By applying BCG’s rigor and discipline, a failing P&C insurance firm has transformed its performance and returned to profitability.
When a major global insurer decided to acquire a small European property and casualty (P&C) business, executives understood that its new subsidiary was struggling financially—in large part because it had amassed a poorly performing book of retail and commercial risks ahead of the 2008 financial crisis. Unfortunately, the new acquisition turned out to be even more distressed than anticipated.
This lack of insight into the subsidiary’s business led to a string of decisions that failed to turn around the firm’s performance. The leadership did not engage in sufficiently radical restructuring after the acquisition, meaning the insurer was still 35% to 60% above key competitor cost benchmarks. Instead of putting efforts into cutting costs and inefficiencies, executives sought to move the company out of its financial predicament through growth, expanding into softening markets and opening new lines of business. This strategy merely led to continued poor financial performance and low engagement from staff, who could sense the unsustainability of the firm’s position. By 2015, profitability was on a steep decline, losses were rising, and the future viability of the subsidiary was in question.
The subsidiary’s parent asked BCG to fundamentally review the business’ position and develop a plan to transform its performance and position the business for growth in a fast-changing marketplace.
During a nearly two-year effort, BCG worked closely with a new chief executive at the P&C firm to make difficult decisions and implement radical changes. Our team of experts began with process and efficiency improvements and targeted, across-the-board cost reductions and “activist” program management—the core elements of any turnaround effort.
BCG designed a new organization structure with clearly defined accountabilities and reduced the number of senior management roles. Our experts centralized support functions, such as HR, finance, and IT; merged risk and compliance; and eliminated low-value activities. In addition, the team conducted detailed analysis of the performance of the insurer’s books of business and recommended that the company streamline its operations by abandoning underperforming products and exiting unprofitable markets.
The key skills and value that BCG brought to this insurer, however, were softer in nature. One of the reasons the firm was in such bad structural and financial shape was that any prior improvement efforts had been reactive, tentative, incremental, and poorly communicated—which not only failed to boost performance but actually resulted in significant drops in staff morale and productivity.
By contrast, BCG encouraged management to make the tough decisions and large cuts that they’d avoided in years past—but to do it honestly, directly, transparently, and respectfully. When the CEO made the initial announcement about upcoming staff reductions and cost-cutting tactics, his speech was video-streamed live to the entire company. He then went to every office site, met personally with staff across the business, answered their questions, and told them the specific impact the changes would have on their department. This was followed up with written documents describing the rationale behind the strategy and the projected outcomes, along with open and continuous communication between staff and leadership.
As a result of BCG’s disciplined execution supported by a rigorous, transparent, and detailed communication and engagement plan, the insurer’s performance has been transformed. Among the results so far:
At present, the firm is on a clear path to profitability, is focused on refining and expanding high-performance capabilities, and is currently in the middle of developing a long-term strategy to achieve a more than 10% return on equity.
“As hard as the challenges appeared to be, the solution was pretty simple: it was really just the combination of being tough-minded and real about the changes that needed to happen, applying the process discipline required to deliver those changes, and communicating everything in a straightforward, mature, and compassionate way so everyone knew what was going to happen and why. The process was clear and extremely effective.”