shift, particularly in the area of auto and Workers’
Compensation claims.
Within these objectives, there is a very clear message that talent management will be the
greatest challenge in claims, particularly hiring and retaining qualified staff. Ensuring that
claims professionals are prepared for their roles through sufficient training and education
is a similarly critical priority.
Property and Casualty survey report 11
13. Likely Sources of Improvement in Claims Operations (higher scores ranked more likely)
1 2 3 4 5
Meet All of the Objectives Set by the Organization
Improve by Better Litigation Management
Improve by Better Hiring and Training Programs
Better Use of Existing Technology to Improve
Provide Better Support Tools to Improve
Deploy New Technology to Improve
Use Process Changes to Improve
Improve by Better File Review Programs
Change Human Resources to Improve
Increase Use of Contact Centers to Improve
Centralize Personnel to Gain Improvements
Decentralize Personnel to Gain Improvements
Outsource to Specialized Vendors to Improve
Litigation management and how to control its costs and im- appear to have reached maturity from a claims perspective,
prove results are concerns for many PC insurers. A number at least with regard to the survey respondents. This is not too
of comments specified that improvements in litigation man- surprising given the amount of effort invested in each of these
agement could have the greatest impact on expense reduction functions over the past few years combined with the need to
through better control of expenses (e.g., with bill review and now focus on improving what is in place.
audit) by limiting attorney involvement and properly involv-
ing litigation specialists. Respondents’ comments reinforce the critical focus for claims
executives as improving the quality of claim handlers through
Technology continues to be seen as an area of opportunity for stronger hiring practices, more intensive training, targeted
the claims function. Results were split, however, on where the retention practices, and the provision of necessary tools.
greatest opportunity lies—with some believing that the answer
is to make better use of current technology, while others favor
acquiring new technology. This is not surprising, given that
the answer in part depends upon what existing technology
investments a company has already made—those with a more Nolan Insight
robust infrastructure are inclined to leverage existing technol-
ogy, while those with more legacy systems need new technol- Given that the economic pressures on consumers are likely
ogy. For claims, solutions addressing the needs of anti-fraud, to drive increased fraud in reaction to credit pressures
call centers, workflow, and rules engines remain at the top of and affordability issues, confidence in claims operational
the list for investments. effectiveness should be mitigated by investments in anti-
fraud systems. According to the NICB, claims fraud adds
According to respondents, the areas least likely to have any about 10% to Loss and LAE, or $24 billion in losses each
year, with manual reviews and industry-standard red flags
additional positive impact on results include centralizing and
detecting less than 20% of actual fraud each year.
decentralizing functions, outsourcing and increasing vendor
usage, or increasing the use of contact centers. These areas
www.renolan.com | ROBERT E. NOLAN COMPANY 12
14. Claims Contact Centers
Similar to non-claims contact centers, about half of the respondents are currently utilizing
claims contact centers, with common agreement that the reporting of new claims, particu-
larly in Personal Lines, should be via a contact center available 24/7.
Claims Contact Centers
With Claims Contact
Centers - 56%
Nolan Insight Without Claims Contact
Centers - 44%
Claims contact centers,
particularly for Personal
Lines, have evolved
to become the best
solution for submitting
losses and expediting
the claims process.
Companies are using As noted, most respondents felt strongly that Per-
claims contact centers sonal Lines claims should be reported directly to
not only for taking a contact center; however, there were varied reac-
tions to having actual claim adjusters in the contact
Nolan Insight
the notice of loss, but
center taking the calls. Small- to mid-size company
also for retaining and Unlike life and health insurance,
respondents did not feel it was a good use of claims
handling routine claims there is less value in combining
resources to have them answering loss calls. On the
to completion. Claims other hand, larger ($2.5B) Personal-Lines-only claims contact centers with the
assigned outside of the companies are more likely to have claims adjusters
call centers of other functional
claims contact center areas. This is due to the special-
located in their contact centers.
are being segmented ized claim-handling knowledge
required to ensure that the call
based on required skills, In contrast, respondents are neutral on the reporting center representative is able to
and then are transferred of Commercial Lines claims to contact centers and handle and refer claims effec-
to the appropriate are the least interested in having claims adjusters tively. In PC companies, claims
adjuster to initiate the working in a contact center environment. Com- contact centers are more closely
claim process. mercial Lines claims, with the possible exclusion of aligned with the claims function
commercial auto, do not achieve the same benefits than with traditional
from call center loss reporting as Personal Lines contact centers.
claims because the reporter of the claim, in many
cases, is not a party involved in the incident.
Property and Casualty survey report 13
15. claims should be handled to completion through the contact
Nolan Insight center. It is interesting, though perhaps not surprising, that
Personal Lines carriers are least likely to support sharing of
Closed-file reviews, conducted over a period of several contact centers. Commercial Lines carriers are least likely to
years, indicate that claims can be successfully segmented believe that claims should be handled through completion via
at the point of first report a high percentage of the time. a contact center.
