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Perspective on Excess & Surplus Insurance

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Perspective on Excess & Surplus Insurance

  1. 1. fs viewpoint www.pwc.com/fsi 02 10 13 22 25September 2012 Competitive A framework Point of view intelligence for response How PwC can help Appendix Success through excess: How property and casualty insurers are boosting profits by entering the excess and surplus market
  2. 2. Point of view
  3. 3. Previously seen as the A weak economy and strong supply Typical characteristics of E&S products include of capital have trimmed profits in the high-hazard risks (e.g., earthquake insurance“wild, wild west” of property and casualty insurance (P&C) in Beverly Hills), emerging risks (e.g., networkinsurance, the excess and industry. Carriers are diversifying into security), niche market risks (e.g., celebrity specialty lines to move beyond the body part coverage), and unique risks (e.g.,surplus market has become limitations of the mature, saturated insuring a contest).a more and more attractive market for standard lines.means for property and As carriers look to grow revenue, they are Growing demand for specialty productscasualty carriers to bolster finding it increasingly difficult to take market has led to an expanding E&S market share from competitors in standard lines due For almost two decades, the E&S market hasthe bottom line. to the soft pricing environment and maturity consistently demonstrated direct written of the business. They also are evaluating premium gains, operating profits, and returns ways to put their excess capital to use in new on revenue and surplus. From 2000 to 2006, markets, often through organic expansion or E&S direct written premiums more than acquisition. We have observed a recent upsurge doubled, outpacing the growth of the overall in merger and acquisition (M&A) activity, P&C market.1 specifically with insurers looking to expand Growth in emerging markets has also led to into specialty lines. domestic GDP and export market growth, Excess and surplus (E&S) insurance has propelling demand for specialty products. emerged as an attractive market for Business leaders across all industries now many carriers, thanks to less regulation perceive the world as an inherently riskier and more profit potential. place, due to:2 E&S products—a non-admitted form of • Increasing severity of natural and specialty insurance—are less encumbered by manmade catastrophes. government regulation than standard lines • New categories of risk exposure, driven and address emerging and unique risks. As a by globalization and new technologies. result, this market can be more profitable and less sensitive to cyclical trends, allowing for • A more litigious culture, which is greater flexibility in the coverage offered and increasing liability associated with rates charged. more traditional risks. 1 A.M. Best Company, 2010 Special Report, “US Surplus Lines— Market Review,” September 2010, www.ambest.com. 2 Lloyd’s Risk Index 2011 (with The Economist), www.lloyds.com, accessed June 25, 2012. Point of view 3
  4. 4. The E&S market holds Three key factors are driving the To limit exposure to the unique and high-hazard potential for profitability in the risks that are typical of E&S, many carrierspromise for insurance E&S market: do not carry a full breadth of products. Thecarriers looking to fuel nature of the market also frequently dictates Less rigid regulatory environment new products required by end consumersgrowth through new (e.g., network security), creating an impetus Less government regulation and an expandedproducts while managing ability to underwrite emerging risk allows for for new niche carriers. The resulting impact isoperational costs and risks. greater profitability. Carriers have “freedom of numerous carriers serving micro-segments of rate and form,” allowing them to write more the market. exclusions, waivers, and riders than a standard Operational synergies policy in order to meet their clients’ unique needs without the same time constraints and Many carriers have recently completed or are financial costs of the standard market. currently undergoing initiatives to modernize All but one of the top 25 E&S carriers hold less than 6% their technology platforms. With these recent of the market Market fragmentation investments, there is considerable potential 1%–2% There is no dominant player in the E&S market, reuse of the technology platform and back- increasing the odds that new entrants may office operations for E&S products. gain a competitive edge and win market share. Of the top 25 E&S carriers—which cover approximately 80 percent of the total market— all but one hold 6 percent or less of the market.1 While market fragmentation increases opportunities for new entrants, competition and complexity are also elevated, especially 2%–3% as admitted carriers prepare to compete in the E&S space. 3%–4% 4%–5% >5% Number of companies by market share 1 US E&S Market Premiums Increase in 2011: SNL Financial.” Insurance Journal—Property Casualty Insurance News. http:// www.insurancejournal.com/news/national/2012/04/30/245273.htm (accessed July 9, 2012).4 FS Viewpoint
