Last year, I recorded a podcast about strategic cost reduction in the new normal. While the dust has settled somewhat, it is still critical for insurers to think about cost reduction as part of a business strategy, rather than just a tool. And, for those who implemented strategic cost reduction, this podcast serves as a reminder of next steps.

The new normal

The first half of the decade was marked by substantial, profitable growth and large margins, but the new normal is marked by very weak to negative economic growth. More important, the investment margin, which has typically been the source of profit for insurers, is no longer there. This is really forcing insurers to re-evaluate how they create and market products, and how they configure their businesses to generate profit.

Align goals with cost reduction strategies

Most insurers—and companies in other industries, too—took action to immediately reduce the bottom line. While these cost reductions provide stability in the short term and appease stakeholders, they do not necessarily translate into long-term growth or viability.

Leaders must forecast 2–5 years in the future and re-assess what the business goals are for that time period. By aligning these goals with cost reduction strategies, insurers can achieve high performance. Implementing these changes requires an integrated, flexible operating model.

Key capabilities—and significant challenges

Insurers must develop key capabilities to be able to survive, grow and prosper in the new normal. Further, they must be aware of and have a strategy to address the challenges to success in the new economic landscape:

  • Organizational silos for information, people and processes.
  • Institutional history of past initiatives.
  • Resistance from within the organization.

Perhaps most important, insurers must be able to execute on the future while processing for today. This requires buy-in and support from everyone within the organization, from call-center employees to chief executives.


Over the next two weeks, I will discuss strategic cost reduction in more detail. Next week, I will talk about how to balance short- and long-term goals to allow cost reduction and investment while being able to capitalize on opportunities when they arise.

How has your business adopted cost reduction strategies, and have they accounted for short- and long-term growth?

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