This results in the most productive and highest-quality claim
adjudication, while providing the best possible service levels
to customers and avoiding the redundancy and costs associ-
ated with most other approaches to loss reporting
and handling. Nolan Insight
Internet reporting of Commercial Lines and WC claims is
Respondents state that they are not having any particular dif- growing as a requirement of customers because a depart-
ficulty staffing their claims contact centers, probably because ment within the insured company typically reports claims
of the overall emphasis on telephone skills as opposed to to the carrier rather than the actual parties involved. The
adjusting skills. Often, contact center positions are entry-level Internet makes it possible for commercial customers to
to the organization and the claims function, which makes the report losses quickly and at their convenience.
barriers to hiring and initial training lower.
Respondents believe that opportunities for improvement in
contact centers can be found both in making better use of
current technology and acquiring new technology. As a prime
example, Web-based claim reporting is expected to grow
gradually in acceptance and adoption. Respondents who deal
exclusively with Commercial Lines indicate they are more
interested in expanding this capability, which makes sense
for the commercial environment within which they operate.
Respondents were relatively neutral on the idea of sharing
claims contact centers with other areas, as well as whether
Claims Contact Center Strategies (higher scores ranked more likely)
1 2 3 4
Reporting of New Claims Should Be to Contact Centers
Contact Centers Will Be Most Improved by Better Use of Existing Technology
Contact Centers Will Be Most Improved by Deploying New Technology
Web Reporting of Claims is Growing Rapidly
Better Contact Center Management Tools are Needed
More Claims Can Be Handled to Completion in a Contact Center
Contact Centers Should Be Shared Between Claims and Other Service
Staffing Contact Centers is a Major Limiter and Business Challenge
More Claims Adjusters Will Work in a Contact Center Environment
www.renolan.com | ROBERT E. NOLAN COMPANY 14
16. Organizational Maturity Assessment
There is strong agreement among the organizations surveyed that:
» Their employees have knowledge of their vision, mission, and value proposition
» There is a process for staff to get the knowledge and skills needed to do their jobs
» There is a strategic vision that integrates business and IT
» Respondents also indicated that continuous improvement is practiced on a
regular basis.
Nolan Insight
Over the past few years, much energy has been expended to ensure that the
strategic components of organizations are known by and communicated to the
staff. Concurrently, most, if not all, companies have undertaken process-redesign
initiatives. This has contributed to a culture in many organizations that recognizes
the need to practice continuous improvement, to communicate among corporate
departments, and to include process, workflow, and quality-control procedures in
the way they do business.
Property and Casualty survey report 15
17. Organizational Maturity Assessment (higher scores mean higher maturity)
1 2 3 4
We do not have false starts or projects that end short of targets
We communicate well across departments and also deep into the organization
We have the staff talent needed to fill our needs
We have workflows and quality controls that meet our strategic goals
We practice continuous improvement
We have a process in place to assist the staff in obtaining the skills
and knowledge needed to perform their jobs
We have a strategic vision that integrates business and IT into a unified picture
The staff has, and applies, knowledge of our Vision, Mission,
and Value Proposition in their work activities
The comments expressed by respondents indicate that making Respondents’ comfort level with their claims and underwrit-
cultural changes within organizations permanent is an ongo- ing operations’ effectiveness is high, which is consistent with
ing challenge. Equally challenging is the application of the the several years of profitable results experienced since
principles of continuous improvement in an environment of 2005.
limited IT resources and a changing workforce.
Claims Contact Center Strategies (higher scores ranked more likely)
1 2 3 4 5
Rate the overall performance of the Claims function of your company
Rate the overall performance of the Underwriting function of your company
Rate the overall performance of your company’s Contact Centers
Claims processes are well documented and understood
Our C/L processes are well documented and understood today
Our P/L processes are well documented and understood today
www.renolan.com | ROBERT E. NOLAN COMPANY 16
18. Conclusions
The PC insurance industry is transitioning from a rare, Within this environment, operational effectiveness will
multi-year cycle of underwriting profitability to a very volatile become more important as the cycle plays out. The emphasis
environment that is expected to last for several years. There on underwriting quality and loss cost containment will surely
is legitimate concern regarding how the underwriting cycle continue. Along with this, companies will need to continue
will play out and what the effects will be of broader, severe to look at their internal operations, not only from the per-
economic issues. The current wave of foreclosures, a contin- spective of cost containment, but also with an eye toward the
ued drop in housing values, the credit crunch, investment qualitative impact that operations will have on future under-
losses, and rising unemployment all amplify the uncertainty. writing profitability.
