Every year, Ward Group selects the top 50 property/casualty insurers out of a field of more than 3,000. The operational consulting firm bases the list on financial performance over the last five years, but it also benchmarks other facets of P/C carriers. The study opens a window into what makes successful insurers successful.
The difference in the financial performance of the top 50 companies is striking. Ward's 50 delivered 14.1 percent return on average equity from 2001 to 2005, more than double the industry average of 6.3 percent.
"Generally, what we're looking for are companies that demonstrate the ability to produce consistently profitable results while also meeting certain safety tests," said Jeffrey J. Rieder, president of Ward Group.
More telling is that this performance translates to the insurers' operations. According to Ward Group, it's a matter of insurers taking advantage of their core competencies when formulating and carrying out their business model.
Superior insurers could have better distribution channels, a better grasp of their market across geographies, more integrated technology, clearer focus on their products or any combination of these attributes.
One significant difference between Ward's top 50 P/C carriers and the rest seems to be efficiency. The top performers have 19 percent fewer employees, relative to premiums written, when compared with the average, and a staff-to-management ratio of 6.8 to 1, compared with the average of 5.3 to 1.
This points to smoother operations, as well as cheaper operations. Ward Group estimated that the difference in the ratio equates to an average savings of about $2,200 per employee.
"Loosely, what that translates into for most companies, about a 25-basis-point reduction in their expense ratio," Rieder said. "So it really translates into big dollars."
These big dollars saved can then be passed down to the buyer.
"A lot of times, for example, if a company has a low expense ratio, because of that they can pass those savings on to their consumers," Rieder explained. "Or, likewise, if it's a niche commercial-lines carrier, oftentimes they are able to achieve that best performance by providing superior loss-control services."
In fact, according to Ward Group's benchmarking, customer service--often a bone of contention between buyers and carriers--is also a facet of P/C success. The top 50 insurers seem to stand out because they make superior customer service a priority to retain and please customers. Superior insurers also view agents, outside service partners and employees as "customers" that deserve service.
The Ward's 50 started in 1991. Over the course of its 16 years, there have been seven especially noteworthy insurers that have made the list every time. These are: Auto-Owners Insurance Group, Canal Insurance Group, Cincinnati Insurance Group, GEICO, RLI Insurance Group, Tennessee Farmers Mutual Insurance Co. and USAA Group.
Regarding this persistent success, Rieder says, "From our perspective, it indicates generally strong underwriting--companies that don't overact to trends in the market. They're able to deliver on what they're good at. You'll notice a lot of those companies--particularly the ones that have been there over the long haul--have certain unique traits to them, and they capitalize on those."
The complete list of 50 can be found at www.wardinc.com.
September 15, 2006
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