What's Keeping Big Insurers From Growing?

What's Keeping Big Insurers From Growing?

To successfully deliver a lower-cost, higher-growth model, global insurers must address their complexity.

  • min read


What's Keeping Big Insurers From Growing?

This article originally appeared on

In an industry that puts great stock in the balance sheet, one might expect that bigger is better. Yet, somehow, large, global insurers have consistently underperformed their smaller peers, delivering returns on equity (ROE) that are about 200 basis points lower than their national and regional peers, and total shareholder returns with a similar difference between global and national insurers. The gap in ROE stems from both higher costs and slower premium growth. Other than the scale benefits that seem to accrue to investment platforms, this performance raises the question: Are global insurers too big to succeed?

We think otherwise. Bigger insurers can deliver a lower-cost, higher-growth model. But to do so, they must address the heart of the problem: complexity. The complexity of operations makes most global insurers slower, costlier and less responsive to customer demands. They’re burdened by years of adding processes, systems, products and features, and rarely removing outdated ones. Agents and employees find it harder to explain products to customers or to understand how all the products fit together. At many large insurers, the basic customer services, such as paying claims and calling back customers who have questions about their coverage, lag those provided in industries that have set a higher bar.

It’s hard to be simple.

Why is complexity so difficult to eradicate? We have seen three pitfalls that commonly snare insurers.

A focus on cutting costs, not complexity. Many insurers launch headcount-reduction programs to meet the targets, often using crude tools, such as reducing spans and layers, to push through changes. Invariably, though, costs come back, because the nature of work has not really changed.

Failure to tackle issues “in the seams.” Every organizational structure creates boundaries between departments, geographic units or lines of business, and people must collaborate across these seams. The largest global insurers, with their entrenched silos, find it difficult to do this. As a result, single-function efforts aimed at tackling complexity are doomed to fail—underwriting optimization, for instance, can’t succeed without a connection to the claims unit.

Risk aversion. Most insurers have a “belt and suspenders” culture, which manifests through narrow solutions to single-point problems. Given that culture, complexity is bound to come back.

Ultimately, reducing complexity in a large enterprise requires careful planning and orchestration, yet at a fast pace. From our work advising and studying insurance companies, we have discerned three practical guidelines that can help senior leaders balance the short- and long-term concerns, to achieve a successful transformation.

1. Change the nature of the work. Executives who decide to tackle organizational complexity sometimes start by drawing boxes on a page, in an effort to build a simpler organizational structure. In our experience, it’s more effective to start by redesigning the work itself, which entails being structurally agnostic about the nature of the work.

The key to this exercise is to take a “future back” approach. Rather than mapping the minutiae of current processes and attempting to refine them, start with the core elements of the value chain, project the future state of the market and the company’s desired position, and design how work should get done. This forces management to make breakthroughs in decision making and work processes.

As part of a broader redesign of its operating model, one global insurer reviewed how pricing and underwriting decisions were made in individual countries. Applying a structurally agnostic lens to this question helped reveal the need for global oversight and control, as well as local (or national) authority. It became clear that the insurer did not need a regional layer in between. The company virtually eliminated the regional layer, saving cost and materially improving responsiveness to customers.

2. Realign the operating model. Once the core nature of the work has been defined, the next step is to overlay the appropriate operating model. A decision made by the underwriting group has implications for the claims group and the agents. Similarly, a new approach by the audit group has implications for underwriting. Where two parts of the business don’t align, complexity abounds—and costs rise and customers suffer.

Some global insurers including AIG, AXA and Zurich have publicly recognized the importance of redesigning the operating model—and not just adjusting the global reporting matrix. But they are taking different routes on redesign.

AIG, for example, has been overhauling its operating model to decentralize decision-making, provide more accountability to business leaders, and move to a more variable cost structure. It’s now realizing improvements in operating expenses and ROE.

Zurich recently announced a reorganization that highlighted the importance of the regional management structure to improve customer relationships and reduce costs. CEO Mario Greco noted that the previous “fragmented structure” added to costs and made interactions with customers more complex; sometimes units within the company found themselves competing against one another.

3. Sustain the change to keep complexity from creeping back. At a minimum, senior-level controls can be put in place, like elevating all new spending requests to the CFO. A permanent solution, though, involves building a culture obsessed with simplicity. To change behaviors accordingly, companies must introduce a mix of incentives and reinforcement.

Finally, what keeps a company on track to embrace simplicity is executives’ behaviors. Employees will be more motivated to resist adding bad costs and complexity when they see the senior team doing the same. With the entire organization focused on the simplest route to delighting customers, insurers raise the odds of accelerating profitable growth.

Jed Fallis is a partner with Bain & Company’s Financial Services practice and is based in Toronto. Ron Kermisch is a Boston-based partner with the firm’s Organization practice. Thomas Olsen is a partner with Bain’s Financial Services practice and is based in Singapore.


Ready to talk?

We work with ambitious leaders who want to define the future, not hide from it. Together, we achieve extraordinary outcomes.