The right combination Rethinking business operating models in … · 2017-06-01 · The right...

The right combination Rethinking business operatingmodels in insurance

A Deloitte Research Study

Foreword 1

Executive summary 2

The basis of competition has changed 4

Business operating models struggle to deliver in the new environment 8

Principles for a new business operating model 12

Practical steps towards a strategic approach 16

Conclusion 19

Notes 20

About this researchThis report summarises the findings of a year-long study into the future of businessoperating models (BOMs) in insurance. A business model is a blueprint of howfunctions, divisions and organisations co-operate to capture shareholder value.1

The research primarily addresses the business model challenges of major globalinsurance companies operating in both life or non-life sectors across multiple markets;although the findings are relevant for all insurers. The report is based on severalresearch methodologies including:

• Face-to-face interviews with senior insurance executives;

• An online questionnaire completed in August 2009 by approximately 20 equityanalysts in Europe and North America;

• Analysis of published year-end results (as at May 2009) of 24 international life andnon-life insurance companies from Europe, North America and Asia;

• Focus groups of in-house Deloitte insurance practitioners.

Our thanks are due to those senior insurance executives who enabled us to make anin-depth analysis of their business operating models.

For notes on terminology see page 3.

Contents

The right combination Rethinking business operating models in insurance 1

Deloitte’s research shows that insurance-industry analysts no longer give top priorityto revenue growth as the key driver of shareholder value. Balance-sheet strength androbust risk management are, they say, the most significant drivers of performance.

In the medium-longer term, we consider operational efficiency will become crucial tomaintaining profitability, as insurers’ prospects for revenue growth are hampered byincreasingly saturated and commoditised core markets. Although certain retirementsegments and emerging markets offer a bright hope for revenue growth, it will besome time before they are significant enough to shift the current focus away frombalance sheets, risk management and operational efficiency.

We argue that insurers’ existing business operating models are not designed toachieve these new priorities. The predominantly multi-divisional and decentralisedmodels used by insurance companies have resulted in increased organisationalcomplexity, duplicated infrastructure and localised, difficult-to-scale operations. In addition, the functions that have a direct impact on controlling balance sheets andrisk have had a diminished role under the prevailing models. And, as sources of newrevenues and customers have continued to shift from west to east, and from north tosouth, insurers have struggled to put in place business operating models that cantranslate synergies across both mature and emerging markets.

Insurers should address these fundamental issues now. Building models that fosterstandardised, enterprise-wide (globally) integrated operations is vital to compete in amarket differentiating through operational efficiency. However, local business units incertain markets must also be allowed to be flexible in order to respond to dynamicmarket conditions. We suggest ways to achieve a balance between these apparentlyconflicting goals in this highly regulated sector.

Andrew Power Mark FitzPatrick Joe GuastellaInsurance Strategy Partner UK Insurance Leader Global Insurance Leader

Foreword

Over the past two years, many financial services institutions have beenworking towards one goal – survival. Like many others, insurers havecome under great pressure during the financial crisis. Compared totheir banking counterparts, most insurers have come through in goodshape.2 But ‘business as usual’ is unlikely in the foreseeable future.

While demands on insurers have shiftedsubstantially, their business operatingmodels have not. Current models haveevolved to respond to opportunities forrevenue growth across multiple markets.2

Shifting demand causes business modelchallengesWhile banks were, in the main, more severely affected,the financial crisis knocked investors’ confidence ininsurance, and triggered a radical change in prioritiesfor the industry. Previously focused on revenue growthand return on equity, insurance analysts have placedbalance-sheet strength, robust risk management andoperational efficiency at the top of their agendas. Such changes in investor demands are likely to remainin place until 2012. At the same time, a changingregulatory landscape is also expected to shift the goalposts for insurers. For example, Solvency II is due to beimplemented in the European Union by 2012.Additionally, insurance is in a period of global transition,as major insurers shift strategies to straddle bothmature and emerging markets, requiring improvedglobal coordination.

While demands on insurers have shifted substantially,their business operating models have not. Currentmodels have evolved to respond to opportunities forrevenue growth across multiple domestic andinternational markets. These same models are nowcreating barriers to more efficient operations, effectivebalance-sheet and risk management and globalcooperation. In short, insurance business operatingmodels (BOMs) are often no longer fit for purpose.

Principles for new business operating modelsWe set out principles for a new business operatingmodel that will bring improvements to the managementof balance-sheets & risk and operational efficiency.

1. Globally integrated (or enterprise-wide)operations: Existing models are set up for growthopportunities in local markets, and insurers areworking towards creating regional-scale synergies toachieve improved controls and operational efficiencies.

