Cost reduction is undoubtedly a top priority for life insurers today. While some organizations have already found a way to operate efficiently at low cost, others are still struggling to achieve their savings goals. In fact, the challenge becomes more difficult every year as insurers are forced to push their cost targets to increase investment in more strategic areas to fuel growth and innovation.
Five models for strategic cost reduction
To succeed, life insurers must take a more strategic approach to reducing costs rather than focusing only on short-term measures for quick savings. They must shift from ad-hoc cost cutting to strategic cost management to achieve sustainable benefits. Here are a few models insurers can consider to sustain and improve savings over the long term:
Zero-based organization: This approach is focused on taking costs out of areas with little impact or differentiation and spending in areas that drive growth, such as product innovation, marketing or sales campaigns to reach new consumers, or new market entry. Insurers can adopt this model to fuel growth by removing waste and freeing up capital that can be reinvested in lucrative activities.
Standardized shared services model: A shared-services model can bring a variety of gains. Insurers can integrate front-, middle- and back-office activities across multiple processes and functions to create meaningful end-to-end services.
Robotics process automation (RPA): RPA is transforming the way business processes are solutioned, delivered and managed. This disruptive technology can redefine back-office functions such as applications handling, claims processing and data entry, completely eliminating human intervention in repetitive, time-consuming tasks. Life insurers can leverage RPA to boost low-cost, high-quality and quick service delivery. Read my previous blog for the key ingredients insurers need for an effective RPA initiative.
Relocate and optimize footprint: Insurers can consider relocating work from high-cost locations and redeploying it to high-quality low-cost offshore locations to unlock cost savings and improve operational efficiency.
Liquid workforce: The emergence of a flexible, adaptive and responsive workforce has changed how businesses operate. It’s time for insurers to take the leap and harness the right technology to enable the right people to do the right things in an adaptable, change-ready and responsive liquid workforce.
Apart from ensuring effective execution of one or more of these models, insurers must create a cost-conscious culture and make it a collective responsibility of all business functions to optimize cost and drive value. Additionally, they must deploy gatekeepers to review the cost-cutting initiatives periodically to flag any loopholes and keep overheads from creeping in. A holistic approach will definitely help insurers achieve sustainable cost savings, and drive competitive advantage and profitability by reinvesting those savings in high-growth initiatives.