Video
Big global insurers have consistently underperformed their smaller peers over the past five years. At the heart of the problem: growing complexity. Thomas Olsen, a partner with Bain's Financial Services practice, discusses three ways insurers can successfully cut down on complexity.
Read the Bain Brief: Are Global Insurers Too Big to Succeed?
Read the transcript below.
THOMAS OLSEN: The big global insurers manage a lot of the world's risks. Unfortunately, they've also consistently underperformed the smaller regional and local players of the last five years in financial performance. With a 200 basis-point ROE gap driven by both lower growth and higher costs, are these big global insurers too big to succeed? We don't think that's necessarily true, but they do need to address the heart of the problem: complexity.
Business, process, and organizational complexity is the silent killer of profitable growth, and not just for the big insurers. In fact, only one in nine large companies are able to sustain profit growth for a 10-year period. While most companies launch significant cost initiatives to try to address part of this problem, we see three common pitfalls.
They cut costs without cutting the complexity and fail to really address the root causes of the problems they face. They fail to address the issues at the seams of the organization—the silos and the collaboration behavior across where a lot of the costs are created. And third, risk-aversion—especially insurers. They're too set in the existing processes to take the more radical changes needed to make the changes stick.
For the big insurers, this is more important than ever. They face continuing headwinds in the macroeconomic environment and low interest rates. They have ongoing price competition and pressure, especially now with aggregators and fintechs adding to that challenge. And the pace of technological change is reshaping the industry cost structure over time, and that will only continue and accelerate.
We see three guidelines that can help global insurers address this issue. First, challenge the status quo and rethink the way things are done. Take a future-back approach to the nature of the work and how it's done. Second, redesign and rethink the operating model to challenge the problems at the seams of the organization and the silos within it. And finally, keep the complexity from creeping back by developing a culture obsessed with simplicity.
Read the Bain Brief: Are Global Insurers Too Big to Succeed?
First published in November 2016