In today's rapidly-changing and increasingly competitive market, insurers are looking for every opportunity to improve their operational efficiency. Yet most insurance executives admit they are already falling far behind on their targets. What will it take to achieve operational excellence in today's insurance industry?
Ask any insurance executive about their operational efficiency efforts and you are sure to hear a long list of plans and ideas. In fact, according to a survey of insurance executives conducted by KPMG International and Accord, a global insurance industry standards-setting body, 94 percent of insurance execs say they are currently working on initiatives to improve operational efficiency.
The problem is that more than half – 54 percent – of those executives are also quick to admit that they have started to fall behind their targets.
In our KPMG International report on operational excellence in the Insurance sector we found that the risk to the enterprise of delaying action is increasing and ultimately a threat to the company's relevance in the competitive marketplace.
Conversations with insurance executives suggests that many are worried that their lack of progress is already hurting their business; they feel their costs are becoming less competitive, their operational agility is lagging customer expectations and their ability to grow is being constrained.
The respondents were also rather clear about why they were falling behind. Many complained about a lack of clarity on their key objectives and an inability to agree on strategic decisions at the enterprise level.
Some noted a scarcity of qualified resources, particularly those that combine new technologies with insurance fundamentals. Most raised some sort of concern about the state of their legacy infrastructure and processes.
The greatest barrier to insurers achieving their operational efficiency goals comes down to a lack of integration.
In fact, our survey shows that, even after years of investments into new platforms and infrastructure, most insurers have managed to achieve only a 'limited' level of integration between their technology platform functions such as underwriting, distribution and product operations – key focus areas for operational efficiency efforts.
Interestingly, HR and Finance tended to report the lowest levels of integration. Even areas where one would expect to see existing high levels of integration – such as claims and policy servicing – were often ranked as being poorly integrated by insurance executives.
The lack of integration across an insurer can result in incremental and redundant processes, technology and data – increasing costs and impacting an insurer's ability to serve customers and engage with agents.
Unhappy with the current level and pace of progress, many insurance leaders are starting to shift the approach of their operational efficiency programs to prioritse faster wins and more tactical automation.
Indeed, our survey suggests that insurance leaders plan to reduce the amount of focus they place on the more foundational components – things like process standardisation and legacy system fixes– to instead prioritise investments into Intelligent Automation (IA) and alternative sourcing.
In many ways, this is good news. Any technology solution that can deliver a better customer experience at a lower cost (with the appropriate quality and controls) will be key in delivering longer-term operational efficiency.
But they must be supported by ongoing efforts to standardise processes and modernise legacy systems. Yes, it's harder, takes longer and is less exciting to fix legacy systems. But that's the only way to convert quick wins into enterprise-wide operational value.
Our view is that insurers need to approach their operational efficiency efforts with an emphasis on maximising value rather than minimising costs; operational efficiency programs should focus primarily on the creation of a leaner, more flexible organisation with cost reduction seen as the consequence of action rather than the goal of the action.
Our member firms' collective experience working with leading insurers across virtually every sector, geography and size has enabled us to develop a robust framework that has shown to help insurers get their operational efficiency efforts back on track.
The framework focuses attention onto six key levers of operational excellence:
Achieving competitive levels of operational efficiency isn't easy. Years of product and geographic expansion, M&A, regulatory mandates and other factors have created layers of operational systems – many of which are either homegrown or heavily customised. Integrating these core systems into other, newer platforms remains a challenge.
Many insurers also seem to be struggling to know where to start. Not surprising: today's insurers face a wide range of strategies and options for improving operational efficiency – from traditional cost take-out initiatives to emerging technology-based solutions like automation, cloud computing and sourcing. Prioritising these options and aligning them against your long-term roadmap and current capabilities can be difficult.
That is why we often help our insurance clients take a more structured approach to delivering on their operational excellence journey – one that not only gets them to the optimal state, but then pushes further to encourage improvements to be self-sustaining.
It starts with articulating a vision for the organisation that balances costs against customer expectations, digital requirements and efficiency. Through discovery and ideation, organisations are then able to identify important business patterns and co-create valuable solutions and growth opportunities. From there, we quickly move through to prototyping and prioritisation. Then it's all about scaling up, sustaining and evolving the best and most valuable ideas.
Insurers may be falling behind on their operational efficiency targets. But today's technologies – things like big data, AI and machine learning – offer insurers a massive opportunity to not just drive out costs, but also achieve competitive advantage by delivering richer customer, agent and employee experiences.
Those insurers that have not yet achieved the benefits they are seeking from their operational efficiency journey may want to review their roadmap to ensure they are taking a long-term and strategic view that leverages all potential enablers that can help them reach their goals.
Achieving operational excellence in an era of digital disruption isn't easy. But it can be massively rewarding – for insurers, their employees, their customers and their shareholders.
For a more detailed analysis of our findings, visit our page on Operation excellence in insurance and download our report.