They must be more ambitious – driving throughfundamental change to go for integrated operationson a global or enterprise-wide scale. The starting pointfor each insurer is different. But typically insurersshould build stronger divisional and group/corporatefunctions to facilitate such integration.

2. Dual operating model: Moving to a globallyintegrated (enterprise-wide) solution may not beappropriate for all parts of the business as manyinsurers are in a period of transition, straddlingmature and emerging markets. A dual operatingmodel is needed based on two speeds: accommodatingimproved control and enterprise-wide scale wherepossible, while allowing a localised tailored approachfor more entrepreneurial parts of the business (orthose subject to unique regulatory environments).Being selective is key. Insurers should make adistinction between those operations that should beintegrated (standardised and simplified to operatefrom a globally integrated model) and thoseoperations which need to operate from a moreautonomous basis to retain flexibility andresponsiveness (e.g. difficult-to-scale or highly tailored processes).

3. The right combination: The dual model is not onlyapplicable for the emerging/mature marketsdichotomy. In defining the right mix of businesses tobe integrated or operated more autonomously, insurersmay choose to distinguish their core business in otherterms. Manufacturing versus distribution, commodityversus higher-value business, back-office versus front-office, life versus non-life, or indeed protection versussavings and investment management can all be usedas a basis on which operations can be selected forintegration across the enterprise.

4. Strategic approach to building models:Initiatives aimed at fixing current business models areoften thought up and implemented on a piecemealbasis. This can result in initiatives that fail to gaintraction, leading only to incremental improvementsor ones that may do more harm than good.Therefore a more strategic approach is required.

Executive summary


Practical steps towards a more strategicapproachInsurers seeking to transform their business models inorder to respond to the new demands placed on themshould take a more joined up approach to change. Each organisation has its own unique business operatingmodel and starting point to the transformation agenda.However there are common tools and steps to a solution:

• Often initiatives to change business strategy ororganisational structure are not strategically analysedor driven in tandem. Insurers should assess thecurrent business operating model strategy andstructure so that the two are better aligned.

• Some insurers have struggled to convinceshareholders that their balance sheets are sound andthat new business is not being written at the expenseof disciplined underwriting. Balance-sheet efficiencyand risk management should be established as a toppriority, and relevant functional specialist teamsstrengthened.

• Business operating models have become morecomplex and opaque as the boundaries betweeninsurance companies, intermediaries and distributorsbecome increasingly blurred. Open architecture is alsoforcing strategic decisions around manufacturing ordistribution as a core capability. Defining core activities(and non-core) is key to focussing resources onachieving operational excellence in the essential partsof the business. Non core activities may be outsourced,offshored or delivered through strategic partnership.

• Many business units are accustomed to autonomy,building their own solutions and product-sets tailored totheir local markets or jurisdictions. Consequentlyinsurance BOMs have typically become highly complex.For improved operational efficiency and more consistentgovernance and controls, insurers should simplify andstandardise processes, laying the foundations forimproved co-operation and scalable operations.

• Complex business operating models, led byautonomous divisions, have caused duplication andinefficiency. Simplified and standardised processes(see above) should be scaled up on an enterprise-wide basis where appropriate. Insurance companiescan aim for enterprise-wide (globally) integratedoperations on a selective basis.

• Operational efficiency is crucial to competitiveadvantage in commoditised markets. Howeverentrepreneurial units in either high growth productsor niche and emerging markets can be crushed by astifling business operating model. Within limits,insurers’ models should allow specialised,autonomous operations in certain parts of thebusiness.

• Some insurers were challenged by the financial crisispartly because they failed to convince shareholders oftheir financial viability. This was in part caused by alack of enterprise-wide transparency and difficulty incommunicating business models, reporting andaccounting. Insurers should clearly articulate thebusiness operating model and strategy to externalstakeholders.

Terminology

Balance-sheet efficiency and risk management: strategies and structures concerned withcapital, liquidity, and the governance and control of risk.

Business models: a blueprint of how functions, divisions and organisations co-operate tocapture shareholder value. Throughout this report, the terms ‘business model’, ‘businessoperating model’ (BOM), ‘operating model’ and ‘global operating model’ are usedinterchangeably. However there are small differences in usage. ‘Business models’ (the mostall-encompassing term) typically refers to high level strategy. BOMs are applied versionsencompassing strategy and operations. Operating models have a more operational focus.

The crisis: the financial crisis that began in August 2007.

