The insurance industry is often seen as a business that is geared towards growth. More premiums, more customers, more products. But expansion does not always automatically lead to better results. Sometimes the opposite is the wiser course. The story of a young insurance manager from Latin America shows why strategic shrinking can be a prerequisite for sustainable success.
A young man took over the management of a traditional insurance company in a Latin American country. The company was a classic multi-line insurer and offered almost every conceivable type of insurance. From motor vehicle, fire and life insurance to policies for residential buildings, industrial plants or employees of large companies. The product range was broad, as was the clientele.
His predecessor had pursued a clear strategy: Growth at any price. The main thing was that the business volume was right. However, the new managing director, who was also a major shareholder in the company, was dissatisfied with the results. Dividends remained modest, even though the company was active in many segments.
The realization: breadth rarely leads to strong margins
From visits to other markets, the young manager knew that an insurer rarely becomes profitable if it tries to offer everything at the same time. Those who are present everywhere often do not achieve really strong margins anywhere. Instead, there is the threat of high costs, complex structures and risks that are difficult to manage.
He therefore began to systematically analyze the company. He examined the competitive situation in the individual lines of business, the potential of various insurance products, economic and political developments in the country and the volatility of the respective businesses. Exposure to natural disasters also played a role, as did the organizational capabilities of the company itself.
The result of this analysis led to a bold decision.
The strategic withdrawal from many divisions
The new Managing Director decided to gradually withdraw from almost all business areas and concentrate on the division that offered the best long-term prospects and could be developed most efficiently with the existing managers.
In practice, this decision meant that the company would initially become smaller. Premium volume was lost, business areas were reduced or abandoned altogether. However, the focus was clearly on strengthening the selected division and striving for market leadership there.
A long process with a lot of intuition
The change in strategy could not be implemented overnight. Two factors called for a particularly cautious approach.
Firstly, the shareholders were not prepared to invest additional capital. The company therefore had to finance the change from its own resources.
Secondly, the relationship with the brokers played a decisive role. Many of them had been working with the company for generations. The young manager was not allowed to jeopardize these relationships.
The restructuring therefore took almost ten years. Less profitable business areas were reduced step by step, while the selected division was systematically expanded.
The courage to become a smaller company
The path required stamina, strong nerves and clear confidence in the long-term goal. In the short term, the strategy meant sacrificing volume. In the long term, however, it created the basis for a significantly stronger market profile.
History shows a fundamental insight of the insurance industry. Growth is not an end in itself. The decisive factor is not how big a company is, but how clear its strategic position and how solid its margins are.
Sometimes the path to success is not through expansion, but through conscious concentration. Or to put it another way: sometimes an insurer must first become smaller in order to really grow better.
Binci Heeb
Paul the Insurer has other content that may interest you, such as the series of interviews with insurance industry executives.
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