Our figures show that the range of improvement in the combined ratio is from 4 to 7 percentage points, again driven by several value levers.
This is one of the most startling figures to come out of our research, particularly when taking into account the fairly low existing margins in the industry, which are in the broad region of 7-13 percent. In other words, digital transformation has the potential to double profits.
As with sales, there are several levers that contribute to this improvement range—see the table below. Among them are cost effectiveness based on enhanced ability to select the right customers and risks, fraud reduction, better pricing and more favorable retention ratios. A huge influencer in this regard is data analytics, which provides the insights needed.
I particularly want to draw to your attention the huge strategic benefits of achieving this kind of result in Europe, one of the core mature markets. These markets may not be growing fast but they are extremely rich and stable, so that enhancing profit margins in them will have huge benefits to the bottom line. It also could generate the “war chest” needed for expansion into growth markets in BRICS and Africa which, although attractive, are extremely risky and very often require established insurers to develop totally new business models. Funding this kind of expansion, with all its attendant risks, is costly and slow: enhanced profits from established markets can provide the necessary funds.
Read more about growth markets for insurance in blogs by my colleague John Cusano: New markets ahoy—but the technology question needs to be resolved and New frontiers for insurance? Also Daniele Presutti’s Life insurance’s biggest growth opportunity on its own doorstep.
Of course, identifying what the digital value levers are, and what their potential impact is on the bottom line, is just the beginning—insurers need to work out how to accomplish their journeys of digital transformation. But that, as they say, is another story – I’ll tackle it next week.
For more information, download our recent paper, Double the profits: How insurers can create business value from digital transformation.
For more on the case for digital transformation, read the Accenture 2013 Consumer-Driven Innovation Survey. You might also find Four capabilities insurers need on the journey to digital mastery and high performance useful background reading.
Digital levers to increase profits
For more detailed information and key performance indicators (KPIs) for other countries, please contact me.