Good question.
Insurance companies have three revenue streams:
1. Premiums
2. Investment Income/Gains
3. Other Revenue (usually fee income or something).
and three expense streams.
1. Claims and related expenses (adjustment, etc)
2. Underwriting expenses (salaries, etc)
3. Overhead and taxes
The question of insurance strategy is mostly about picking which of these factors you want to focus on optimizing. There’s an answer for each. Sometimes, a strategic solution will address more than one, even. Exciting, isn’t it?
BUT WAIT. There’s more.
The thing that really makes insurance really baffling is risk.
For example.
At Wal*Mart, and many conventional businesses, they have one lever, costs, and their success depends on just how damn hard they can push the thing. Costs go down, prices go down, sales go up, pricing power increases, costs go down… Lather, rinse, repeat. Their services, like insurance services, are a commodity.
An insurance company is weird, though. You fundamentally don’t know what your COGS are, sometimes until much later. So you can trick yourself into thinking you’ve made money when you haven’t. We’ll get to that later.
Most importantly, there’s a philosophical battle that needs to be fought before you really start analyzing strategy. And that is whether insurance underwriting an ART or a SCIENCE.
Not Unreasonable 