  5. 5. Why haven’t more With opportunities come obstacles. E&S carriers are faced with a complex distribution ecosystem, each channelcarriers entered the Higher risks possessing unique characteristicsE&S market? Many lack E&S risks are considered high hazard, and often and differentiators. little historical loss data is available. Therethe right underwriting is potential for significant exposure to shocktalent and distribution loss (such as catastrophic events or triggers), Wholesalers (MGAs/MGUs) Aggregators large risk concentrations, unique operations,channels needed to enable unfavorable management, and emerging risks.a successful venture into In addition, because E&S insurers are notwhat is commonly seen as bound by the same regulations imposed on Initial channel Future channeluncharted territory. standard line carriers, they cannot claim protection from the state guarantee fund in case of insolvency. Specialty Difficulty reaching the right customers carrier Since E&S products are so unique and highly customized to individual customer needs, it can be difficult to identify distribution channels Traditional Market-specific that provide the volume of customers needed to channels channels support programs. The highly customized and consultative nature of E&S products means that success is often built on trust, heightening the importance of Brokers/agents Affinity Direct Employee groups distribution channels. An ad hoc distribution strategy can result in a skewed book of business. It may also result in a diminished volume of business that may impact profitability and eventual sustainability. Point of view 5
  6. 6. With these obstacles, it Entering the market: leading carriers Distribution channels build a solid foundation based onis more important than distribution channels, product design, By planning new product development in collaboration with key distribution partners,ever that carriers consider and underwriting talent to set the stage such as wholesalers, carriers can offer timely for future market share growth.the key success factors and relevant solutions that more effectively Underwriting talent target customers.needed to enter the market,build market share, and Quality talent to fill underwriter and actuarial In addition, carriers can develop distribution roles is needed to price complex risks, as strategies that leverage channel strengthscontinuously refine their experience, expertise, and perspective often and sustain the volume of business necessarylong-term growth strategy. impact the resulting terms and conditions. for profitable underwriting. Programs These individuals should be able to create offering aid in market-share expansion precise underwriting data and use advanced can also help balance profitability and Entering the market analytics to adequately predict lifetime values distribution penetration. of inflows and loss/service cost outflows. Superior product designs Since the product needs of different markets are constantly evolving, leading insurers are staying attuned to developing trends through close interaction with key distribution partners. Some carriers may prefer a decentralized product development model that allows Distribution channels flexibility to respond to market needs and to determine tradeoffs between profitability, Superior commission structures, and market penetration. product designs Underwriting talent Maturity6 FS Viewpoint
  7. 7. For those that already Growing market share: once Using technology innovations to support established, industry leaders are distribution channelshave a foot in the E&S implementing risk oversight processes In the E&S market, leading carriers havemarket, emphasis on and technology innovation while adopted different technology innovations emphasizing cost control in thesustainable solutions, back office. to support needs in new and emerging distribution channels. Technology has alsotechnology innovations, Establishing risk governance structures helped automate data gathering, quoting, andand cost control have Carriers in the E&S market have to develop a policy issuance.helped leading carriers relatively large portfolio of products to address Improving cost control through back-build market share. the specific needs of their clients. Governance office efficiencies structures are needed to manage risks across Market fragmentation has led to higher- functional silos and to maintain alignment than-desired expense ratios for most E&SGrowing market share with the desired risk appetite as the portfolio carriers. Leaders have controlled costs in expands. These governance structures allow back-office functions such as claims, litigation, for adequate reserving in the initial years and risk management by standardizing for a product, and support risk-appropriate business practices and technology across premiums in soft markets. lines. In addition, training and performance incentives are often used to promote adoption Back-office cost control of standardized practices. These back-office needs may also potentially be outsourced to an Technology independent service provider. innovationDistributionchannels Risk governanceSuperior structuresproductdesignsUnderwritingtalent Maturity Point of view 7
  8. 8. For long-term success in Maturing in the market: once they’ve Enabling continued growth with the reached a relatively mature stage, technology platformthe E&S market, carriers E&S market participants can maintain Carriers should consider their long-termshould continuously their competitive edge by aligning the growth strategy (organic versus growth operating model to strategic goals.refine their operating through acquisitions) when investing in Focusing on core competencies the technology platform. When growingmodels to align with organically, platform investment is typicallycorporate strategy. Once back-office functions have been standardized, E&S carriers should look to constrained by cash flows. This makes accurate their core competencies and assess how they loss predictions and servicing outflows of can better support corporate objectives. For paramount importance. example, if a corporate objective is to maximize When growing through acquisitions, platform responsiveness to local market needs, a carrier architecture should be modular and openMaturing in the market might set up a centralized product development to facilitate timely integration. Platform process and operations unit that collaborates investments are driven by the projected book of Technology with business units on market-specific products. business and its related free cash flow. platform In this scenario, business units would maintain ownership over design and pricing, while Core taking advantage of more cost-effective product Back-office competencies management processes. cost control Technology innovation Distribution channels Risk governance Superior structures product designs Underwriting talent Maturity8 FS Viewpoint
