The need for advanced operating models in the insurance industry

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As the insurance industry looks to capitalize on recent momentum by actively pursuing new growth strategies, there is a continued push toward advanced operations such as shared services and outsourcing as a way to maintain competitiveness and agility. This analysis of survey data provides actionable insights.

For the past few years, insurers have been operating in a relatively favorable environment, logging real underwriting profits and planning additional growth. However, in an industry where the inherent volatility dictates prudence, firms must grow revenues as efficiently as possible. In addition, increasing trends such as customer empowerment, concentrated distribution, use of alternative capital, and a multitude of regulatory threats have led insurers to adjust business models while they reshape their operations and technology platforms.

As the industry evolves, inevitably there will be challenges. Customer segmentation through advanced analytics will enable better coverage along with a holistic approach to customer service, but will rely on effective integration of back-end systems. Flexible growth will prompt a division of core and non-core activities, data standardization, and technology upgrades, but capital expenditures in the face of volatility are less than ideal. Finally, persistently low interest rates and the increasing cost of compliance will force operating leaders to continue to do more with less. As a result, many insurers have already begun to explore more comprehensive shared service, outsourcing, and offshoring initiatives to aid cost-cutting efforts and promote standardization and scalability for cost-effective growth.

To better understand these trends, Everest Group and the Shared Services & Outsourcing Network (SSON) conducted the first-ever survey 1 focused on vertical industry strategies in shared services and outsourcing. The results provide a comparison of respondent opinions across three groups: insurance companies, all respondents across industries, and self-reported “mature organizations,” which are represented by larger, more centralized companies.

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Levers for optimization

Three key levers generate the value delivered by advanced operations—optimized processes through reengineering and centralization, embedded analytics and technology, and increased use of shared services and global delivery.

Process-centric levers

When respondents were asked to prioritize actions for optimizing service delivery, “reengineering and standardization of processes” came into focus across industries with 78% of all respondents indicating it was one of their top three priorities. However, for the insurance sector, this was less pronounced as just over two thirds of respondents indicated the same—still a majority, but not as resoundingly so. Other process-centric levers such as “increased consolidation and centralization” were also highlighted by executives in the insurance industry and the broader sample alike. This is understandable as the industry pushes for growth despite mounting cost pressures, more granular reporting requirements, and an ever-growing pool of disparate data.

Analytics and technology

“Implementation of new tools and technologies”— likely linked to the disposition to “leverage analytics and business intelligence”—were also both areas of focus, although less universally than the process optimization levers.

The use of “analytics and business intelligence” in particular stood out as a priority for insurers compared to other industries, and indeed the possibilities within the industry are promising. For instance, customer segmentation through analytics presents the potential to not only enable better underwriting practices but also identify underserved customers. As the market becomes more transparent through data, and customers grow more empowered, the expectation will be that data is used to improve customer satisfaction, especially in the personal lines and small- and mid-sized commercial segments. The importance placed on leveraging analytics (as well as “increasing global delivery”) might have skewed insurers away from areas such as “increasing collaboration with business users” and to some extent “reengineering” when compared to other industries.

Increasing global delivery

Perhaps one of the most striking findings in the survey was that nearly half (44%) of the respondents from the insurance industry rated “increased offshoring/nearshoring” as one of their top three priorities. This was a marked contrast to other industries as only 19% of all respondents indicated the same—possibly reflecting the fact that many industries have already robust global delivery initiatives in place. Given the cost concerns over more stringent regulations, continued low interest rates, and the need for better technologies and talent, there can be little doubt that more mature offshoring is appealing as a cost-cutting initiative.

However, with “process reengineering” (69%) and “centralization” (50%) still appearing more commonly, it can be inferred that insurers are not focusing on costs alone and that more scalable operations to reach growth targets are needed.

Increasing scope through advanced operating models

Historically, much adoption in shared services and outsourcing has been in traditional “horizontal” functions such as finance and accounting (F&A), human resources, and IT.

This should come as no surprise to insurers, as survey results have shown the industry has a higher representation of horizontal (across industries) and industry-specific functions in outsourced or shared services environments. However, as Figure 3 shows, across industries, the inclusion of industry-specific functions has significantly lagged behind horizontal functions. This may indicate a potential opportunity for insurers, as functions such as policy servicing, records management, claims processing, data processing (underwriting and actuarial), verification, and fraud detection management can benefit from advanced operating models.

The industry-specific functions are also those most commonly reported by insurers as included in shared services or outsourcing initiatives, but the data clearly shows that all have not been extensively included in the scope of those delivery models.

Insurers continue to pursue a more comprehensive shared services environment encompassing a greater breadth of vertical functions in order to address scalability issues and the push for standardization. These initiatives are often part of the pursuit of a target operating model that spans horizontal and industry-specific functions, for more efficient growth and scalability. By focusing on optimizing industry-specific processes, as well as F&A processes such as internal audit and reporting, insurers are addressing environmental challenges (escalating costs, compliance, and data) as well as internal growth initiatives. Insurers are using target operating models to optimize talent and processes both onshore and globally, redefining core versus non-core activities and technology and data standards. 

Conclusion: The path forward

The broad adoption of shared services and outsourcing by insurers has carried across horizontal and industry-specific functions; however, benefits can still be derived through the transition to more industrialized operations. As the continued reengineering of processes enables consolidation, which then leads to greater opportunities for standardization and smoother implementation of technology, the distinction between true core and non-core processes will become clear. With the decision to leverage shared services and outsourcing no longer limited to the purely transactional processes, the pursuit of growth, both organic and inorganic, rather than cost, will accelerate the drive towards greater adoption of new, industrialized target operating models in the industry.

Contact Genpact’s specialists to learn about how to advance the operating model for the delivery of your business processes.

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  1. The survey covered 650 executives across enterprises, service providers and industry influencers. It covered 28 vertical industries, 8 horizontal and 164 vertical functions. 
  2. Operating models – Shared services, outsourcing or Global Business Services