An Insurance Company Shared Services Model Can Yield Savings
A number of environmental factors — including increasing regulatory scrutiny, a volatile economic and investment environment, and evolving customer needs and expectations — are forcing insurers to reevaluate their existing operational models and look for new ways to cut costs and increase efficiency while also reducing risk.
That’s a tall order for any company, big or small. But with the promise of benefits like greater scalability, lower operating costs, increased control and an improved customer experience — not to mention streamlining the regulatory process and functions in finance, accounting and customer care — shared services emerges as a compelling solution.
Simply put, shared services is a business model that involves simplifying, standardizing and then centralizing (on- or off-site) multiple back offices into a distinct entity. The entity treats the company’s business units like customers, offering services the business units value and charging for each. A potential key benefit of this model is more streamlined processes like claims, billing and regulatory reporting. It’s a proven approach that has been embraced by companies across industries, including high tech, oil and gas, and capital markets. It continues to get high marks for creating leaner businesses: Accenture research found that 91% of executives surveyed believe that CEOs see shared services as critical for reducing complexity in their business.
Despite its clear and compelling business case for insurers, the insurance industry has been slow to embrace the shared-services approach, with many insurers continuing to work in silos. Any move in favor of shared services is perhaps hampered by a reluctance to give up the tried-and-true, decades-old processes and systems that have seen them through to this point. But old ideas must evolve to survive in a modern world.
In this white paper, we examine the industry challenges and business imperatives driving insurers toward adopting a shared-services model. Additionally, we explore how a shared- services strategy can help insurers overcome the challenges they face and the best practices that they can follow to put shared services into action.
Insurers Face Significant Operational and Regulatory Challenges
For many insurers, decades of growth through acquisitions and/or the creation of new lines of business have contributed to an organizational structure characterized by multiple and disparate back offices that lack uniformity: Each has its own processes and nomenclature. Unfortunately, such dispersed and fragmented operations contribute to duplicative administrative efforts and a breakdown in information-sharing across the insurance organization. Essentially, each business unit is working in its own silo, driving higher costs and inhibiting agility.
Moreover, because each business unit is relying on a different legacy system that has likely been in operation for decades, insurers can’t take advantage of the automation, analysis and digitalization benefits of modern, high-performance platforms and systems. Instead, they remain mired in paper-based and manual processes that significantly affect productivity and efficiency. This can be especially problematic when it comes to compliance efforts, as insurers are forced into inefficient and error-prone manual processes to deliver required regulatory reports.
But the lack of digitalization and deficiencies of legacy systems in multiple back offices don’t just affect the insurer’s employees. Customers, too, feel the pinch. For example, today, customers expect to be able to interact with their insurer anytime and anywhere through their preferred channel of communication, whether on their mobile device, through social channels or on their home phone. They want to be able to start a conversation on one channel, and pick it up later through a different channel without missing a beat. They also expect to use self-service models to buy or change a policy. In fact, a recent Accenture survey found that 90% of its respondents expect that insurance customers buy their policies through online or mobile apps. Designed before the Digital Revolution, legacy systems aren’t flexible enough to support these types of services and capabilities. Therefore, continuing to rely on them compromises an insurer’s ability to compete based on one of the most important differentiators today — customer experience.
Despite these well-documented drawbacks, insurers continue to hold a pervasive misperception that their back offices must remain independent because of unique strategies and processing and technology needs. Insurers also may fear that standardized processes and systems will compromise their ability to tailor the customer experience by product.
However, underpinned by digitalization, a shared services model can help overcome these fears and challenges and deliver the business benefits required for today’s insurers to compete and succeed.
Insurers Should Consider the Benefits of a Shared Services Model
Cost savings, of course, is a key driver of the shared-services value proposition. By reducing complexity through centralizing and standardizing back-office functions, processes and systems, insurers can certainly save a significant amount.
The cost savings are incremental: Standardizing processes creates one level of cost savings, centralizing processes to create scale provides another level of savings, and centralizing back- office operations in a lower-cost location (whether within the United States or offshore) delivers a third level of savings. Each step provides insurers an advantage over a disparate distributed profit.