Long term: a medium-to long-term view for investment analysts is defined as between oneand three years.

Operational efficiency: variables that have an effect on operating margins, such as costefficiency, customer acquisition and management costs, tax, claims management.

Revenue growth: includes growth in premium income from new business and customerretention (persistency), policy volume, price realisation, and investment and trading returns.

Divisions: business units organised by customers, products or geographies.

Functions: in contrast to divisions, functions are typically categorised by the competenciesof the activities carried out. For example, sales and marketing, tax, risk, finance, IT orunderwriting.

4

The financial crisis knocked investors’ confidence ininsurance, triggering a radical change in prioritiesfor the industry. Previously focused on revenuegrowth and return on equity, insurance analystshave placed balance-sheet strength, robust riskmanagement and operational efficiency at the topof their priorities. These revised priorities willremain in place until at least 2012. We argue thatthese changes to the basis of competition willrequire insurers to adjust their business models.

Balance-sheet strength and risk management are top prioritiesThe financial crisis, beginning in August 2007, triggereda worsening in the performance of insurers. Based on asample of 24 global firms, insurers’ total revenues(including investment and trading net income) slumpedby 32 per cent in FY08. The severity of the decline wasparticularly felt by insurers exposed to investmentlosses. At the same time, operational efficiencydecreased, with the average combined ratio for thesample increasing by two percentage points to 91.8 percent.3 In addition, some 78 per cent of insurers saw adrop in their capital and solvency levels during FY08,driven primarily by losses on the asset side.

This broad-based deterioration in performance,together with high-profile shocks (such as that experienced by AIG), led to a widespread loss ofinvestor confidence. The industry struggled to convincestakeholders that their businesses were viable, but valuewas very quickly destroyed. In FY08, the total marketcapitalisation of our sample of firms plunged 30 percent (from £630.6 billion to £443.8 billion).4 Embeddedvalue (EV) has also been adversely affected.5

With investor confidence severely knocked,shareholders radically shifted their priorities. Our surveyof European and North American insurance analystsshows that shareholder priorities moved markedlybetween 2006 and 2009 (see Figure 1). Analysts wereasked to rank the medium-to long-term (1-3 years)performance criteria they use to judge insurance firms.In 2009, balance-sheet & risk management scored 97 per cent, compared with just 43 per cent forrevenue growth (see Figure 1).6

Is this new priority simply a knee-jerk response to acredit crisis that may already be over?

Some senior executives that we interviewed think so.However, analysts remain sceptical, and balance-sheetefficiency and risk management will remain their centralfocus until 2011/12. Some 50 per cent of insuranceanalysts indicated that their concerns over balance-sheet and risk management will remain at a high leveluntil at least 2011.

Longer-term trends seem to support the analysts’ views.Regulations and accounting rules covering capital,liquidity and risk are currently being revised and willkeep the balance-sheet agenda in place, for some time:

• In Europe, the EU’s Solvency II legislation, which aimsto establish more efficient economic capital models,is due to be implemented by 2012. The spirit of theSolvency II Framework Directive may be liberating,allowing businesses to benefit from harmonisedregimes on a supranational basis. The principles ofSolvency II are also expected to have an impact oninsurance players operating in the US and Asianmarkets as many European firms are active there.

• The capital required to write new business is likely toremain scarce and expensive. This is leading someinsurers to more efficiently source capital frominternal sources. As many corporate structures aresub-optimal in terms of their capital efficiency,fungibility and diversification, leading insurers havebeen restructuring their legal frameworks andbalance sheets, reducing risk and improving theirdynamic capital modelling. For example, severalgroups over recent years have moved to a single EUcarrier (one for life and non-life) operating acrossEurope through a branch structure.

• Modifications to accounting rules, and frameworksthat seek to improve comparability and transparency(such as International Financial Reporting Standards(IFRS) and Market Consistent Embedded Value(MCEV)) are also being implemented over a similartime frame.7

The basis of competition has changed


Operational efficiency will be the top priority inthe longer termWhile capital, liquidity and risk issues have become vitalfactors, business strategies must also take into accountanother fundamental shift towards operationalefficiency. Among our sample of global insurers, totalrevenues in 2008 dropped by more than 30 per centfrom the preceding year.8 Figure 1 also illustratesinsurance analysts’ priorities for 2012 and beyond.Revenues will become important once more, butoperational efficiency will be king.9

The convergence of several regulatory events is likely toconstrain revenue growth going forward:

• Tighter regulation of the distribution of insuranceproducts (such as MIFiD in Europe and the RetailDistribution Review in the United Kingdom) may actas a brake on new business development in thesemarkets, potentially curtailing profitability.10

