Most if not all large insurers have outsourced or centralised large elements of their operations. However, more often than not, the expected cost reductions have been difficult to realise and quality of service has been compromised.
Much can be learnt from what has happened and from other industries, on how to better source and manage services from both external and internal suppliers.
We have identified two causes of underperformance. First, almost without exception, the driver of outsourcing and shared services has been to cut cost. A successful model requires far greater attention to be paid to the wider business needs and a more balanced contracting and partnering approach to be established.
High profile failures driven by this cost focus are common, notably when Gate Gourmet went into receivership leaving British Airways with a massive problem (and bill). In the insurance sector, there are many cases of outsourcing contracts resulting in significant conflict between both parties. However, there are also a number of success stories. NS&I outsourced the vast majority of their operations to Siemens Business Services 10 years ago and through flexibility on the part of both, have realised a low cost, high quality and scalable model.
The second cause of failure is insufficient thought and investment being made in the management of the services, across both their supply and the demand. Inefficient processes, lack of the required sourcing and vendor management skills and often the continuing focus on cost are all factors. Investing in these areas from the first step of any change is essential to success.
Insurers can learn from FMCG organisations such as Nestle, Unilever or P&G, who are reinventing sourcing and shared service delivery through innovative 'Global Business Services' models which set a common approach for consumption and management of services.
PA works internationally with insurance clients in this area, and on the development and adoption of the Global Business Services model globally. For more information or to discuss how to make your business fit for the future please contact us now.