Issue 13 - The trillion dollar insurer

Welcome to Edition 13.

I listened recently to Lex Fridman interview Jeff Bezos. Bezos described his vision for Blue Origin as enabling a future where a trillion human beings can inhabit our solar system. It’s an awe-inspiring ambition — one that’s full of hope for humanity and the opposite of any kind of Malthusian despair. What’s even more awe-inspiring is that this is Bezos’ ‘second career’ and one being built on the foundation of developing a multi-trillion-dollar enterprise in Amazon, “Earth’s most customer-centric company.”

What would a vision at such a grand scale for the insurance industry describe? While there’s a lot of transformation happening across multiple dimensions of the industry — deal-driven as consolidation accelerates, particularly in life markets, performance- / cost-led with a current emphasis in P&C as insurers prepare for softer pricing, and stakeholder-driven as Boards, activists, investors, and new CEOs regularly look to improve business trajectories — the core reality is that the industry in developed global markets, as currently constructed, is mature. We don’t have standout examples of CEOs and management teams reimagining what it could mean to provide safety to people and businesses in profoundly different ways and proactively manoeuvring and investing to unlock the kind of step change in value creation that trailblazers such as Amazon have.

What would a $500B or a $1 trillion insurer look like under a ‘Blue Origin’ scenario? The largest public P&C insurer currently is Progressive with a market cap of ~$120B, the largest multiline is Allianz at ~$110B, the largest broker is Marsh McLennan at $100B, the largest Life insurer is Ping An at ~$90B, and the largest reinsurer is Munich Re at $61B.? The fastest growing large (>$50B market cap) public companies over the last 10 years by sector are shown below:

More broadly, with the exception of broking, recent growth rates in market capitalization for sub-sectors of the industry have been modest. Extrapolating these kinds of growth rates into the future would suggest that we might conceivably see a ‘mega player’ emerge in P&C and (allowing for the fact that a significant portion of the sector is privately held) broking over the next decade but are unlikely to see similar players emerge in the life and multiline space without disruptive reinvention strategies.

How urgent is the need for reinvention? The left-hand chart below shows the percentage share by market cap of each of the main insurance sub-sectors in 2014 and today. So, for example, life companies represented 1.4% of total global public market caps in 2014 while they represent 0.8% now and so forth.?The right-hand chart shows the change in weighting between both dates as a % of 2014 market cap weighting — so, for example, brokers increased their market cap weighting by 92% whereas life insurers weighting fell by 38%.?So, this measure suggests that the relevance of brokers has grown, P&C has marked time, and life, reinsurance, and multilines have lost significant ground. (I would note that the chart ignores any shifts that have been occurring in the public vs. private/mutual mix over this time period which has been a factor for developed life markets).

So, there’s limited potential for mega players to emerge within the current industry paradigm.? Where are the big, ideally adjacent opportunity spaces?? One more chart below, this time showing the aggregate market value (in $ trillions) by industry subsector excluding insurers. The colors indicate the market capitalization growth rate of the sector over the last 10-years (grey <10% CAGR; light green 10-20%; dark green >20%) and the names show where the mega players (>$500B) sit.

At this 100,000-foot level, the chart might suggest the following areas for focus:

Within Life obvious adjacencies are to:

• The $11 trillion healthcare space with fluid landscapes emerging around longevity management, healthy living, fitness / quantified self, and health-span concepts.
• The $18 trillion broader financial services landscape with largely untapped potential around financial wellness and at scale advice for mid- and mass-market customers which may finally be enabled as AI scales.

Within consumer P&C adjacencies are around the $12 trillion Consumer Discretionary space – auto, home, devices – and opportunities for insurers to capture more of the ecosystem using a predict-prevent-remediate lens.

More generally, significant opportunities exist to more effectively serve the needs of the existing mega players – the 15 companies with market caps >$500B which represent almost 20% of the total and have many unique needs – complex supply chain and logistics needs and ecosystems; platform businesses with unique warranty needs; gig economy workforces with income smoothing and protection needs; massive cyber risk exposures; huge, global workforces.? Many of these companies are operating significant insurers themselves through captives, choosing to retain risks as a result of business model needs which don’t match easily to available products.

It is, of course, easy to point to the need for reinvention and much harder to activate towards it. Amongst other ingredients, it requires:

• A CEO with a clear vision around opportunity spaces with a direct hand in making change happen —without this level of attention and energy from the top, it’s often impossible to drive through the inevitable organizational friction to the change require.
• Clear alignment with the Board and shareholders and analysts on the big bets and priorities, allowing (re)investment at the scale required.
• Moving the whole organization at a profound level from a product provider/component supplier mindset to more of a platform/ecosystem player for customers, serving a broader set of needs and – more importantly – by doing so, building longer ongoing relationships.
• The right governance model capable of innovating and learning quickly.
• Suitable capabilities (either in house or through partners) around data, analytics, and digital engagement.

While difficult to get the conditions above to align, it does seem that the need for industry reinvention is approaching a critical point particularly within Life.

To close as I opened, Jeff Bezos has ambitions for Blue Origin to ‘become the world’s most decisive company,’ capable of agile movement and rapid leaning — a mega insurer will need a similar approach.

That’s it for Edition #13.

Oliver Wyman latest releases

The Future Is Now For Insurance CEOs: As leaders face 2024, they need to be sharper than ever on where they truly differentiate. We believe the?future is now.?In our latest podcast episode, Mick Moloney and Paul Ricard discuss our 10 actions for CEOs in 2024, including the state of the insurance industry, innovating at scale, shifting market cycles, the growing role of private equity and the asset-management-led insurer model, and using finance and actuarial transformation to accelerate change. Tune in. Website | Apple | Spotify

Notable Deals in Insurance and Private Equity — Trends and how to win in 2024: The insurance sector continues to offer attractive investments and growth opportunities for private equity. Our latest insight highlights notable deals in five segments: brokerage, managing general agents (MGAs), claims management, fronting, and property catastrophe underwriting. We share perspectives on how market participants and private equity investors can drive profitable growth and win in 2024.?Learn more

Reinventing Insurance Newsletters

In this newsletter, my aim is to pick topical issues and news and relate them to the macro issues happening in the insurance industry. I look forward to your thoughts and comments.

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• Edition 1: A look at the macro shape of the Insurance Industry
• Edition 2: A look at the latest insurance macro trends
• Edition 3: A Look at Personal Lines P&C
• Edition 4: Become an Asset Management-Led Insurer
• Edition 5: P&C market cycles, underwriting challenges, and relative sources of profitability
• Edition 6: Private equity’s rapid growth in the insurance sector
• Edition 7: CIAB Meeting Dispatches
• Edition 8: Asset-owned Insurer moves (US & UK); Growth opportunities in Asset & Wealth Management
• Edition 9: Risk Fluidity, Earnings notables
• Edition 10: Macro views and growth trends
• Edition 11: Leadership agendas for 2024
• Edition 12: Surplus lines revolution: Exploring the growth in non-admitted insurance markets

Mick Moloney is a Partner at Oliver Wyman, based in New York. He is Global Head of Insurance, Asset Management and Actuarial. In combination these groups include over 700 colleagues globally dedicated to providing advice to Life, P&C, and Health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future.