Consider that, in 2012, there was a cost of 31c for every dollar of net premium earned.

By 2016, this had risen 14% to 35c – an increase of $180 million for the industry.

At the same time, the insurance industry faces a barrage of challenges, such as the following:

A shifting and broadening of customer expectations. The expectations of some groups of customers are shifting, creating a different and broader set of expectations and needs.

New competition. New forms of competition are entering the market; they are geared for innovation and the ability to cherry-pick markets, and are not constrained by physical infrastructure or geography.

Product portfolio complexity. Product portfolios have expanded to provide a greater range of options for customers, raising the levels of complexity and increasing frontline time requirements. These bring into question the profitability of different products.

Inconsistent use of internal and external services. Sourcing versus internal capability versus specialisation versus managed services adds complexity, bureaucracy and unnecessary cost burdens.

The regulatory and compliance burden. This burden continues to grow unfettered.

Staffing and operating models. Staffing levels and salaries have grown consistently over time, with low spans of control and a skew towards
non-customer-facing roles; this is particularly so in head office and supervisory functions.

Reliance on third-party origination. This results in sub-scale and inefficient physical distribution channels and service.

New business models and advancements in technology promise to improve productivity and respond to industry challenges yet, in practice, many senior business leaders struggle to look beyond the complexity inherent in their organisations; this constrains their ability to respond. 

This pressure focuses senior leaders on optimizing the current cost base for profitability, delaying focus and investment that will position their businesses to navigate future challenges.

We strongly support the need to continue to invest in the medium term but it is clear that a radically different approach to productivity is required to release resources and create financial capacity to invest in transformation while delivering acceptable financial results.

Typically, a successful financial services firm is pursuing cost productivity in a consistent way. For example, it will: 

  • Leverage analytics and customer insights to focus productivity improvement and rationalise customer, channel and product investment.
  • Improve customer satisfaction by aligning acquisition and service resources to the needs of priority segments, creating a nimbler corporate core and management layer.
  • Optimise channels by designing cross-channel experiences that fit seamlessly into the lives of customers – while still offering economical options.
  • Ensure that customer coverage is refocused on sectors and segments that deliver value.
  • Revert back to core by exiting non-core businesses, products and markets.
  • Develop strategic outsourcing/offshoring propositions and partnerships to leverage scale and innovations.
  • Work persistently towards digitisation and simplification of end-to-end processes and products.
  • Transform technology through infrastructure, changing delivery and system/platform rationalisation.
  • Leading financial services firms are tackling these challenges through clear business-wide strategies that are built on tangible insights and that draw from the innovation of others  both within financial services and from other sectors (e.g. technology).

December 2017

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