  9. 9. As carriers weigh the Establishing which E&S market a carrier wishes to target is vital, as it will drive the operating model and supporting technology platform needed to be successful. Carriers should first establishoption of entering the E&S the target market for their product. Once a target market has been established, the carrier shouldspace, they should adopt a define appropriate product and distribution strategies.pragmatic approach that Carriers that develop a strategic plan across the following five key areas will befocuses on five key areas. better positioned for success. Key area Benefits Corporate strategy • Alignment of the organization’s short- and medium-term plans to the strategic goals and overall mission. • Development of necessary talent and skills within the organization (e.g., growth through acquisition or organic growth) to support the strategic plan. Product design • Product differentiation to gain competitive advantage in the marketplace. • Accelerated innovation to more effectively capitalize on energy trends. Distribution • Integrated strategy that leverages strengths of existing channels to establish presence in new market segments through new avenues. • Achieving volume growth without sacrificing profitability at a program level. Operations • Operational excellence leading to standardization of core processes, allowing for centralization of functions across the enterprise. • Use of various options (e.g., shared services center, co-sourcing) to provide differentiating capabilities while leveraging economies of scale for core insurance capabilities. Technology • Technology investments focused on capabilities that provide a competitive differentiator in the marketplace, thus contributing to growing profitability. • Reduced expenses from an overall technology portfolio perspective through platform rationalization, vendor management, and delivery simplification. • Technology architecture designed to support either growth through acquisitions or is optimized for evolving capabilities in support of organic growth. Point of view 9
  10. 10. Competitive intelligence Our observations of industry practices.
  11. 11. Insurers have applied a broad range of practices whenentering the E&S market, and some have worked betterthan others in building a competitive advantage.Dimension Mid-sized, foreign-based Large, diversified, non-US Diversified, specialty insurance carrier A insurance carrier B insurance carrier CCorporate strategy Opportunistic approach to product Well known for its successful Emphasis on organic flexibility to add development, centered on decision and disciplined long-term growth new geographies and products to making at the senior executive level. by acquisition. address market opportunities. Organization can scale rapidly, allowing Skills required for the negotiation Ability to capitalize on new opportunities entry into new markets through organic of deals, due diligence, and the diminished due to internal ramp- growth in a timely manner. efficient completion and integration of up time. This necessitates upfront acquisitions are core competencies effort to set up companies and and are embedded within each entities in preparation for exercising business unit. strategic options.Distribution Active cultivation of distributors and Distribution network expanded as a Select distributors receive additional tacit use of program offerings to expand result of carrier acquisition, though commissions based on a mixture of market share. limited synergies across lines. volume and profitability. For transactional products, emphasis Program level profitability has been Active cultivation of distributors and of broker productivity enhances affinity a challenge. tacit use of program offerings to expand and supports deal flow. market share. Leading On Par Lagging Competitive intelligence 11
  12. 12. Insurers have applied a broad a range ofpractices when entering the E&S market, andsome have worked better than others in buildinga competitive advantage (continued).Dimension Mid-sized, foreign-based Large, diversified, non-US Diversified, specialty insurance carrier A insurance carrier B insurance carrier CProduct design Continuous innovation with a strategic Enhancement of product and Maintain profitable premium growth direction of evolving products every geographical diversity, through through organic entrance into new areas 3–to–5 years. acquisition of specialty carriers. (e.g., accident and health insurance) and through geographic diversification Emphasis on profitable growth has Decentralized model allows flexibility to into new markets for existing products sacrificed premium growth for longer react to local markets, although it may (e.g., title insurance). term stability. introduce risk of unanticipated exposure across portfolio of subsidiaries.Operations Regional model, resulting in siloed Control costs through integration of In-house expertise in customer- facing operations with attempt to contain acquisitions, resulting in consolidation areas such as claims, with support costs through use of business process of back-office activities from third-party administrators, allows outsourcing vendors. for superior customer experience while managing costs.Technology Specific solutions for each of the Acquisition spree has resulted in Currently transitioning to a suite business model areas, with heavy multiple standalone technology approach where a core policy reliance on best of breed solutions departments with disparate tools, processing platform supports all of the using custom integration. resulting in redundant skills and business units, supported by product- functional overlap. line-specific tools. Leading On Par Lagging12 FS Viewpoint
  13. 13. A framework for response Our recommended approach to the issue.
