Introduction: Challenging times for the short-term insurance industry

A challenging environment

Although many short-term insurers were less impacted by the 2008 recession compared to other financial services companies, a number of internal and external forces have resulted in a challenging environment for the industry:

External forces

  1. Regulation: New regulation, such as Solvency II in the UK, SAM and TCF in South Africa has forced insurance organisations to invest heavily in new IT and operating processes to provide the necessary controls and transparency
  2. Market Saturation: Although many of the traditional dominant players remain, the industry is saturated, with over 1,000 companies in the UK alone authorised to write General Insurance (GI). This is only set to increase with an expanding and highly competitive bancassurance presence
  3. Increasing Customer Demand: As in other industries, the introduction of new technologies, such as internet self-service, online price comparison, and social networking has heightened the demand placed on customer service

Internal forces

  1. Increasing Operating Cost: Faced with increasing expenses and a greater number of fraudulent claims (in the UK alone, there were over 138,000 fraudulent GI claims in 2011), the average cost to service claims is rising
  2. Inefficient Operating Models: Many insurance organisations are restricted by inefficient legacy operating models and inflexible, resource-intensive structures, systems and processes that were traditionally built around the products offered
  3. Inefficient Supply Chain Management: Insurance organisations are faced with increasing costs to service claims with multiple, often complex and inefficient, supplier relationships

A number of internal and external change forces are driving insurance organisations to draw on the experience of other industries in the search for the efficiency, expense reductions and cost per claim savings required to transform their businesses.

The need for a new approach

We believe that now is a critical time for insurers to meet both internal and external forces head-on and innovate if they are to continue to protect and grow their bottom line in an increasingly challenging market.

A new, common approach

Our experience tells us that there are a number of key areas for insurance organisations to consider:

  • Consolidating independently operating product-related functions into a single environment with broad, common support capabilities
  • Empowering customer service and claims leaders and agents to deliver optimal and customer-centric personalised service
  • Investing in customer-centric systems, processes and training (as is the trend in other customer service industries)
  • Investing in data quality and management systems (namely analytics and predictive modelling)
  • Developing agile multichannel customer touch points (including mobile, online, and digital technologies)

Organisations that take a step back, critically evaluate their current business and supporting operating models, and challenge the ‘norm’ or traditional way of doing things will be best placed to make informed decisions this will help to drive the business to:

  • Dramatically improve customer service
  • Deliver against increasing regulation and operational risk
  • Reduce overall operational complexity and operating expenses
  • Obtain a consistent end-to-end understanding of costs and capital deployment across the organisation
  • Ensure efficient supply chain management
  • Improve workforce performance

What will this White Paper focus on?

This White Paper will seek to demonstrate how insurance companies – particularly short-term insurers – are transforming in order to remain competitive in an increasingly challenging market.

It will focus on:

  • Demonstrating the pitfalls with legacy organisational structures
  • How claims operations efficiency relies upon an organisation’s IT infrastructure
  • The benefits of consolidating an insurance organisation’s operating model by common capability
  • Successful examples of transformation programmes in the insurance industry
  • What insurance organisations can learn from other industries

Legacy organisational structures: An inefficient way of working

As is often the case in industries that have grown over time, particularly those with periods of healthy top line growth, insurance organisation structures are often product- centric, expanding as product lines have been added to existing offerings.

The claims management function provides a good illustration of this – an approach that needs to be reassessed if insurance companies are to continue to grow in an increasingly challenging and saturated market.

