NU Online News Service,Jan. 14, 10:17 a.m. EST

Property and casualty insurers have seen ashift in earnings over the past eight years, becoming profitableafter years of poor returns, something a consulting firm said is amajor and permanent shift for the industry.

“The property and casualty insurance industryhas created enormous value since 2002, signaling a paradigm shiftthat should lead to improved and sustainable results—and isunlikely to be reversed,” according to a report on the future ofthe industry released by the consulting firm McKinsey & Co.

The report titled “Journey III: The NextFrontier in Property and Casualty Insurance—The Challenge ofProfitable Growth” said that from 2003 through 2009, the U.S.p&c industry produced $99 billion of pre-tax earnings in excessof cost of capital, reversing a cumulative loss of $108 billionfrom 1988 through 2002.

According to the report, this paradigm shiftthat the p&c industry is undergoing is rooted in severalfactors:

• The exit of undisciplined capacity: between 1992 and 2003, eight major companies with $1.5billion in premiums left the industry.
• Strengthened risk management skills at fourlevels: enterprise risk management, capital management,product market management and transaction execution.
• The upgrading of performance management,financial discipline and talent management in the industry.

This paradigm shift has three majorimplications for p&c insurers, according to the McKinseyreport:

1. Companies need to make continuousimprovements in risk management.
2. Profitable growth is increasingly importantin driving wealth creation.
3. Companies must continually upgradeperformance management, financial discipline and talent management,while also using information technology to differentiate themselvesand create competitive advantages.

“While we expect industry profitability toremain strong on a normalized basis, we believe that the industry’soverall growth levels will remain sluggish, driven by excesscapacity, an increasingly competitive environment and decliningexposure bases,” the report added. “Companies that develop growthskills, which are still undeveloped in the p&c industry, willgain significant competitive advantages.”

McKinsey went on to say that to grow profitablyin today’s more disciplined and competitive marketplace, p&ccompanies must:

• Convert customer-focused initiatives intomeaningful incremental revenue streams by increasing cross-sellingand up-selling, increasing renewal retention, and investing intheir brand.
• Focus on four distribution levers: managingagency appointments, managing the new business marketing funnel,strengthening the value proposition to distributors and productdevelopment.
• Pursue new market opportunities, tapping newmarkets or reaching current markets in new ways, by broadeningtheir underwriting appetite, developing alternative distributionchannels or expanding internationally.

Copies of the report, either in print or .pdf,are available by e-mail at no charge at [email protected].