  14. 14. Insurers should develop a Carriers should also consider a variety Measuring success of factors that will help to determinestrategic plan for entering success or failure. Since it may take several years for new business strategies to start showing results,the E&S market, focusing Carriers should analyze a variety of factors carriers should develop relevant metrics toon five key areas: corporate as they implement a strategic plan for help measure performance and respond tostrategy, distribution, entering the E&S market. These factors the market: include analyzing the potential revenueproduct design, operations, gains of the market, and the extent to which • Agility: Similar to metrics that define startup success, carriers should considerand technology. carriers may leverage existing knowledge metrics that demonstrate an effective to enhance profitability in the new market. foundation that allows for rapid growth These analyses can be undertaken by (such as customer engagement and product reviewing existing markets served, operational design). Insurers should also consider experience, and relationships with external agility along the right dimensions (such as distribution partners. the ability to attract different customers, address varying customer needs, and refocus 1 efforts around key features) in order to Corporate strategy position the investment for monetization and eventual profitability. Client mix • Transparency: Insurers should strive Growth strategy for a clear view into distribution depth, M&A Organic competitive positioning of products, and overall platform flexibility. 2 3 • Financial metrics: Insurers should continually reinvest cash flow into enabling Product design Distribution incremental growth. Thus, return on assets is more appropriate than a cash-flow-centric view, such as that provided by internal rate of 4 return and return on investment. Operations 5 Technology14 FS Viewpoint
  15. 15. Corporate strategy— Once the client profile has been Relative to the premiums paid, some client segments may established, carriers must determine value personalized service more than others. (Illustrative)Carriers should identify the how the operating model shouldmarket and client segments be adapted to align with the target High client segments.they wish to target, because Personal and small commercialcustomer needs for E&S markets: Price is a key differentiator because Accountproducts will vary by products are comparable across carriers, Premium (middle andmarket and segment. which dictates high transaction volumes. The large commercial) operating model, therefore, should support business volume at a low transaction cost. Account market: Price is less of a concern Small commercial for these clients, who value personalized Personal Low service with active risk management focused on problem solving, expertise in the client’s industry and company, and international expertise. These factors, coupled with the uniqueness and size of risk, warrant individual attention for all cases. Client segment Examples of operating model design features Personal • Allow consumers to directly purchase products via online channels from the carrier, through comparative rates established by third parties, or through independent and/or captive agents. Small commercial • Employ a variety of third parties for distribution, including wholesalers and their customer service representatives, sub-agents, and retail brokers. • Use straight-through processing with a well-defined exception handling process to review atypical risks. Fine tune underwriting rules so that only a small percentage of risks requires manual intervention. Account (middle & • Scale a strong underwriting skill set effectively across multiple distribution channels. Develop large commercial) strong communication protocols and review processes to more effectively utilize scarce resources. A framework for response 15
  16. 16. Corporate strategy— When evaluating alternative growth The carrier will need to determine if the strategies, insurance carriers should premium to acquire and gain market entryAfter identifying target consider multiple factors. sooner is justifiable or even necessary givenmarkets and segments, Carriers should conduct a rigorous assess- the situation.carriers should determine ment that weighs the deal characteristics When evaluating what is required to grow of an acquisition against the associated organically, carriers should consider not onlywhether to pursue an considerations to grow organically. infrastructure, resources, and associatedorganic growth strategy processes, but also items such as necessary A key consideration in the evaluation should beor to enter the E&S space on the window of opportunity for the situation regulatory filings, distribution acquisition and retention, and brand awareness.via acquisition. and the anticipated time to market associated with each option. Alternatives to carrier acquisition include distribution acquisition, forming partnerships, and organic growth. M&A Carriers that choose M&A feel their core competency is having the business design and supporting technology platform needed to enable integration and go-to-market strategies in an expedient manner. Alternatively, a given carrier may believe that its core competency is to manage a portfolio of individual companies. E&S growth strategy Organic Corporate culture is adverse to acquisition. Carriers that choose organic growth feel strongly that they have the necessary inherent business capabilities and technology infrastructure in place to successfully enter new markets such as E&S. Typically these carriers have had historical success in entering new markets organically.16 FS Viewpoint
