The insurance business is, by definition, about managing risk. But many insurance executives have failed to address a new risk – being just an average performer in an unforgiving market. Increasingly, investors are rewarding only insurers that outperform the rest of the industry, while shunning those in the middle of the pack .

To earn attractive returns in this industry you have to be a distinctive player. Average performance doesn't interest investors. The gap between winners and losers is growing for publicly traded companies both in the property-casualty and in the life insurance markets.

In the $300 billion dollar plus property and casualty insurance business, distinctive performance requires transactional excellence – the superior management of claims, underwriting, and operating costs. The two best indicators of transactional excellence are:

	Consistency. Front-line people drive the economics of the insurance business. A junior underwriter can bind the company to a policy with tens of millions of dollars, or more, in potential liability. To mitigate those risks, you must be able to give 100 underwriters the same file and see little variation in the price quotes they generate. Many companies lack that methodical approach to the market at the front line.
	Transparency. Companies must be able to aggregate their decisions so that CEOs can see how their risk profile is evolving, and take risks explicitly, not implicitly. There is a winner's curse in the industry. You can make good decisions 95 percent of the time, but if you don't address your flawed 5 percent of decisions, you'll have a portfolio of policies that, in just 5 years, is generating 30 percent less than it should in premiums.

Life insurers face different economic pressures – for example, the near collapse of the profitable annuities market. To sustain growth through the ups and downs of financial market cycles, life insurers must look to their sales networks to produce higher value business, for both customers and the company. And those sales networks must operate at lower relative cost than is now the case. 
 
While many companies have counted on technology to lower costs, so far their investment in call centers, Internet access, and customer-support software has actually increased their total service costs. Of even greater concern to life insurers: looming payouts to the millions of Baby Boomers worldwide soon to enter retirement, and the industry's failure to develop innovative products for this segment.

Insurers are battling to stabilize the ship and return to profitable growth. No one is sure where the industry is heading. But closing even a few of the performance gaps between best practice and common practice in the industry can make a big difference to companies, their policyholders, and investors.