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Productivity : insurers in danger


Hubert Roy

26 August 2019 11:30

Photo : Freepik

The productivity of the insurance industry has remained stagnant for over a decade. This is one of the firm of McKinsey & Company, which, in its report, The Productivity Imperative in Insurance, has developed an index measuring the evolution of the operating expenses of an industry compared to its benefits. The insurance industry is distinguished by the increase in these expenses, unlike other industries.

What is it that explains that sectors such as telecommunications, automotive, and aviation were able to improve their productivity, whereas the insurance continues to waste money ? The consultants McKinsey argue that the industry has not been able to capitalize on its investments in technology over the past ten years, in particular.

Simply cutting costs has not been enough, not more, while acquire to increase its size has not benefited to some leaders of the industry, they say. The consultants McKinsey have also supported their analysis with interviews with more than 200 executives from insurers around the world to build their argument, and this, both in life insurance and insurance of damages.

No time to lose !

The insurers must think big, and fast, say the analysts of McKinsey in their report. It is not a matter for them to put in place simple strategies, reduction of budget. They must come to establish structural changes and more ambitious in their business model, wring out-they.

They feel that an insurance company in a medium-sized (1 billion of dollars of premiums) wastes annually, $ 27 million of profits having regard to its poor management of costs. McKinsey has also divided his sample of insurance companies in the lowest quintile. The quintile the more efficient a cumulative average profit of 764 Million us$ per year. Those falling in the bottom quartile spend an average of nearly a billion dollars per year, reports McKinsey.

4 levers to straighten the bar

Analyzing the performance of the insurers who were able to better manage their operating costs, the consultants McKinsey have identified four areas on which insurers can use to improve their productivity.

The first relates to operational excellence. It’s a matter of targeting an activity, underwriting or claims, for example, and increase the capacity. Easier said than done ? McKinsey reports that an insurer present in several market segments has put in place a unique structure to achieve his marketing and promote coordination between the marks, allowing to reduce the duplication of tasks.

Then comes the simplification of the structure to improve productivity. An insurer’s scandinavian assets in the property and casualty insurance has set aside its legacy system (legacy system) to carry it in a computer software paid by package. Its operating costs declined 25 %, in addition to enable him to reach an automation level of 80 %.

Third avenue : transform the organization. An approach that is more drastic, admit the experts of McKinsey. It can go to throw a player digital, or sell a block that is closed to sales, for example. An active player in the field of pension schemes in the Uk has completely revised its business model to enable its customers to serve from its portals. His costs direct decreased by 30 %. Not to mention that the company has cut 60 % of its capacity management back-office (back-office).

Last pillar : build on the agility of the company. This is, roughly, to find ways to channel innovation within an insurer, but also to ensure that everything is communicated clearly.

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