  17. 17. Product design— Carriers should be prepared to make market and rely on advanced client targeting difficult tradeoffs when entering the and risk modeling techniques to identify theStrategic priorities (such E&S market. most profitable niches.as boosting profitability or Carriers should clearly define their strategic When evaluating different options, carriersincreasing market share) priorities, and make product and pricing should consider how much they are willing to decisions that support those priorities. For sacrifice to achieve their long-term objectives.will drive product and instance, carriers that want to win market For instance, while low pricing and highpricing decisions. share may need to sacrifice profitability by commissions may boost market share in the offering lower rates and/or higher commission short term, they can lead to retaliatory actions structures in order to gain traction with by competing carriers that could make it harder distributors. If profitability is a higher priority, to raise prices or cut commissions later. carriers may have to forego a large share of the Product design Standardization and time to market Target Variability and flexibility Corporate Focus approach on: Focus approach on: strategy • Defining standardized • Developing agile processes product structure • Managing distribution channels • Establishing standardized • Targeting specific markets governance protocols and geographies Maximize profitability Build market share Pricing strategy Focus approach on: Target Focus approach on: • Analyzing client lifetime value • Developing channel—and • Refining risk models distributor—specific pricing • Implementing aggressive claims • Applying predictive modeling to management processes support consistent underwriting • Surveying competitive rate intelligence Product A framework for response 17
  18. 18. Distribution— Without an attractive product mix in both given carrier only offers a few products, it quality and quantity, it is extremely difficult will be difficult to retain distribution partnersTo ensure the success to execute on a distribution strategy. Carriers or to be viewed as a first-position carrier forof their distribution should first focus on creating the right mix existing partners. of products that make an impact in thestrategies, carriers marketplace. Experience has shown that it takes For the account market (middle-to-largeshould develop an more than two dozen products for a carrier to commercial) there is a preponderance of complementary liability products to address theattractive product mix have an impact on the distribution channel. varying levels of client needs. Other productthat emphasizes both the Brokers would prefer to utilize a limited lines, such as property, tend to be specific to the number of carriers for their E&S needs. If a property type and/or hazard being mitigated.quality and quantity ofE&S offerings. To support brand awareness and to gain traction with distributors, an attractive product mix should support the organization’s core client base and level of personalized service. High Risk management sophistication Account (middle and large Retailers, small wholesalers commercial) Small commercial Personal Wholesalers Low Low Personalized service High18 FS Viewpoint
  19. 19. Distribution— A combination of retail and wholesale Brokers prefer to rely on a small group brokers is needed to provide adequate of carriers and become unsatisfiedCarriers should recognize reach and expertise. Carriers should when a carrier lacks consistency.and accommodate understand and address the differing Consistent outcomes from partnerships are needs of these partners.the differing needs initially demonstrated through consistent A differentiator for large wholesalers is the and easy quoting. The carrier can achieveof their distribution ability to conduct business in a self-service quick turnaround through efficient pricingchannel partners. manner, such as wholesaler-controlled user approaches and underwriting criteria to ensure setup for the carrier’s transactional portal. risks are priced appropriately. Additionally, a commission structure in line For the small commercial market, brokers are with the volume of business transacted is looking for a quick turnaround when a given extremely important. risk is deemed to be atypical and requires For small wholesalers and retailers, the further review. This can be achieved through focus is on customer relationships. This the utilization of an underwriting management factor places importance on the ease of system and associated processes. doing business pre-issuance through the availability of a transactional portal with an appropriate breadth of products, as well strong post-issuance interactions, such as claims and billing. A framework for response 19
