Lively music
For the past 20 years, BCG has ranked companies according
to total shareholder return,
a key value creation metric,
which captures the true bottom line for investors.
And in this year's 2020 edition for insurance companies,
we look back at the last five years' performance
of insurance companies,
but also year-to-date obviously
given the special situation with the COVID crisis.
And as a new feature,
I'm very proud to say we have developed a new deep dive
on return on equity,
and what is allowing high return on equity
and what is allowing low return on equity.
In this year's report, we have three key main findings.
Number one, the insurance sector delivered
over the last five years
roughly 8% total shareholder return,
roughly in line with the market.
But the top quartile did a lot better
at 20% total shareholder return.
So there's a wide gap
and this is mainly driven we found
by book value growth.
The growth is the number one driver of outperformance
our analysis suggests.
Secondly, year-to-date
with the corona crisis,
the insurance sector underperformed
by some 11 to 12%.
But I think what is important
is that this gap has actually widened
between March and June,
and this suggests clearly that investors
have more long-term worries
about the insurance sector,
compared to the rest of the market.
The most surprising finding this year
was as part of our new return on tangible equity analysis,
to see the quite enormous performance gap
between the top and the bottom quartile per segment.
So take the P&C segment, for example,
the top quartile operates at as much as 32% return
on tangible equity,
and the bottom quartile just at 14,
so a 18 percentage point gap
between the top and the bottom quartile.
Quite enormous, and we don't see this
in other sectors as much.
And this just shows, on the one side,
that sector allocation is key,
because P&C is very, very strong in terms of performance,
but within each sector
there is enormous room to outperform.
We found really three main differentiating factors
between the top and the bottom quartile
in terms of total shareholder return.
Number one, and most important, is focus.
Focus on one segment, for example, P&C or Life
and focus on one to four markets.
That is what we found
is driving outperformance most importantly.
Secondly, capital efficiency
and cost efficiency are key.
Not surprising, given insurance operates
in mainly commoditized markets.
And thirdly, and increasingly importantly,
digital leadership.
Digital leadership, our index found, leads
to stronger growth, higher net promoter score,
lower costs, and all together,
it's what uses over a three, four-time horizon,
13 to 14% higher book value growth.
Tremendous outperformance.
There's a huge opportunity
for once to make a leap frog to become
what we call a bionic insurer,
which just means fully digitizing the value chain,
leveraging, harnessing the power of artificial intelligence.
And the good news here is that investors
actually expect management to invest now,
because 2020 is anyway a lost year in terms of profits.
And so now is the moment to develop the skills,
the capabilities to become a leader tomorrow
in terms of digital.