The Deep Understanding of Value in the US Market
Among the large mature markets, the U.S. is the only one where direct premiums written exceeded the global average over a 10-year period.
- Bill Pieroni
- July 2022
In this year's Best's Review “At Large” columns, we've been exploring the characteristics of different types of markets across the globe, discussed “The Misguided Pursuit of Developing Markets,” and revealed why “Mature Markets Are Still Important and Offer Both Value and Growth.” This month I'd like to focus on one particular mature market—the U.S.
In a recent study, ACORD conducted a country-by-country analysis of more than 11,000 carriers worldwide and categorized them by both penetration of insurance as a percentage of national GDP and the rate of growth of that penetration.
Almost all of the 10 largest insurance markets worldwide—including the U.S.—were categorized as “mature markets,” with higher-than-average insurance penetration, and lower-than-average growth. As a group, despite this relative lack of growth, they continue to gain in relevance and support value capture for the industry.
How does the U.S. compare to other mature markets worldwide?
Among the large mature markets, the U.S. was the only one where direct premiums written exceeded the global average over 10 years studied (3.6% compounded annual growth rate versus an average of 3.5%). This was largely due to substantive innovation by carriers—not marketing-based innovation that repackages existing products but the development of new solutions. They leveraged data and analytics to quickly and cost-effectively bring to market products that cover emerging or enhanced risks—such as increased cyber and flood risk.
Insurer innovation in the U.S. is further enabled by the sophistication of their customer base—especially in commercial lines. Today's commercial policyholders have acquired a deep understanding of the concept of total cost of risk and seek out mechanisms to transfer risk most efficiently and effectively. Insurance products fill an increasingly integral part of their overall financing strategies.
Sustainable Value Through Analytics
While it is not head and shoulders above the pack in profitability, as it is in premium growth, the U.S. remains among the more highly profitable mature markets. Over the past decades, U.S. insurers have become much more thoughtful about the risks they are willing to accept and the price they are willing to charge. Instead of growing the book indiscriminately and worrying later about separating the wheat from the chaff, they are generating sustainable value through underwriting cash flow.
Carriers in the U.S. are able to leverage third-party data sources that are less available in other mature markets, such as the U.K. and European Union. This enhances their ability to use data and analytics at the moment of value, binding the right policy for the right customer at the right price—as well as settling claims at the appropriate value.
The independent agent channel, while dominant across most markets worldwide, has even more material relevance in the U.S. The complex, decentralized regulatory regime—with 56 separate jurisdictions to consider—acts as a barrier to direct and aggregator models. Agents with expertise in their local markets are a key part of the value chain.
This importance is further underscored by the track records of independent agents in the U.S. market. They have historically created value for carriers and delivered superior customer service to policyholders—and both groups have a sophisticated enough understanding of insurance to appreciate the agent contribution.