For the last few years, the outlook of the insurance industry has changed dramatically. Increasing regulations have resulted in significantly higher compliance costs. Acceleration of technology innovation has fuelled competition from alternative providers and puts further pressure on margins.
What’s more, changing customer buying behaviours have translated into weakening demand for traditional products and services. In countries with high demographics where the development of a middle-class has created growth opportunities for the industry, less favourable macro-economic conditions and rising climate change issues weigh down on insurers’ profitability curve.
For instance, as reported by the 2018 report of the Federal Insurance Office, net income in the U.S. Property & Casualty sector recorded a 44% decrease between 2013 and 2017. During the same period, as Bain & Company reported, the Asian insurance markets experienced a two-digit annual growth rate in average, carried by the development of insurance in mainland China.
Suffice to say that all of these changing dynamics can significantly affect how business leaders throughout the insurance industry can drive growth.
How insurers can drive a profitable growth agenda in turbulent times of change
The persistent low-interest environment and low-cost structures of the new entrants providing fully digitized insurance products and services create a sense of urgency for incumbent insurance carriers to gain full transparency on cost and profitability by lines of business and products and reduce cost structures via cost transformation programs.
Connected Planning technology allows insurers to manage their profitability by lines of businesses, products, and distribution channels, help identify non-profitable parts of the business, and reallocate capital to where the company gets the best returns. To achieve this objective, the solution leverages driver-based cost allocation functionalities and helps also model sophisticated activity-based costing processes.
Additionally, the platform can be a technology enabler to practices such as zero-based budgeting programs, which aim to save costs that can instead be reinvested in areas where the insurance company achieves better returns.
Over the last few years, a resurgence of zero-based budgeting initiatives were observed in the insurance industry that generated sustainable cost savings and reinvested them in critical growth areas of the business.
In sponsoring zero-based budgeting programs or wider cost transformation initiatives, insurance CFOs can play a significant role in the pursuit of a profitable growth agenda.