Claims management

Claims management often accounts for a significant percentage of total administrative costs:

  • Processes are based on aged legacy systems and are often time-intensive, manual, and paper-based
  • Claims systems and processes are run for single product lines (as illustrated in the diagram opposite) rather than having a standardised solution for multiple products
  • Claim lifecycles can be lengthy, with high claim loss ratios and high supply chain costs
  • Workers often spend up to 50% of their time on routine interactions that have little or no impact on the outcome of a claim
  • As organisations look to leading businesses in other industries to identify best practice and alternative solutions, claims service expectations in the insurance industry are also increasing – 75% of policyholders want to speak to only one representative during the claim process; 80% of people would file claims online if it would expedite the process

Example claims management process:
Product-Aligned Model

Screen Shot 2016-08-22 at 17.02.52

The role of IT

The efficiency of claims operations rests heavily on an organisation’s IT infrastructure. However, in many short term-insurance organisations, there is a need for significant investment to upgrade legacy IT systems and adopt new integrated technologies. These include:

  • Online claims processes
  • Self-service web enablement
  • Accurate and real-time management information and data analytics, based on a single source of data
  • Flexible payment mechanisms
  • Mobile applications and social media
  • Automated fraud prevention

Finding innovative commercial arrangements with vendors can ease the capital burdens of such IT requirements.

Unless scale is particularly large, operating models structured around product verticals are inefficient, and will struggle to deliver ambitious growth targets within the context of operating expense constraints. In addition, such models are not best structured to provide the level of customer service demanded to retain the 21st century consumer.

A new, common approach: Restructuring insurance companies by capability

A number of leading insurance organisations have already recognised the need for fundamental changes to their operating models, business processes and IT systems in order to position themselves to deliver against the cost, service and regulatory challenges they face.

Industry insight

In common with other industries, short-term insurers have realised the need to consolidate common capabilities across products in order to reduce operational and infrastructure costs, whilst improving service delivery and customer interactions.

In the example of claims management, insurers realised that getting this right would also provide better cross-sell and up-sell opportunities. Generally, customers have at most two touch points per year with their provider; once at renewal and once if there is a need to claim. In the former, the customers tends to be interested in price and will generally make a decision based on this. In the event that the customer needs to make a claim, if the customer is delighted, they are likely to refer you to others, renew and pay a higher premium, or even buy more products.

However, delivering to this level of customer- focused performance has not been easy. Ten years ago, UK short-term insurance organisations were unresponsive and transformation was inhibited by organisational cultures that were ‘stuck in their ways’. To overcome this, drastic measures were taken by those that were intent on enabling progress. For example, in some insurers, isolating parts of the business from the wider organisation enabled the required focus and sponsorship to succeed without disruption.

Example target operating model:
Combined Common Capability Model

Screen Shot 2016-08-22 at 17.03.03

Lloyds, Aviva, Aegon, Direct Line, and Zurich are notable examples of insurance organisations that are, to some degree, aligned by common capability

By transforming their operations and consolidating common capabilities, insurance organisations have benefitted from:

  • Claims processing efficiency savings
  • Reduction in operating costs
  • Increased customer satisfaction and retention
  • Improved workforce performance

The following examples demonstrate several successful transformation programmes within the insurance industry related to Customer Servicing and Claims Management. These endeavour to eliminate functional, talent and competency overlap.

1 Customer servicing


Best-practice customer service:

  • Developed a centralised customer service facility to combine customer service capability into one back office function
  • Strengthened operational support, propagated best practice and exploited economies of scale

A new operating model leveraging technology and capability:

  • Set up iWYZE, M&F’s online offering, to align to a customer need for simplified personal insurance which was easy to buy and claim
  • Empowered the broker channel to better serve at a lower cost incentivizing a better customer experience

Re-structuring by common capabilities:

  • Consolidated expertise into centralised capability groups across products
  • Resulted in high performing centres of excellence managing customer service, sales and back office administration

Strategic investment in customer service:

  • Developed a new claims system and specialist case management software to improve customer service and transparency
  • Improved communication to customers through integrated SMS, email and additional payment methods

2 Claims management


Restructuring by common capabilities – claims management:

  • Large transformation programme established workstreams based on capability (e.g. separating high volume claims and large loss claims) with each workstream processing claims for all products
  • Reduced costs through more efficient and faster claims handling

