Big insurers insist cost and efficiency drives are no threat to service levels

Zurich Insurance, which recently announced plans to merge its corporate insurance business into its wider commercial unit, admits that the overall insurance sector needs to become more efficient. However, it does not believe that efficiency measures are automatically bad news for customers.

Zurich’s plan to combine its Global Corporate and commercial businesses into a single unit called Commercial Insurance is part of a process to “simplify and strengthen its organisation”, a spokesperson for the insurer told Commercial Risk Europe.

“Combining these businesses will deliver a simpler, more customer market-oriented and more accountable organisation, which will be easier for our customers and distribution partners to deal with,” he said.

“However, reduced costs are merely an ancillary benefit of creating a structure that is more customer oriented. Customers will benefit from a more tailored local approach and from having one interface with Zurich across all of our business lines and products,” the spokesperson added.

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AIG is another insurer under-going restructuring and driving for greater efficiency. Anthony Baldwin, chief executive officer at AIG Europe and head of its UK operation, told CRE how the insurer is look-ing to deal with the prolonged soft market and balance efficiency with service levels.

“How do you deal with that? One, you choose where you want to apply your focus and resource and become excellent at that. This is all about good services but also additional value. If, in doing that, we can reduce the cost of risk, that is good for the client but also good for me as the insurer,” he said.

If insurers are to achieve sustainable combined ratios, they will need to focus on adding value and helping clients reduce the cost of risk, explained Mr Baldwin. In addition, insurers need to evaluate how to use technology to streamline processes.

“If you think about change to increasing levels of digital trading, that is creating efficiencies. The insurance industry is very resilient and has been in operation for hundreds of years, but it is time for us to reinvent ourselves. I think we have all started on that journey,” Mr Baldwin said.

Allianz Global Corporate and Specialty (AGCS) also recognises the need to focus on cost in today’s competitive insurance market and low interest rate environment.

“Every company should be constantly looking for innovative ways to deliver quality service at an appropriate cost. Insurance is no different. We have to take advantage of technology to provide the best service to our clients,” said Brian Kirwan, chief executive of AGCS UK.

“We recognise that a number of our customers are under significant economic pressure and are looking for cost savings in their business.

“This has pushed them to look for savings in their overall insurance spend. The market has managed to meet expectations in many cases. The conundrum now is whether you can obtain the same quality of product and advice for significantly less outlay,” he said.

This means risk managers need to be clear on the service standards they expect, while insurers should be equally clear on the cost of attaining that service, explained Mr Kirwan. “We have to find new and innovative solutions to meet clients’ expectations,” he said.

Technology plays an important role in driving efficiencies, according to Mr Kirwan. “Technological advances free our experts from repetitive tasks and enable them to focus on how they can service clients more effectively,” he said.

AGCS alone is investing more than €90m on major IT projects, the great majority of which are designed to improve service and delivery. It has also established offshoring centres in Asia to handle about 30% of AGCS’ policy administration and around 60% of its IT needs.

“We’re constantly looking at our value chain and asking: how can we do that better, quicker, more efficiently? To me, that’s the right way of approaching the challenge of this market – constantly looking for improvements throughout the business,” said Mr Kirwan.

AXA is another big insurer that plans to cut costs and improve the way it works through adoption of new technologies and better use of resources. It has announced plans to slash costs by some €2.1bn by 2020.

Jürgen Kurth, global chief underwriting officer at AXA Corporate Solutions (AXA CS), told Commercial Risk Europe that the stubbornly soft market and low interest rate environment is clearly adding pressure to the bottom line.

“Insurers are generally under pressure for improved results. The continued soft market, combined with the emergence of new risks and higher trend for major losses, has already led to profit warnings from major players in the industry over the last 18 months. The gap between the technically required premium level and the commercial rates observed is significant in many areas, and insurers have to reduce it by improving various P&L factors. Expenses are no exception and have indeed to be leveraged. The aim to reduce costs also comes from the growing awareness that commercial insurance could be more efficient,” he said.

“Understandably, clients are concerned when they hear about cost cutting,” added Mr Kurth. Matthieu Caillat, global deputy chief underwriting officer at AXA CS, was asked if insurers recognise the need to maintain service levels and invest in innovation, and whether this is really possible while making inefficiencies?

“Insurance is key to ensure business continuity and there is a growing awareness of the value of a well run insurance programme, and symmetrically of the risks associated to a less robust approach. It is therefore fully understandable that insureds are concerned about the quality of the service they get,” he said.

But Mr Caillat said savings do not necessarily lead to poorer quality of service. He added that electronic data interchanges (EDIs) are a good example of this.

“AXA is developing EDIs with brokers and clients. This creates cost savings but also better service through quicker and more reliable information. Today’s technology provides multiple opportunities to save costs while keeping our improving service,” he explained.

Mr Caillat added that AXA has invested heavily to “rip” the benefits from these technologies.

Mr Caillat said AXA is also aware of the need to invest in people, particularly at the more complex and sophisticated corporate end of the market.

“For the upper segment of the corporate business, human expertise cannot be replaced today. That’s why AXA CS, as a leader, keeps investing in people. The costs have of course to be spread among insurers through leader’s fees to recognise the very different contribution of the programme leader versus capacity providers,” he said.

Another way that AXA CS and rivals have improved cost efficiency is through commercially selling, on a standalone basis, insurance services such as programme management, claims handling and risk prevention.

“By doing so, AXA CS increases the volumes, with a direct impact on marginal costs. This approach also enables us to identify and value much better our clients’ needs, which drives day-to-day operations and long-term investment,” explained Mr Caillat.

“An industry that does not innovate is in danger and insurance is no exception. AXA CS is very committed to innovation. The way innovation is promoted also has to be cost-efficient. In particular, having a close relationship with our brokers and clients and a good understanding of their needs and aspirations is key to ensure we can focus on relevant topics,” he concluded.