Slimming down to save - reducing operating costs in life insurance
Recently, Mckinsey and Company released a study confirming what we all know. Along with the rest of the world, insurers are feeling increasing pressure from the current economic climate. The profitability of life insurance is suffering, and reducing costs is one of the fastest ways to gain a competitive advantage. So what can insurers do to pull themselves out of a slow decline?
If reducing costs is the key, we need to understand the biggest spends. Where are all of the slow bleeds? Judging from the respondent’s answers in the study, operations and IT are the biggest by far, accounting for 47 percent of a typical life insurer’s costs.
There are some who, despite all this, are managing to keep their heads well above water. In fact, a number of insurers have actually been able to reduce costs over time. Thankfully, the study also showed some insight into how. Unsurprisingly, the best savers are making significant savings in two ways - streamlining their operational structure, and updating the dead wood in their IT systems.
Building a better IT landscape
Most insurance companies still rely heavily on outdated legacy systems, making it almost impossible to leverage economies of scale. Originally intended to improve efficiency, they have become so fragmented and unwieldy, they cost more in time and money than they help.
On the other hand, a well designed IT system, one that integrates seamlessly into business processes, is priceless. Digitizing can simplify operations, allowing for the automation of complicated functions. It can provide new business opportunities, allowing for better pricing, and faster products to market. By digitizing end to end processes, replacing legacy systems, and leveraging the latest technologies, insurers can expect substantial cost reductions.
Business complexity can be difficult to remedy. Leveraging a well implemented IT platform to streamline certain functions helps immensely, but homogenizing the setup of operating units is also important. Regulating governance structure, and standardizing processes allows for all units to coordinate more effectively. This consistency makes it possible to have a single view of the organisation’s operations, and complexity can be curbed. Standardizing is also the key to cost effective scalability, allowing for work flows to be managed through fluid business funnels.
Taking it further
Although effective, the streamlining of IT and operations has limits in this current state. Even the market leaders in insurance tech and business processes are soon to run out of possible improvements. In order to further reduce costs, insurers need to look at doing things differently. Implementing new software that supports current functions is good, but real effort needs to go into changing and adapting the very functions themselves. How can insurers take advantage of technology to completely revolutionize processes? Computer learning can provide incredible insights, the cloud allows for more effective collaboration and less linear processes, and automating allows for less reliance on humans.
Instead of using technology as a kind of bandage, splinting old, broken processes, insurers can start new. Completely stripping back important functions will allow for operating models that are born out of digital possibility, streamlined, efficient and cost effective.