  20. 20. Operations— Where appropriate, carriers should Line-specific considerations standardize back-office functionalityLarge carriers should across all lines of business. When evaluating what can be leveraged for E&S, it is important to have a strongstrive to leverage processes, Claims and billing are examples of back- understanding of the current state oftechnology assets, and office functions that are often standardized technology and its limitations. It is notresources across all lines and shared. always possible to utilize standardized back- office processes.of business to generate Leveraging assets across all lines For example, in the account market, there iseconomies of scale. In many cases, back-office processes can be greater emphasis on the underwriting function; leveraged across multiple business units. When evaluating E&S operations, carriers need to therefore, carriers must be certain that their consider utility for all lines of business and existing processes, especially referral processes, standardize where possible. are assessed rigorously. For this to be successful, training and This differs from the personal and small performance incentives should encourage commercial markets, where transactional standardization and adoption of shared business models are more prevalent and result resources, where possible. in similar technology components, such as the rating engine and policy administration system.20 FS Viewpoint
  21. 21. Technology— There are several options For the account market, the utilization of third for establishing a given parties, such as managing general agents,The technology platform technology platform. and their technologies should be employedshould support the For markets requiring a transactional business to provide scale in core competencies with appropriate safeguards.operating model needed to model, there are two primary options:serve target markets and • Shared technology platform, which isclient segments. comprised of a suite of products from a single vendor. • Best-in-class suite of products implemented by employing multiple vendors coupled with business process outsourcing. Client segment Platform components Personal • The front-office suite would include a transactional portal and policy administration system. • These front-end platform components would need to interface with each other as well as with back- office systems such as billing and claims. Small commercial • Additional components may include a product configuration tool and an underwriting application utilized to review atypical risks. • As part of the technology platform needed to support the small commercial market, functionality should include the ability to propagate product-related attributes throughout the platform. This is required in order to meet market expectations of a rapid response to new product needs. Account (middle • For the account model, the technology platform should enable the carrier to leverage critical and large underwriting capacity through the automation of clerical tasks where possible. In addition, the commercial) utilization of a workflow tool helps the underwriting function manage workload in an efficient manner. A framework for response 21
  22. 22. How PwC can help Our capabilities and tailored approach.
  23. 23. PwC Financial Services Advisory We look across the entire organization—focusing on strategy, structure, people, process, and technology—to help our clients improve business processes, transform organizations, and implement technologies needed to run the business. Client needs Issues we help clients address Corporate • Translate the strategy from the boardroom into a realistic design for meeting growth strategy and profit objectives • Conduct due diligence for insurance and private equity clients Technology • Realize deal synergy and value Corporate strategy and strategy • Evaluate and create the needed business and technology design to support implementation your strategies, interface with your markets, and measure and achieve improvement objectives Distribution • Assess channel performance and identify optimum use of channels across client and Client optimization customer types Operational needs Distribution • Identify program level and distributor profitability excellence optimization Product design • Assist in development and implementation of products • Design supporting technology platforms and identify external data sources to aid in product development Product • Conduct sensitivity analysis in support of product alignment to corporate strategy design Operational • Drive efficiency through shared services and sourcing strategies excellence • Redesign finance to realize efficiency and competitive advantage • Provide a rigorous approach to manage and measure progress and consistently deliver strategic programs that produce economic results Technology • Turn high-level strategies into measurable results and help overcome economic, strategy and operational, and technological hurdles to realize desired vision implementation • Support business strategies with aligned IT strategy and architecture • Bring deep and relevant experiences in policy, billing, and claims from design through implementation for global, national, and regional carriers How PwC can help 23
