Premium Growth, Underwriting Return and Segment Analysis
Measuring Business Excellence, Vol. 9, No. 4, pp. 27-36, 2005
Posted: 19 Dec 2005
Purpose: Many insurance companies vigorously pursue top-line growth even though it has the potential to develop unprofitably over time. The time lag (or tail) between when insurance is sold and when claims are paid generates risks unique to insurance companies. Furthermore, the insurance market is both mature and efficient (i.e., its level of competitive risk is very high), which means profitable opportunities are both rare and untenable unless protected by competitive advantage. There is currently no practical measure available (that we are aware of) at the business unit level to evaluate insurance premium growth in the face of the industry's risks, impairing executives' ability to assess segment opportunities (and hazards) thus hampering strategic decision-making. We have developed a practical measure called Underwriting Return (UWR) to help alleviate this situation.
Design/methodology/approach: UWR was developed during the course and scope of our work in the insurance industry, and our research into applying value based management to that industry.
Findings/Practical implications: UWR is a practical measure that P&C executives can use at the business unit level to help quantify market segments to grow, hold, harvest and abandon.
Originality/Value: A variety of strategic analysis tools, such as the popular Boston Consulting Group matrix, are utilized today. In general, the application of such tools is hampered by an imprecision of measurement but each can add a level of insight to executives' resource allocation options. UWR can further aid insurance executives in strategic analysis by helping to quantify which segments to compete in, and which ones to abandon. We demonstrate the utility of the measure in an example based on an actual analysis.
Keywords: Insurance, segment analysis, growth
JEL Classification: G11, G22, L10
Suggested Citation: Suggested Citation