By Kevin Lee
Apart from digitization, insurers these days find their businesses being challenged by a sluggish economic climate and poor industry fundamentals. How can insurers step up performance in order to achieve healthy financial ratios and sustain long-term competitive positions in the future? The answer is they must transform themselves. They must explore meaningful change across their entire organization; review strategic business and operating models, target customer segments, product portfolios, distribution strategy, IT capability, cost structure, organizational leanness, and other elements of their overall business.
The goal of insurers should be not only to adapt to difficult market conditions but also to make these conditions work to their company’s advantage. The following actions can help put insurers on the right road to even greater change that will improve their competitive positions in today’s highly challenging market climate.
Firstly, empower key managers to assess the company’s situation. At one large European commercial-insurance company, client interviews were performed by key managers in order to obtain direct feedback at service levels, product adequacy, and the competitive position of the company. This was followed by focus analyses on what is the most useful for assessing transformation priorities. A large European insurance broker, for example, conducted a systematic diagnostic study on commercial activities by surveying several hundred salespeople. This effort led to the realization that, on average, only 25 percent of commercial time was actually dedicated to sales activities, the rest being absorbed by administrative or client management tasks.
It is important to plan short-term actions to deliver immediate financial results, as well as long-term actions to reach overall goals. A program designed by one P&C insurer combined selected reprising for customer segments and policy guarantees in order to improve short-term technical results. For longer-term aspirations, the company set out to delayer the organization to achieve a leaner structure, redefine customer segments, and retool its target operating model to enhance the role of the online channel in distribution and servicing.
Don’t forget to integrate all stakeholders, such as experts and garages. A specialized auto-insurance company, for example, designed a new claims-management model to integrate experts into the claim resolution process, reducing the loss ratio and improving fraud prevention.
Prioritizing staffing is another key action. It is critical to dedicate your best resources to the transformation program, signaling its importance to the entire organization. A large health and protection organization achieved the staffing of a transformation project by selecting five high-potential managers, who assumed full-time responsibility for the leading initiative as a preparatory step to join the executive committee.
Furthermore, limit the time spent on engineering solutions and shift quickly to piloting and testing. At one insurer, a large sales-force-effectiveness initiative was designed and tested in two regions within just three months before a systematic rollout, leading to a 22 percent commercial effectiveness upswing within 12 months.
Lastly, keep the pressure on the transformation effort, and reward success. The senior-management team of one large insurer committed to presenting periodic reports to the company on the progress of its transformation initiative and performing regional road shows twice per year over a three-year period in order to sustain momentum and reward progress on the ground.
Typically, far-reaching initiatives such as transformation programs are launched by new CEOs or other senior executives seeking to put their stamp on an insurance company. In the current economic environment, a far greater number of senior managers are feeling compelled to act. The reason is that insurers are being confronted by a unique environment that is putting substantial pressure on their economic performance.
As some insurers have shown, committing to true transformation can bring enormous benefits by attracting new customers, building loyalty with existing ones, and enhancing long-term revenue generation. In the current highly challenging environment, insurers that do not explore ways to transform their companies may find themselves lost at sea as competitors reach their own, more ambitious destinations safely.
Kevin Lee is a partner of The Boston Consulting Group Seoul office