  24. 24. What makes PwC’s Integrated global network PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 169,000 people in more thanFinancial Services 158 countries. We’re committed to delivering quality in assurance, tax, and advisorypractice distinctive. services. Tell us what matters to you and find out more by visiting us at www.pwc.com/us. Extensive industry experience PwC serves multinational financial institutions across banking and capital markets, insurance, the asset management/hedge fund/ private equity industry, payments and financial technology. As a result, PwC has the extensive experience needed to advise on the portfolio of business issues that affect the financial industry, and we apply that knowledge to our clients’ individual circumstances. Multidisciplinary problem solving The critical issues that financial services companies face today affect their entire business. Addressing these complexities requires both breadth and depth, and PwC service teams include specialists in strategy, risk management, finance, regulation, and technology. This allows us to provide support to corporate executives as well as key line and staff management. We help address business issues from client impact to product design, from go-to-market strategy to operating practice, across all dimensions of the organization. We feel equally comfortable helping the heads of business and the heads of risk, finance, operations, and technology, and have helped clients solve problems that cross all of these areas. Practical insight into critical issues In addition to working directly with clients, our practice professionals and Financial Services Institute (FSI) regularly produce client surveys, white papers, and points of view on the critical issues that face the industry. These publications—as well as the events we stage—provide clients with new intelligence, perspective, and analysis on the trends that affect them. Focus on relationships PwC US helps organizations and individuals create the value they are looking for. We are a member of the PwC network of firms with 169,000 people in more than 158 countries. We are committed to delivering quality in assurance, tax, and advisory services.24 FS Viewpoint
  25. 25. Appendix Select qualifications.
  26. 26. Translate strategy into a Issues An insurer had aggressive growth targets in the face of stiff price competition in the small commercial marketplace. Instead of fighting for market share through the low-realistic, detailed design for price platform, the client chose to change the playing field altogether by identifyingmeeting growth and profit how it could deliver greater value. Approach The client engaged PwC to build its strategy and gather first-hand insights aboutobjectives—Leading small customer and distribution drivers for choice, and more importantly, retention. Thecommercial insurer objective was to identify the unique and enduring value that the insurer could deliver to differentiate itself sustainably, while simultaneously growing its customer base significantly. With the help of focus groups, PwC assisted the client in: • Developing a clearer understanding of the key decision-making criteria and value drivers used by distribution-to-direct business to a carrier. • Comparing the client’s distribution presence and existing approach to that of its competitors, identifying core strengths and potential weaknesses. • Realigning of their go-to-market strategy and core value proposition for both distribution and the end-customer. Benefits The client benefited by having a structured, analysis-driven approach for developing its growth strategy. By having an improved understanding of its strengths and weaknesses within the context of the competitive landscape, the insurer was able to better align its operating model with future state objectives.26 FS Viewpoint
  27. 27. Conduct due diligence for Issues A private equity firm was actively evaluating a potential investment in a leading business process outsourcing (BPO) provider of long-term care products toinsurance and private major insurance carriers. Prior to making an investment, the private equity firmequity clients—Private requested assistance in evaluating the BPO provider’s core operations and technology infrastructure to gain a better understanding of the barriers to entry/equity firm switching costs and the fundamental scalability of the operating platform to handle projected growth. Approach The client engaged PwC to determine the economic feasibility (e.g., cost and ease of implementation) for a carrier to replicate the BPO provider’s current offerings in-house and to conduct a review of the operations and core technology platform to evaluate competitiveness and effectiveness of the technology. In an assessment of the replicability of operations and technology, PwC quantified the time and cost for a carrier to replicate the BPO provider’s capabilities and infrastructure, and provide a viable alternative solution. In addition, we assessed the implementation risks, key success factors, and likely propensity for a carrier to in-source the services offered by the BPO provider. In order to evaluate scalability of current state operations and technology, PwC provided a high-level review of the technology architecture supporting the call center, application processing, underwriting, claims adjudication, and carrier interfaces, and identified potential gaps and/or issues to support projected growth. Benefits The private equity firm leveraged PwC’s analysis in preparing an informed bid for the BPO provider. Appendix 27
