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McKinsey & Co: U.S. P/C Industry Contributed Over $500 Million to Charity in 2010

Posted on 20 Oct 2011

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The property-casualty insurance industry contributed over $500 million to charity in 2010, according to a report released today by McKinsey & Company, which for the first time provides an overview of the industry’s philanthropic efforts. Education, health and social services, and community and economic development were the causes that received the bulk of the industry’s support. (See related article)

The report, Charitable Giving in the Property-Casualty Industry, is based on extensive research by McKinsey, which included interviews with industry executives and board members, surveys, focus groups and analysis of other industries’ charitable giving practices.  The report also reveals that the industry is not satisfied with its “return on giving” and identifies significant opportunities for property-casualty companies to enhance the impact of their charitable giving.

“Our goal in conducting this research and preparing the report,” said Peter Hahn, a McKinsey partner and lead author of the report, “was to provide a fact base regarding the property-casualty industry’s charitable giving and to highlight and share best practices in corporate philanthropy.”

“It is our hope that this report will encourage further thought, discussion and actions on the important topic of corporate philanthropy in the insurance industry,” said William E. Ross, Chief Executive Officer of the Insurance Industry Foundation, which advised McKinsey on the research phase of the project.

The McKinsey report provides a comprehensive picture of the current state of charitable giving in the property-casualty industry.  Among the highlights:

* Of the $500 million donated to charity by the industry, 80% was in the form of direct cash contributions and 20% in the form of employee donations of cash or volunteer hours.

* The industry’s giving is in line with other industries.  The industry’s cash contributions as a percent of pre-tax profits are 89 basis points, compared to 78 basis points across all industries.

* Geography is a key factor in allocating charitable dollars, with 95% of companies considering employees’ residency, the location of company headquarters and/or customer markets.

* When evaluating the benefits of charitable giving, most property-casualty companies cited broad business goals, including enhanced reputation (80%), improved employee retention (55%) and improved customer relations (55%).

* Only 12% of property-casualty companies surveyed consider the ability to leverage corporate capabilities a key determinant in shaping giving strategy.  “Surprisingly,” says the report, “while most property-casualty companies believe that disaster relief and preparedness rank among the most important issues for the industry to address, in practice these causes receive less than 5 % of total industry contributions.”

* Despite the property-casualty industry’s strong commitment to philanthropy, McKinsey’s research found that 60% of executives believe the industry can increase the social and business impact of its charitable giving and 90% feel there is an opportunity to raise public awareness of the industry’s charitable giving.

The McKinsey report offers a number of insights into how the property-casualty industry can enhance the impact of its charitable giving, including:

* Improving the link between business and social goals

* Committing to causes that leverage unique insurance-related skills

*Managing charitable giving like any major business investment, which includes deep senior management involvement, consistent focus and commitment, rigorous performance measurement and targeted communication of results.

Lastly, the McKinsey report suggests that “Property-casualty companies will have the greatest impact if they increase collaboration,” noting that “the industry could play a major role in addressing pressing problems where there is a need for insurance knowledge.”  The report cites disaster prevention and preparedness as one example of an issue where the industry could be “particularly effective in leveraging its unique strengths if multiple parties across the industry collaborate.”