It came as no surprise to anyone when analysts, in Accenture’s 2012 Insurance Equity Analyst Survey, included cost reduction among the top three priorities for insurers hoping to receive a superior ranking.
It’s more easily said than done, though.
We’re five years into the recession—five severe years during which cost cutting has been an imperative for all. The low-hanging fruit are long gone, there is no fat which has escaped the attentions of the trimmers, and the perennial cost reduction drives prove less effective—and more debilitating—each time around.
So what is the solution? Nothing less than a thorough review of the cost structure.
- Most of the potential for permanently changing the cost structure will be found in inefficient operating models: old legacy platforms, and business and product silos.
- Portfolio rationalization is, for many life insurers, a major opportunity to reduce costs.
- Business process and other forms of outsourcing have shown they can generate savings of up to 40 percent while enabling a shift from fixed to variable costing.
- I mentioned in my previous blog
- An opportunity not fully exploited by most carriers is price optimization, which can have a big impact on the cost of getting new products onto the market.
- Another powerful lever of cost reduction is scale. By concentrating operations and resources, rather than pursuing expansion for its own sake, insurers can maximize efficiencies and their return on investments in marketing and distribution.
No discussion of cost reduction is complete without mention of technology. This is the subject of my next post, in which I’ll look at the potential for savings as well as for supporting growth. In the meantime, if you would like to read the earlier posts in this series, click here.