Insuranceciooutlook

What New Strategies are European Insurers Using to Save Cost

By Insurance CIO Outlook | Tuesday, September 10, 2019

European insurers are focusing on strategising cost reduction with technology aid while improving the strength and flexibility of their service and product offering.

FREMONT, CA: Today's unforgiving economic climate confronts European insurers with a multitude of challenges. Greater price transparency, customer cost consciousness, changing the regulatory landscape, and the lack of growth prospect are just a few among them. Insurers across Europe are finding this hard, and many have failed to manage their costs substantially. The insurers are stressing on a fundamental transformation in strategy and operational capabilities. They are determined to get much closer to customers and innovating the way they respond to customer needs. But the crucial priority is the cost that insurers cut, focusing on resources to stimulate growth, to enable strategic cost reduction. Read on to know more about the identified strategies in which European insurers are achieving significant cost reductions.

The first step is a clear understanding of the strategy, operating model, and the risk-adjusted returns from the operations. Looking at returns and costs will be a viable strategy in this face of new technology, changing customer expectations, competition from new entrants and other disruptors. Firms are analysing interactions between business units and the cost it generates to judge whether prices are justifiable. High charges from insurance back-office functions are stemming from overly complicated front office operations. As a solution, insurers in Europe are streamlining and simplifying the front office functions to improve efficiency and reduce costs.

European insurers are targeting investments at winning capabilities and drawing up plans for minimising costs. Differentiating the strategically critical good costs from non-essential adverse costs is the strategy used here. Some expenses are eliminated because the real returns are slow customers do not value what is being offered. Some expenses, like leases, property management, and system update, are kept in place. To see what activities are being carried out, insurers are using end to end cost analysis and getting insights on what value they deliver and how they could be changed. This includes assessing manual, high-cost processes to determine if they could be automated.

From a strategic perspective, cost reduction is an essential part of an overall drive toward high performance for European insurers. A strategic ambition to cost reduction is all that is needed. Insurers are showing the courage to withdraw from markets or optimising product lines so that resources can be better focused. Firms are cutting down costs that are too difficult to tackle, including property, structural inefficiency and complex legacy operations. The opportunities opening up robotic underwriting or automated claims processing are creative means European insurers are using. This can improve customer experience, and insurers can get real-time insights into what customers value and are prepared to pay for.

Strategic cost reduction needs to be run as a strategic initiative with the board of censorship, direction and accountability as any other critical efforts. European insurers are ensuring central governance, secure senior management, and engaging workforce at all levels and develop ways to encourage organisational collaboration. Cost reduction priorities are regularly reviewed and updated to know the opportunities ahead. Insurers prioritising cost reduction are also installing a culture of awareness and continuous improvement in the business. Rewards and incentivising staff to continuously look for improvement opportunities are significantly helping insurers reduce costs.

The survival and transformation of insurance business depend on a change in the competitive capabilities and underlying cost base. It is essential to understand what adds value to the organisation. New hosting methods, updated user experience platforms are changing insurance administration. The front runners in this game are already securing the competitive differential from strategic cost reduction. 

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