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Operational excellence in insurance

Operational excellence in insurance

Insurers are under more pressure than ever to effectively manage their current operating expense environment. Persistent low investment returns, ever-increasing competitive pressures and enduring excess capacity have hampered the industry's ability to grow revenue faster than the rate of operating costs. Currently, 25 percent of every premium dollar is consumed by operating expenses, a pattern that has held for the past 10 years or longer. These expenses have largely kept pace with the rate of growth in premium income among life and property & casualty (P&C) carriers, with both growing in the low single digits over the same time period.

In order to understand the current environment, KPMG and ACORD recently completed a survey focused on the challenges and opportunities insurers face with respect to improving operational efficiency. Responses were collected from more than 60 life, P&C, composite and reinsurance carriers from around the world, with premiums ranging from less than US$1 billion to more than US$10 billion.

Survey results indicate that, although 94 percent of carriers say they are actively working on improving operational efficiency, 55 percent say they are behind target. In addition, most respondents reported only limited integration of their technology platforms across functions, including underwriting, distribution and product operations - functional areas to achieving operational efficiency.

Overall, survey responses make clear that the majority of these organizations are falling behind in their quest to improve operational efficiency, and that a lack of process standardization and strategic vision is the primary obstacle to future transformation efforts.

The survey highlights the need for CEOs and other senior leaders across the strategy, technology and operations areas of insurance organizations to carefully consider several approaches to correct these deficiencies. Initiatives and transformations critical to this include:

  1. Operating model and process redesign: A lack of standard processes, combined with an existing complex set of over-customized applications common across most carriers, currently consumes enormous amounts of time, energy and cost.
  2. Distribution: Customer, agent and other market drivers continue to push insurers to develop and maintain an omnichannel presence across sales and service functions. This trend represents both an opportunity and a challenge for insurers from an operational expense perspective.
  3. Legacy systems: The ongoing impact of legacy systems continues to be a pervasive issue across the industry, exacerbated by the increasing pace of innovation and the decline in resources with the skills to maintain older systems.
  4. Alternative Sourcing: These programs, which include shared services and outsourcing, seek to provide insurers with enhanced competitiveness through reduced operational costs, greater access to qualified talent, harmonized processes, improved risk management and increased focus on core competencies.
  5. Intelligent Automation (IA): Carriers must create new capabilities by applying IA to policy intake, claims and other areas, and then leveraging those improvements across the enterprise. Ultimately, the organization must take what it learns in these initial, siloed forays and build it across its varied processes, lines of business and geographies.


KPMG professionals have developed methodologies and tools to help achieve these efficiencies, and are working with insurers around the world, focusing on cost reduction and streamlining of operations. This paper will explore the enterprise journey to achieving operational efficiency leveraging KPMG’s approach.

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