What is the purpose of insurance company segmentation?

Segmentation in the context of insurance companies serves several important strategic purposes, and specifying return requirements by major lines of business is a key aspect. Insurance companies segment their operations to better understand the risk and return profiles associated with different types of insurance products. Each line of business—such as life, health, property, or casualty—exhibits unique risk factors, customer needs, and potential profitability.

By specifying return requirements for each segment, insurers can better allocate resources, set pricing strategies, and manage their portfolios in a way that aligns with the risk appetite and financial goals of the company. This nuanced understanding helps in crafting tailored products that meet the needs of various market segments, ultimately enhancing profitability and sustainability.

In contrast, while minimizing operational costs, increasing market share, and reducing regulatory scrutiny are also important considerations for insurance companies, they are not the primary focus of segmentation itself. Operational costs and market share are often influenced by how well a company understands its segments, but specifying return requirements directly addresses the financial management and strategic planning that segmentation aims to achieve.