Insurers need fundemental change, and soon

The insurance sector continues to ignore a truth so self-evident all but insurance executives can see it: processes are inefficient and costing the sector millions, if not billions a year.

Through constantly deferring a decision on this critical issue, insurers continue to do themselves and their investors, shareholders and policyholders a disservice.

For years now, we have consulted with insurers of all sizes, across the board, and in recent times the conversations have become increasingly desperate. They ask questions such as:

* Can't we introduce customer self-service? We could cut our costs significantly if we could have our customers go direct. The answer: No ... not enough South Africans are online, and you can't service only a fraction of the population, given the potential for government-driven pension schemes being introduced.
* Should we change our technology? Maybe if we deployed new applications on lower cost platforms, we could significantly reduce our costs?
* Should we change our workflow? Remove as much paper from the system as possible? Introduce scanning at the point of origination?

All of these, unfortunately, are still peripheral issues. They do not go to the core of the problem. And this is, simply, that insurers' core processes are cumbersome and have been for decades. In terms of driving corrective action, everyone has picked the low-hanging fruit, done the easy stuff.
But it's in the heart of the business, the processes and the back-end systems that support them, that insurers are in trouble in terms of their costs.

This holds true for all insurance sectors: short-term, life ... investment.

We are not alone in calling for dramatic, fundamental change in the insurance sector; and South African insurers are also not unique in their process inefficiencies. From San Francisco, insurance software provider Exigen reports in a survey that nearly 90% of executives say inefficient business processes are having a negative effect on their organisations. Staff morale and productivity and customer satisfaction suffer as a result.

The greatest perceived obstacle to operational improvement, according to Exigen's survey, was legacy technology, with respondents saying existing systems are to blame for lack of business process innovation.

And a study of Thai insurance companies showed that insurers were more than 82% inefficient, which negatively impacted on return on equity and return on assets.

The correlation is consistent, and the findings are unmistakable: the core processes are wrong and inefficient; if they weren't, all the wrong manifestations wouldn't be there, across life, risk, pension fund administration systems ... all of them display precisely the same inefficiencies. Even where IT systems have been used to automate processes, because the processes themselves are inefficient, insurers have ended up with inefficient automation.

The consequence is that insurers are still backing off on the real issue. Perhaps they don't know where to start the process of change, or they don't have the skills, or the high-level view required to understand what to do.

In this regard, it is advisable to work with a third party, to partner with someone with the requisite experience in seeing the bigger picture and in moving from legacy processes and systems to a new generation of enterprise architecture – from business models through processes, people and IT.

Unless they change, insurers are going to find one of two scenarios playing themselves out in the market:

* They will simply be priced out of the market by lower-price competitors. These will come either directly from South Africa, or from abroad. These competitors will typically have fashioned their business with new processes and supporting IT systems, unlike the established players, who have the ball and chain of their older systems and technology.
* The market will see the emergence of outsource administrators which can do the job of insurance company management better than the companies themselves. The larger companies will become manufacturers of products, which they supply to an administration specialist. In this case, many existing insurance executives will find themselves disintermediated out of a job.

The consequences of inaction will be severe. Are there any executives in this sector ready to grasp the necessity for massive change?