THE DYNAMICS OF MANAGING A LIFE-INSURANCE COMPANY

This article reports the findings of an internal McKinsey research and development project designed to test the value of thinking to the lif e The situation is particularly interesting because Tortoise emerged i n a reinsurance industry. The aim was to understand better how managem ent decisions and actions can affect the success or failure of a typic al direct sales life company. The study compared the evolution over 20 years of two companies, which in the interests of confidentiality, we will refer to as ''Tortoise Life'' and ''Hare Life''. Starting out in 1975 from virtually identical competitive positions, Tortoise Life ha s become one of the U.K.'s most successful life companies, while Hare Life had to be rescued from near insolvency in 1989. We found system d ynamics a powerful means of identifying which managerial actions had a ccounted for the extraordinary divergence of the two companies. The le ssons learned include many counterintuitive insights that have relevan ce for any life-company manager. Through simulation we were able to is olate which management actions made the difference to long-term perfor mance. In particular, we show how attempts to exceed the maximum susta inable growth rate specific to any individual company can lock it into a slow but relentless spiral of decline, from which there is little h ope of escape. This growth ceiling can be quantified and we also ident ify a number of long range early warning signs. Consequently,we believ e that our conclusions are likely to change the way life companies are managed in the future.