Gino DiGregorio and Michael Reilly are managing directors inAccenture Property and Casualty Insurance Services.

There are two basic components involved in running a successfulcompany: Strategy and execution. For P&C insurers,a sound business strategy sets forth the carrier's plan to generaterevenue. It reflects market trends and articulates the insurer'sdeliberate decisions regarding multi-year business objectives, thevalue that must be delivered, value to deliver, customers totarget, products and services to offer, and go-to-marketapproaches.

With the strategy defined, insurers need a robust operatingmodel to lay out the tactics needed to execute that strategy. The operating model defines the allocation of the organization,people, processes, and technology resources to implement anddelivery on that strategy in an efficient manner.

We have often found, however, that p&c insurers' operatingmodels can constrain how effective an insurer might be in adaptingto volatile markets, executing its business strategies andachieving growth. For example, when strategies, organizations,processes, technologies and data are kept in isolation—serving onebusiness or geographic unit rather than the entire enterprise—theresult can be disconnected and inflexible sales, marketing, andservice functions. This makes it difficult for an insurer toattract and keep customers. Data that is duplicated and stored indisparate units across the enterprise also prevents a unified viewof the customer—or of the risk associated with serving thatcustomer—increasing operational complexity and costs.

As business models change, so must operating models. Aneffective operating model is aligned with business strategy, guidedby an ability to anticipate customer requirements and respondcompetitively to market changes. When defining their operatingmodels, P&C insurance executives should ask five criticalquestions:

1. What is our unique value proposition to the market?
2. How do we best align our resources to effectively build on ourvalue and our relationship with our customers, suppliers,employees, and partners?
3. How do we set up our structure and decision making to ensureongoing alignment with our business strategy and responsiveness tochanging market conditions?
4. How do we set up our operations to not only efficiently deliverour strategy, but to grow in new markets and opportunities withoutintroducing unnecessary complexity or cost?
5. What are the financial and performance goals that we want toachieve with this operating model change?

Answers to these questions point to design options for the newoperating model. While operating model design will differ bycarrier, there are a number of leading design practices that allinsurers should put in place to improve their efficiency andeffectiveness.

The first area of concern is leadership. The operating modelshould clearly define not only leadership's role in managing thebusiness, but should also clarify how key business decisions willbe made, including resolution of any conflict. This includesunderstanding and providing leadership with the right informationand analytics to aid in their decision making.

The second key concern is people. The operating model should notonly define but reinforce adherence to roles, responsibilities andaccountability for process execution. It should incorporatedemand forecasting to plan future resource requirements, and itshould allocate resources to improve utilization around the globe,avoiding annual staffing peaks and troughs.

The third concern is organization architecture. Thisshould address design of a formal governance structure for howemployees, brokers, and agents work together to servecustomers. Organization architecture should streamlinemanagement structures for greater responsiveness, flexibility,transparency, and accountability while aligning incentives withoperating model objectives and tactics to the strategic prioritiesand value proposition of the company.

The fourth major concern is processes and technology. The operating modelshould simplify and, where possible, automate processes and useanalytic-driven decision making while eliminating non-value addedactivities in alignment with the overall strategy. It shouldcentralize process execution when there is no financial value forlocal market differentiation, and should standardize execution ofprocesses performed in multiple locations.

Repetitive and administrative tasks should beautomated, simplified, or moved to lower-cost resources. Insome cases, processes should be extended to customers, vendors, andpartners for self-service capability. Technology should berationalized to reduce the total cost of ownership of systems, witha single view of data to make it accessible enterprise-wide. The operating model should also incorporate advanced analyticscapabilities.

Transforming an insurance operating model can be complicated.The approach for some companies will be a series of smallinitiatives for continuous improvement, while others will choosetargeted intervention, with big changes implemented one at a time.A third option is a complete reinvention of the operating model,with large shifts in the organization's structure to sync up to thebusiness strategy or financial drivers. In any case, transformationaffects almost every aspect of a company and every employee.

Without commitment from the top down, game-changing shifts inthe operating model will not happen. Inadequate change managementor follow-through also puts successful change at risk. P&Cinsurers can simplify their transformation by taking a holisticapproach to change that addresses related issues (ranging fromcorporate culture to IT) and sets the context for all actionsenterprise-wide to ensure that the business value of the operatingmodel is realized. Equally important to simplifying thetransformation is clarifying and managing the incremental value ofthe change. Benefits should match or outweigh costs, depending onthe sequencing of activities.

An innovative operating model goes beyond just changing theorganization chart, implementing a new policy administration systemor even reducing expenses. It combines all of the company's corecomponents—strategy, people, processes, technology, and data—tocreate an environment that propels growth. By shifting to the “bestfit” operating model, p&c insurers greatly improve theirability to deliver their value proposition to the marketplace whilereducing costs, deepening relationships with customers andsuppliers, and reaching desired levels of profitability andgrowth