This article is an in-depth analysis of commercial property and casualty insurers, one of three sections in the Global Insurance Report 2025.
In an industry that revolves around reducing uncertainty for customers, commercial property and casualty (P&C) insurers are themselves confronting macroeconomic uncertainty across multiple fronts. Inflation has remained stickier than expected in many economies, while uncertainty persists around interest rate cuts. Consumer confidence is shaky even though the economic growth cycle appears to have bottomed out. McKinsey, June 2024. And geopolitical instability remains a perceived threat to global growth, while trade patterns are shifting amid signs of protectionism.
This macroeconomic environment calls for cautious optimism about the prospect of continued economic expansion, balanced by the potential for periods of slow to no growth given the market’s turbulence. Yet commercial P&C faces additional headwinds. McKinsey, February 16, 2023. Climate risks are increasing, especially as a result of severe convective storms: last year was the warmest on record, and scientists estimate there is a one-in-three chance that 2024 will be even hotter. And corporate legal defense spending on class action lawsuits in the United States increased by 8 percent in 2022 and by 5 percent in 2021. This leads to higher claims costs and ultimately has a negative impact on affordability across the industry.
Finally, insurers cannot rely on continually rising premiums, or a continuation of today’s hard cycle, to drive growth. That’s why it’s a critical time for them to reassess how they will capture growth profitably as they navigate this shifting landscape.
Finding growth beyond rate increases
Global commercial P&C insurance lines continued to deliver strong growth despite more recent evidence of softening conditions. Premiums increased by an average of 8 percent annually during the past five years, while the average combined ratio for the industry trended downward to an estimated 91 percent in 2023 (Exhibit). Almost all of this growth was driven by higher premiums: in fact, aggregate growth across European and North American markets was entirely the result of higher rates during the past five years, while factors unrelated to rates reduced overall premium growth.
The challenge: Capturing and sustaining profitable growth
While there has been no clear path to consistent profitability in recent years for specialized insurers or those with diverse lines of business exposure, good performance, when earned, can be persistent. Insurers must now focus on how they capture consistent, profitable growth amid the shifting market landscape.
Our analysis of the performance of 25 global commercial P&C insurers during the past decade highlights the challenge. While there is not a strong correlation between growth and profitability, there are clear leaders that are able to sustain differentiated performance over time. When ranked based on net combined ratio (CoR), most insurers have stayed in the same performance quartile during the past decade: five out of seven insurers in the top quartile (20 percent of the total) remained in the top quartile, only two of 11 middle-performer insurers (8 percent of total) moved to the top, and none from the bottom quartile made it to the top.
Although where insurers operate is important, the majority of their financial performance is driven by how they operate. Just 40 percent of an insurer’s performance is driven by the lines of business it participates in, while 60 percent of performance is driven by how it operates. This dynamic applies across both soft- and hard-cycle years and applies generally, although factors such as regional differences may lead to exceptions. While effective portfolio strategy should not be disregarded, execution matters even more, and insurers should double down on their capabilities in their core lines of business to achieve profitable growth.
Four key drivers of superior commercial P&C performance
How do top-performing commercial P&C insurers achieve sustained profitable growth and competitive advantage? Our analysis found four areas of distinctiveness that drive superior performance for leaders:
- They have clear strategies to capture profitable growth that are well communicated and understood internally and externally, and they make focused investments in capabilities that guide execution, such as specific channels and talent.
- Top performers invest in modernizing underwriting, especially by embracing technological advancements such as generative artificial intelligence to hone their distinctiveness.
- They successfully navigate the changing distribution landscape by focusing on gaining efficiencies in driving down acquisition costs.
- Leaders manage administration expenses through operational efficiencies, on average maintaining administration expense ratios two percentage points lower than their peers.
Commercial P&C insurers face a changing marketplace, challenged by the uncertainty of macroeconomic factors and increased competition from players that are harnessing the power of focused and innovative solutions. Yet insurers can view these changes as opportunities for growth, looking to expand beyond premium increases by closing the widening protection gap and reducing the prevalence of self-insurance among companies. In an industry in which winners keep winning, inflection points such as the current one present the chance for insurers to separate from the pack.