The benefits of this structure do not end here. Technology advancements offer further savings and improvements. Once these standardized and scaled processes are in place, robotics and artificial intelligence applications can be deployed to remove numerous manual interactions. As a result, any company not on this path today can be quickly be left behind by more advanced competitors.
But shared services is not just about cutting costs. As economic conditions improve, insurers are also putting more thought into how they can grow their business. With technology at its foundation, a shared-services model supports the operational scalability and flexibility needed for this growth by making available resources for redeployment to higher-value tasks, or to be cross-trained on different product lines. This positions insurers in a way that allows them to do more with less in one area so they can invest in other business-building activities that will grow their company in other areas. In addition, insurers can reduce business processing cycle times (such as for claims processing and servicing policies) through automation. This means that repetitive and manual tasks, such as intake of information, are reduced or eliminated, which mitigates errors and accelerates processing.
Shared services can also enable faster innovation in volatile marketplaces, where supply and demand are unpredictable. In this environment, the ability to quickly innovate and introduce new products and services to customers is a competitive differentiator. And finally, customer communications are enhanced with a shared-services model by virtue of a single technology platform that supports omnichannel communications. Customers can communicate with the insurer in their preferred mode, enhancing the customer experience.
With the challenges and benefits clearly laid out, let’s turn now to the best practices that will help the insurer put it all into action.
Best Practices for Implementing a Shared Services Model
As with any proposed change in operations, the first step in creating a shared-services model that is nimble enough to support the speed of business today is to get buy-in from leadership. Shared services can affect a number of functions and business units; therefore, it’s important that the insurer’s executives are on board to support the vision and articulate the changes and benefits before and during the implementation. Along that same thread, insurers should have a plan for effective communications and change management to neutralize resistance and improve the likelihood of a smooth transition.
Once that higher-level roadmap from leadership is articulated, insurers must involve their local experts to help design, analyze and build the right shared-services model according to the insurers’ unique needs. Following are some key best practices that insurers should consider as they implement shared services.
Craft a well-designed roadmap that follows a structured approach. Review the current state of the business and identify top improvement opportunities. Determine who will do what in each phase of the work, and design the workflow in such a way that it achieves all of what must be accomplished without adding any frustration.
Assess all core and non-core activities and identify processes that would benefit from a shared-services model. As part of this assessment, determine how efficiently and effectively core processes (such as underwriting) and non-core processes (such as forms processing) are currently operating. Insurers should compartmentalize each step in the process, figure out how each can be done more efficiently and determine how retooling will help.
Move the non-core services and well-defined decision systems to the shared-services model. It makes sense that an insurer’s high-touch, more complex consultative services — such as pricing and quoting, risk management, financial planning and analysis and claims strategy — are retained by the business and provided by experts that can make well-thought out decisions on risk. Low or zero-touch services, such as a life insurance policy where risks are minimal or quick, repeatable decision standards can be applied, don’t require the involvement of experts. Renters and basic life insurance policies are moving in this direction.
Adopt a phased approach to implementation. Follow a formula for success for the setup phase, the growth phase and the maturity phase so that there is more chance for success. If insurers try to change too much at once, it adds risk and complexity that will threaten the successful implementation of the new model. Establish critical milestones and acknowledge each accomplishment along the way to sustain engagement and support.
The shared-services journey can be long and complex. A managed services provider can help provide the expertise needed for insurers to ensure a smooth transition.
Market and regulatory changes, in addition to customer and competitive pressures, have put substantial stress on insurers’ traditional organizational structuring to the point where their current model is no longer sustainable for the future. With technology at its foundation, a shared-services model offers insurers the opportunity to move beyond traditional organizational structures, no longer handcuffed to inefficient processes and outdated systems that operate separately according to business unit or product line.
As we’ve discussed here, adopting a shared-services model can clearly improve insurers’ agility and growth potential by ensuring all parts of the organization — from the back office to the agents on the front lines — are aligned and working together. Along with standardization of processes and nomenclature, new technologies that enable automation, advanced analytics, collaboration and omnichannel all combine to deliver real business impact for the modern insurer.