  28. 28. Realize deal synergy and Issues The client pursued a merger opportunity to create the largest player in the industry. The unique aspect of the merger was that the acquiring firm was half the size of thevalue—International firm being purchased. This was a highly complex transaction involving four partiesgeneral insurance and that required a high degree of experienced structure and skilled expertise to define and successfully manage the program.reinsurance group Approach PwC provided a multi-disciplinary team that helped management oversee two primary areas: the integration management office pre- and post-legal day (LD)1, and an operating model team that developed the future state strategy for the merged entity and created the operating model going forward. In addition, PwC created the strategy for shared services with the parent of the merged entity to ensure broader support and efficiency gains, without compromising on the value of the individual firms. Benefits PwC’s support in this highly complex transaction allowed for a very successful and timely closure that did not require corrections. The development of a preemptive future strategy and target operating model work prior to the closing enabled the new entity to make quick decisions post-close on how to move forward as a merged entity. A crisply defined post-LD1 100 day integration plan enabled transparency and structure that allowed the client to quickly move forward with operating model. A clear decision on the operating model, which leveraged synergies where it made sense and allowed the client to retain its unique competencies, helped determine the most effective shared services design with the parent entity.28 FS Viewpoint
  29. 29. Assist in development Issues The client experienced inefficiencies in creating or modifying products due to a lack of a transparent and manageable product development process, multipleand implementation product information sources, and a lack of consistent product philosophy acrossof products—Large all business units. Most product development processes were manual, and desynchronizedP&C carrier development efforts were replicated across a number of business units. All of these processes evolved over time to fit the capabilities and needs of each specific business unit, creating product inconsistencies for the organization as a whole. This resulted in lost revenue due to slow product introduction and significant cost increases. As a result, the client wished to increase its efficiencies in this process. Approach PwC helped the client develop a cohesive product philosophy that balanced customers’ needs (e.g., customized products) and operational efficiency needs (e.g., standardized products) for the commercial areas. PwC supported development of an implementation plan that focused on three main workstreams: product lifecycle, product build, and product design. Benefits The overall program improved speed to market, reduced operational costs, and enhanced competitive reaction and response. Secondary benefits included internal and marketplace product clarity/consistency, a more manageable product portfolio, standardized language and definitions, and facilitated cross selling. Appendix 29
  30. 30. Support business strategies Issues The client is a global provider of reinsurance and specialty insurance products that wanted to create a platform for a “start up” business unit focused on the excess &with aligned IT strategy surplus (E&S) small commercial marketplace.and architecture—Global PwC was engaged to cultivate a route to competitive differentiation through delivering a distinctive distributor user experience while supporting rapid launch ofinsurer and reinsurer new products and offerings. Approach PwC acted as trusted advisors for the client and helped the client solidify its vision for a “start-up” business unit’s large-scale transformation by assessing strategic capabilities, vendor product offerings, and interim release options. PwC helped accelerate the retirement of an inefficient technology platform by identifying and breaking apart key technology capabilities into discrete components. The PwC team also recommended a path forward that focused on alternative software as a service (SaaS) models and use of a BPO-centric solution. Benefits PwC’s analysis identified key decision points and outcomes for options in which additional investment may be needed to support the strategic vision. This enabled the client to articulate to senior executives how its product and distribution strategies translated into revenue.30 FS Viewpoint
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  32. 32. www.pwc.com/fsi To have a deeper conversation, please contact: Nauman Noor nauman.noor@us.pwc.com +1 312 298 2841 Paul Frank paul.frank@us.pwc.com +1 412 355 6003 Jamie Yoder jamie.yoder@us.pwc.com +1 312 298 3462“Success through excess: How P&C insurers are boosting profits byentering the excess & surplus market,” PwC FS Viewpoint, August 2012.www.pwc.com/fsi© 2013 PricewaterhousCoopers LLP, a Delaware limited liabilitypartnership. All rights reserved. PwC refers to the US member firm, andmay sometimes refer to the PwC network. Each member firm is a separatelegal entity. Please see www.pwc.com/structure for further details. Thiscontent is for general information purposes only, and should not be usedas a substitute for consultation with professional advisors. NY-13-0076

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