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As talk turns to market equilibrium and stable rates, how can insurers continue to respond to customer demand while covering their cost of capital and remaining sufficiently profitable? Evidence-based decision frameworks can help leaders make better decisions with clarity and confidence, even in the most challenging environments.
There is no shortage of opportunity for those seeking first-mover advantage. According to Aon’s 2024 Climate and Catastrophe Insight report, only 31 percent ($118 billion) of the economic losses in 2023 ($380 billion) were covered by insurance. This 69 percent protect gap highlights the opportunity to support global communities.
Transformative trends are also shaping the future risk landscape, creating $200+ billion of market potential for insurers by 2030, as identified in Aon’s whitepaper. Addressing these trends will enable insurers to respond to evolving customer demand, while increasing the industry’s relevance, growth and diversification.
Insurance leaders are tasked by their boards and shareholders with maintaining hard-fought gains and delivering profitable growth. This is heightened in a market where pressure is building from evolving risks that range from climate to geopolitical tensions.
Against this challenging backdrop, how do insurers:
Aon analyzed the performance of 100 (re)insurers across the globe operating in different segments of the property and casualty insurance market. The results show high variance in return on average equity, which is important as it measures the performance of a company based on its average shareholders' equity.
Higher growth is correlated with higher returns, especially when insurers reach a level of scale and maturity. The study also found that size is not the primary determinant of success and that insurers can deliver impressive returns with selective and client-focused strategies.
2024 Client Trends Report
Transformative Trends
Report
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Only a few companies are achieving spectacular return on average equity. Aon's analysis identified the key seven traits of these outperforming companies:
Evidence-based decision making underpins these seven categories and is critical to survival and success in volatile markets.
Leaders who do not excel in evidence-based decision-making risk falling behind the pack, consistently delivering combined ratios that are multiple percentage points higher than the market
In the worst-case scenario, insurers can see uncontrolled performance deterioration. This occurs as rates become inadequate to cover expenses and the cost of capital. Additionally, signings may drop precipitously in the best performing areas of a portfolio, leading stakeholders to lose confidence in the leadership team's ability to match or stay ahead of the market. Share prices decline and capital is more difficult to attract — and the cost of capital goes up.
The bottom quartile performers over five years in our analysis have weaker growth records and returns on equity below the cost of capital. The insurers in this quartile also share common traits:
Leadership teams of insurers with historically weaker performance face many challenges. They need to drive hard for growth without risking debilitating results. Gathering reliable insights to make the right decisions on where to invest energy, resources and capital for the best returns is a good starting point.
The best insurers make forward-looking decisions grounded in data and analytics. Leaders do the hard work to structure a clear-headed approach to sustaining profitable growth, putting them in the best possible position to protect and maintain their results through the market cycle. These three steps can help guide you along the way:
General Disclaimer
This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.
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