Claims transformation programme:

  • Transformation programme re-organised the operating model by common capability and developed a new best-practice claims management system
  • Resulted in improved claims management, legal case management and customer service and reduced average claim settlement times

Integrated claims function:

  • Transformation restructured operating model, creating a Rapid Response Unit for claims notification and claims settlement
  • Resulted in one efficient, integrated and consistent operations function that handles claims through a single system and set of best practice processes

Automated underwriting:

  • Developed a centralised web-based claims automation and management reporting system to replace multiple legacy sub- systems
  • Reduced claims expenses and increased customer retention by c.20%

Learning from other industries

How organisations have transformed operations functions

There are also lessons to be learnt from organisations which have undergone transformations to restructure and consolidate their operations functions in industries with complexities similar to insurance:

Company Locations How have they transformed their operations structure?
Global (US) Worldwide leader in transforming how people connect, communicate and collaborate. Developed an automated supplier management office based on e-procurement to select vendors aligned to their strategic needs. This system greatly increased supplier management flexibility, improved contractor relationships and significantly reduced overall supplier costs.
Global (UK) Leading international retailer which relocated, expanded and integrated its fulfilment and customer service operations in order to greatly increase its capacity and reduce overall operating costs.
Global (UK) Global provider, accustomed to significant post-sales support. Implemented a new target operating model for Finance, IT, HR and Supply Chain across global operations enabled by aligning common capabilities to support global end to end processes.
Africa (SA) Large financial services organisation that deals with transactions of similar context and complexity to short-term insurers. Operations function utilises a global shared service capability structured by enablement workstreams.
Global (US) Global consulting leader in talent, health, retirement and investments. Established a global operations and shared services centre in order to improve their employee benefits administration. Consolidating these non- client facing and commonly repeated services into one centre has improved efficiency and service quality, as well as reducing costs.
UK UK telecommunications provider streamlined processes and conducted an operations support services transformation in order to consolidate the operations of three businesses that merged to form Virgin Media. This included a successful centralisation of their workflow management system.
Global (US) Boeing, a multinational aerospace and defence company has set up a shared services group which provides a wide range of common services worldwide including site operations, recruitment and employee services. This has simplified operations and reduced operating costs.

Short-term insurance organisations are likely to continue to follow the examples set by successful organisations in other industries and re-structure parts of their organisation by common capability. This will include increasing their spend on IT systems, seeking alternative distribution channels that are aligned to customer needs, and considering outsourcing and shared service options.


Although many of the major players in the short-term insurance industry have demonstrated steady growth, challenging market trends are forcing organisations to change business and operating models in order to give themselves the best possible platform to sustain their success in the future.

Key Takeaways: Critical Success Factors:
Market saturation, increasing regulation, new competition and technological advances are increasing the pressure on rates, claims costs, operating costs and customer service expectations There is a rising awareness amongst senior leadership in short-term insurance organisations that they need to proactively address internal and external forces, particularly regulation, in order to meet ambitious growth targets whilst reducing operating costs The implementation of effective governance structures and reporting systems Investment in processes and technology to comply with new regulation
Legacy operating models are inefficient, siloed and struggle to deliver ambitious growth targets and customer service expectations within the context of operating expense constraints Short-term insurance organisations are transforming their operating models to enable growth by consolidating common capabilities to reduce operating costs, benefit from claims processing efficiency savings, and drive increased customer satisfaction and improved workforce performance Unconstrained thinking when defining and developing the operating model Total cost to serve should take into account both cost of claims and operating costs
Successful organisations in both the insurance industry and elsewhere are already seeing the benefits of re- structuring their organisation by common capability Short-term insurance organisations should seek to follow the lead of other successful organisations and continue to increase spend on IT systems, seek alternative, aligned distribution channels and consider outsourcing and shared service options Aligning IT investment to the business strategy to enable successful delivery against evolving customer demands. Consider shared service options to reduce overall operating expenses