Certainly, the significant reduction in investment income and
the reduction in surplus will accelerate the hardening of the In many ways, the path to future improvements in operating
market as the impact of higher loss ratios translates directly to expenses is known. More, higher-quality underwriting infor-
the bottom line more quickly and without the softening effect mation presented in a highly-usable format will improve risk
of investment income. These impacts are exacerbated by the selection and pricing. Process improvement, supported
upward trend to the low 100s in combined ratios concurrent by the right technologies, will yield the greatest cost reduc-
with the negative growth in Net Written Premium. tions. And continuing to redefine company and distribution
channel roles in the acquisition, retention, and claims
Economic cycles further impact PC companies because processes will further eliminate redundant activities and their
fraud increases due to economic hardship, thus increasing associated expenses.
the cost of adjudication as well as LAE and loss costs. As the
economy turns positive, claim frequency increases, along with As this cycle—and future ones—runs its course, management
claim severity, as general costs climb in response to higher must be prepared to address business challenges in several
energy costs and inflation. ways, including:
There are mitigating factors that will help the well-led com- » ontinually improving the quality of information
C
panies benefit from the opportunities that these challenges required to make objective underwriting decisions
will bring. Traditionally, the PC insurance industry, while » nforcing the discipline necessary to apply under-
E
not immune from the waves of bad economic news, tends to writing and business rules in a volatile environment
weather adverse economic times relatively well. This is in part » ecognizing the importance of skilled staff in
R
because most insurance is a necessary, rather than discretion- achieving quantitative, qualitative, and customer
ary, purchase. Slow growth in sectors such as the auto and service objectives
home-building industries only affects PC insurance along » roviding line staff with the training and tools nec-
P
its margins because 98–99% of exposure growth comes from essary for best performance
renewal business—although the drop in housing values will » egularly looking at ways to use technology to
R
have a negative effect on the renewals. The period of high gas perform more sophisticated analyses of information
prices reduced miles driven, and this has continued even with and for application of business rules
the return to lower prices, which in turn reduces exposure to » ocusing on organic growth to increase
F
auto losses. marketshare
Indeed, these are challenging times requiring strong leader- Other areas not covered by this survey but of paramount con-
ship and a focused strategic discipline. cern to PC industry leaders for the coming years include:
The respondents to our survey are cautiously optimistic that » Structural shifts impacting profits
they can maintain the discipline to compete in the market- • New risk factors and claim costs from hybrid and
place with its aggressive pricing and yet still achieve bottom- new energy source vehicles
line profitability. They seem to be saying, “We know what • hift to more “personalized” quotes (build your
S
needs to be done; we just need to make ourselves do it.” own premium/coverages)
• ompetitive acceleration of claim payments
C
and repairs
Property and Casualty survey report 17
19. ACKNOWLEDGEMENTS BACKGROUND
• ccelerated changes of geographical and
A Acknowledgements
catastrophic risk factors
The information, results, and insights found in this study are
» Optimizing distribution channels based on detailed surveys completed by more than 100 ex-
• An increase in independent channels, while ecutives in the PC industry. Participants include insurers
captive channels decline distributing personal, commercial, and Workers’ Compensation
• The retirement of experienced agents, products across a broad array of distribution channels. The
creating a void for agency channels Robert E. Nolan Company extends their thanks and apprecia-
• New generations not attracted to the indus- tion to all of the survey participants.
try, reducing source of new agents
• A shift to alliances, the Internet, direct mail, Lead Authors: Larry Wood, Steve Callahan, and Steve Discher
and similar distribution channels
» Addressing regulatory oversight
• overnment bailout brings additional over-
G Quoting This Report
sight regardless of participation
• Likely an acceleration of existing programs Recipients may quote briefly from this study (one or two sen-
and addition of new regulations tences) without express permission. However, all such quotes
• OFC/ONI (Office of National Insurance) must be accompanied by the phrase “Source: Robert E. Nolan
battle over federal vs. state powers Company-www.renolan.com.” More extensive quoting or other
• National Cat Fund, Flood Wind Program, use in any form is not permitted without the express written
Surplus Lines, Guarantee Fund consent of the Robert E. Nolan Company.
• ontingent Commissions, questions on use
C
of Credit Scoring given economy
• ore stringent capital-to-liquidity require-
M Background
ments
• Asset valuation (mark to market), federal This report is one of a series based on insurance industry
regulation of credit default swaps research studies conducted by the Robert E. Nolan Company.
• hanges in income, capital gains, and
C The Robert E. Nolan Company is a management consulting
windfall taxes; offshore insurers firm specializing in the insurance, health care and banking
industries.
There is no doubt these turbulent times will challenge the
best in all of us. Yet there exists within these challenges For 35 years we have helped our clients achieve measureable
the opportunity to excel while the economy gradually and sustainable improvements in service, quality, productivity,
returns to normalcy. For those willing to listen, willing and costs.
to have the tried-and-true folklore of their organization
challenged, and interested in finding the leverage points
amid the noise of the turmoil, there exists a real chance
to establish a sustainable competitive advantage.
Contact us for further information at:
www.renolan.com
mailbox@renolan.com
1-877-RENOLAN
www.renolan.com | ROBERT E. NOLAN COMPANY 18
