Industrial Insurance Co

Case Prompt

Industrial Insurance Co (IIC) is a industrial equipment insurance carrier. They provide insurance coverage for industrial equipment risks such as damage to construction equipments, manufacturing machinery, power plant equipment, and HVAC systems. Over the past 3 years, they have set and met aggressive growth targets by doubling their premium written annually. However, they have also seen their profits decline by 50% to $10 million in spite of this growth. They’ve hired us to diagnose their profitability problem.

---

General response summary

• Framework should reflect standard profitability breakdown (revenue, cost, external considerations)
• Interviewee should be able to drive towards cost as the main problem (they’ve met aggressive revenue growth targets). Once they do, provide Exhibit 1.
• If asked: insurance companies make money in two ways: (1) collecting more money in premium than they pay in claims and (2) earning interest on their assets held.
• In 2026 IIC collected $1B in premiums and made a profit of $10 million.
• IIC is only in the US. Headquartered in Philadelphia, PA with underwriters spread across the US.
• IIC’s customers, like its products, are wide-ranging: auto manufacturer, power plants, heavy industrial equipment manufacturers, ship manufacturers.
• Competition: There are 5 major specialty players in the US. They have not experienced the same profitability decline.
• Goal: Increase profits to $40 million annually within next two years.

A sample framework could look like this:

• Revenue
  • Pricing – Lowered prices leading to smaller margin?
  • Volume – Candidates could list a few considerations here such as types of products, customer segments, etc., but they should not spend much time here since it’s clear volume is not the problem.
• Cost
  • Claims (variable) – Is IIC paying out more in claims than usual?
  • SG&A (fixed)

Note: Candidates may break cost down by variable and fixed costs. This is fine, as long as they identify claims as an important variable cost. Before giving Exhibit 1, make sure a candidate at least identifies rising costs as the area they’d like to explore.

• External
  • Competition – Has the market become more competitive, driving margins down? Are competitors experiencing the same margin issues? (This isn’t the case, but it’s a fair consideration)