Strategy, Execution are Key Element in P&C Success

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

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

With the strategy defined, insurers need a robust operating model 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 and delivery on that strategy in an efficient manner.

We have often found, however, that p&c insurers' operating models can constrain how effective an insurer might be in adapting to volatile markets, executing its business strategies and achieving growth. For example, when strategies, organizations, processes, technologies and data are kept in isolation—serving one business or geographic unit rather than the entire enterprise—the result can be disconnected and inflexible sales, marketing, and service functions.  This makes it difficult for an insurer to attract and keep customers. Data that is duplicated and stored in disparate units across the enterprise also prevents a unified view of the customer—or of the risk associated with serving that customer—increasing operational complexity and costs. 

As business models change, so must operating models. An effective operating model is aligned with business strategy, guided by an ability to anticipate customer requirements and respond competitively to market changes. When defining their operating models, P&C insurance executives should ask five critical questions:

1. What is our unique value proposition to the market?
2. How do we best align our resources to effectively build on our value and our relationship with our customers, suppliers, employees, and partners?
3. How do we set up our structure and decision making to ensure ongoing alignment with our business strategy and responsiveness to changing market conditions?
4. How do we set up our operations to not only efficiently deliver our strategy, but to grow in new markets and opportunities without introducing unnecessary complexity or cost?
5. What are the financial and performance goals that we want to achieve with this operating model change?

Answers to these questions point to design options for the new operating model. While operating model design will differ by carrier, there are a number of leading design practices that all insurers should put in place to improve their efficiency and effectiveness. 

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

The second key concern is people. The operating model should not only define but reinforce adherence to roles, responsibilities and accountability for process execution.  It should incorporate demand forecasting to plan future resource requirements, and it should allocate resources to improve utilization around the globe, avoiding annual staffing peaks and troughs.  

The third concern is organization architecture.  This should address design of a formal governance structure for how employees, brokers, and agents work together to serve customers.  Organization architecture should streamline management structures for greater responsiveness, flexibility, transparency, and accountability while aligning incentives with operating model objectives and tactics to the strategic priorities and value proposition of the company.

The fourth major concern is processes and technology.  The operating model should simplify and, where possible, automate processes and use analytic-driven decision making while eliminating non-value added activities in alignment with the overall strategy.  It should centralize process execution when there is no financial value for local market differentiation, and should standardize execution of processes performed in multiple locations. 

Repetitive and administrative tasks should be automated, simplified, or moved to lower-cost resources.  In some cases, processes should be extended to customers, vendors, and partners for self-service capability.  Technology should be rationalized to reduce the total cost of ownership of systems, with a single view of data to make it accessible enterprise-wide.  The operating model should also incorporate advanced analytics capabilities.

Transforming an insurance operating model can be complicated. The approach for some companies will be a series of small initiatives for continuous improvement, while others will choose targeted 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 the business strategy or financial drivers. In any case, transformation affects almost every aspect of a company and every employee.

Without commitment from the top down, game-changing shifts in the operating model will not happen. Inadequate change management or follow-through also puts successful change at risk. P&C insurers can simplify their transformation by taking a holistic approach to change that addresses related issues (ranging from corporate culture to IT) and sets the context for all actions enterprise-wide to ensure that the business value of the operating model is realized. Equally important to simplifying the transformation is clarifying and managing the incremental value of the change. Benefits should match or outweigh costs, depending on the sequencing of activities.

An innovative operating model goes beyond just changing the organization chart, implementing a new policy administration system or even reducing expenses. It combines all of the company's core components—strategy, people, processes, technology, and data—to create an environment that propels growth. By shifting to the “best fit” operating model, p&c insurers greatly improve their ability to deliver their value proposition to the marketplace while reducing costs, deepening relationships with customers and suppliers, and reaching desired levels of profitability and growth