Dissecting the McKinsey Report for Profitability in P&C

P&C market summary

It’s no secret the property and casualty (P&C) market is full of struggle. After years of premium increases and market withdrawals, the right sizing of risk-to-profit is … a work in progress.

Some areas of the market have seen the necessary improvements to lift underwriting above water. Auto insurance, for instance, has buoyed the profiles of the carriers who write it, thanks to the post-pandemic years of sharp premium increases. 

Some markets are notoriously difficult. Florida and California, for instance, are both still on a journey of legislative reform and market changes. And wildfire risk across the country has insurers rethinking their approach to underwriting this risk.

Shareholder expectations are their own force within the industry, and carriers and agencies that hope to spread their risks while exploring new avenues for profitability will necessarily be on the lookout for good partners for merging or acquisition. 

That brings us to the following: For P&C carriers that hope to deliver on their bottom line, McKinsey reports four common factors that can make the difference in the coming year:

• Clear strategies to capture profitable growth and focused execution
• Modernized underwriting
• Cost-effectively acquiring businesses that solve for distribution
• Operational efficiencies that lower internal administrative costs 

Clear strategies to capture profitable growth and focused execution

If you read the McKinsey report and it seemed like the summary was, “to win, you need a plan to win,” you’ll be forgiven. But if you’ll indulge us, there’s a little bit of nuance.

Sure, it may seem like it goes without saying that you need a strategy to grow, but here’s why all those adjectives matter:

• Clear strategies: If it takes some mental gymnastics to tie your current tactics to your business objectives, then your message is muddy and your team can’t possibly be aligned and rowing in the same direction.
• Profitable growth: Growth that just takes your current reality and makes it bigger isn’t growing profit, because it grows your challenges alongside any new business you bring in. You’re looking for growth that puts more money in your business coffers, not the same problems at a different scale.
• Focused execution: Yes, everyone looks busy at your business. But if everyone’s spending their time putting out a million little fires and working on side projects and things that don’t move the needle, then your effort is just a lot of noise (which takes us back to those clear strategies).

The McKinsey report champions the idea that most strategies will involve some sort of M&A plans. But again, the principles of clear, profitable, and focused apply. If your acquisitions are scattershot affairs of snapping up partners without evaluating their overlap with your existing pipeline or how they align with your growth strategies, you may find yourself in a morass of a merger with no clear line on profitability. I.e., bigger ain’t always better.

Modernized underwriting

AI. Telematics. Internet of Things devices. Underwriters have more tools at their disposal than ever before in collecting data about insureds. Yet, this overwhelming mass of data is only helpful if you know what to do with it and have the processes in place to support it.

AI can be instrumental in assessing a risk even as applications and information comes from multiple varied sources. But this is only useful if you can ensure you’re falling in line with various states’ regulations of AI in underwriting and plugging what you can use into a comprehensive and holistic system.

In the end, your business may have a very tailored definition of what “modernized” underwriting means to you or your business partners. But if you don’t have a way to activate it, it’s still just data collection for the sake of data collection instead of delivering lower business risk for you and right-sized premiums for your customers. 

Cost-effectively acquiring businesses that solve for distribution

M&A is the lifeblood for many P&C carriers and agencies alike. But the margins on your new ventures—and the long-term ROI—vary. A lot.

What makes a new acquisition cost effective? You get the most ROI out of an acquisition that:

• Adds opportunities without significantly increasing your business or regulatory risk
• Brings on more blood without significant duplications or overlaps in internal operations
• Has a clean and understandable balance sheet

Unfortunately, businesses that have low internal operations costs, are streamlined, and are clearly profitable are rarely just sitting on the market with a “Buy Me” nametag. Instead, you may not really know whether a business can be purchased and cleaned up to be a profitable add until after you’re already too deep. 

Businesses that solve for distribution are businesses that may have relationships you want to add to your network. Or they may have impressive downstream agents. Or they may have an innovative way of going to market. Whatever it is, focus your time and effort on acquiring businesses that are an add for you, not just businesses that make you “bigger.”

The cost-effectiveness of an acquisition really comes down to the way you handle your internal administrative costs. Businesses that purchase another company and then let that company continue to operate in a bubble often see the risks of M&A (agent churn, regulatory risks, bloat) with the barest of skinny-margin rewards.

Operational efficiencies that lower internal administrative costs

The real payoff for you and for any M&A activity in your business comes from your internal operational efficiencies. When you streamline your internal administrative costs, you make it easier for a handful of employees to manage lots of complexity. 

Onboarding new partners, new agents, and new acquisitions necessarily means a high volume of data. But most of it is the same data, every time. So having every single onboard turn into a special snowflake is a waste of time and money (and since time is money, it’s a waste of more money). 

By streamlining your internal processes, you lower your administrative costs and make your M&A activities far more successful. It adds up to more money in your pocket and the ability to be more reactive and proactive when the P&C market gets turbulent.

AgentSync and your M&A success

AgentSync helps agencies and carriers in P&C stay abreast of regulatory changes and shifting market conditions. By streamlining internal processes, our clients can make their M&A activity more profitable while also improving their reputations with their distribution partners, from agencies to carriers and everyone in between.

• Onboarding portals make it easy for agency partners and individual producers to onboard and maintain their own data without staff babysitting the process.
• Hierarchies that can handle complexity make it easier to accurately reflect business relationships and maintain accurate commission payments no matter what state or business structure an agent is affiliated with.
• Integrated data from the industry source of truth makes it abundantly clear which subordinate businesses are selling policies (and which ones cost more than they’re worth).
• Easy, accurate reporting cuts down hours of personnel time to hunt information, and makes regulatory audits a breeze.

If you’re ready to level up your M&A activity, see what else AgentSync can do for you; schedule a demo today.