• Legislation on capital requirements may also holdback growth. Solvency II was heralded as offeringopportunities to make capital models more efficientacross jurisdictions. However, recent proposals toimplement the framework directive may beinterpreted in such a way that regulations may inhibit writing new business in certain markets. One way around this potential problem of regulatorycapital may be to restructure the group to become a ‘mega insurer’ with branches in each market.11

• Additionally, as Solvency II and other risk- andcapital-based initiatives are being implemented,insurers are achieving greater understanding of the real costs of underwriting risks. Products that are less capital-efficient may be withdrawn as moreemphasis is given to disciplined underwriting andsustainability.

Such events suggest capital planning will remainimportant but also add to the likelihood that the long-term focus on operational efficiency will be the principalsource of profitability.

Figure 1. Change in insurance analysts’ priorities pre- and post- credit crisis (2006, 2009, 2012)

Insurance analysts’ priorities 2006


Priority Score (out of 100)


0 20 40 60 80 100

Other

Manage externalexpectations

Balance-sheet &risk management

Improveoperational

efficiency

Grow revenue/income

0 20 40 60 80 100

Other

Grow revenue/income


Improveoperational

efficiency

Balance-sheet &risk management 97%

81%

79%

76%

56%

66%

43%

52%

26%

23%



Source: Deloitte Research, 2009

0 20 40 60 80 100

Other


Balance-sheet &risk management

Grow revenue/income

Improveoperational

efficiency84%

74%

64%

52%

23%

6

Revenue growth will remain important, but thefocus may changeManagement in insurers will, of course, focus on bothrevenue growth and operational efficiency in theirmedium-term plans, with the balance varying by firm.Figure 1 shows that by 2012 insurance analysts willconsider revenue growth as an important driver ofshareholder value once more. However, we expect thatthe focus of revenue-related activities may need tochange in the light of developments in mature markets.Our analysis of revenues suggests that, up until thefinancial crisis, total revenue growth has been sluggishdue to dependence on saturated mature markets, andrevenues have been supported by investment returns.

We think the focus for revenue-generating activity mayshift to improving customer retention (‘persistency’ inlife companies) as new customer acquisition becomesmore difficult for the following reasons:

• Long-term total revenue trends indicate sluggishgrowth. Total revenue growth has been unimpressiveover the past five years. Total revenues are calculatedfrom net premiums, reinsurance premiums, andtrading & investment income. Over the periodbetween 2005 and 2009, (projecting forward from2009’s first-half results), global insurers achieved totalrevenue CAGR of just 1.31 per cent (see Figure 2).Separating out net premium growth, insurersachieved a CAGR of just 4.56 per cent over the sameperiod. Both rates are indicative of saturated markets.

• Revenue growth has been supported byinvestment returns. Net premiums contributedapproximately 55 per cent of total revenues in 2005-2007. This indicates that investment andtrading income have played significant roles inholding up headline revenue growth. However, heavy investment losses in 2008 ate into totalrevenue growth even when net premiums remainedstable. Many industry commentators do not expectinvestment income to deliver sufficient returns tomaintain total revenue growth and profitability in thecoming years.12 In a more risk-averse environment,we think that insurers may revert to averageinvestment returns.

• Insurers are often reliant on core markets thatare saturated. An analysis of income generation (see Figure 2) and the location and value of assetsindicates that insurers have reached saturation inmany core markets. Among our sample of 24 globalinsurance companies, an average 88 per cent ofgroup assets was based in mature markets in 2008.At the same time, macro-economic expectations aredownbeat about growth potential in matureeconomies. This means that net premium income isunlikely to grow at a rapid rate in the coming years.13

Figure 2. Global insurance firms’ revenues, 2005-2009

Total revenues

GBP (£) (000s)

GBP (£) (000s)

Net premiums

Note: Total revenues, sometimes known as ‘total income’, include net premiums, investment and trading net income and other income streams. Based on a selected sample of 24 global insurers.

Note: Net premiums are a subset total revenues.Based on a selected sample of 24 global insurers.


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2009 E2008200720062005

605,060 617,917 617,785 629,213

422,852

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2009 E2008200720062005

291,730309,881 318,836

348,684369,429


• Emerging markets are expected to grow at twicethe pace of developed markets.14 Emerging marketsoffer a bright hope as a source of revenue. However,with a few notable exceptions, emerging-marketoperations make a much less significant contributionto overall group performance compared with maturemarkets. For instance, among our sample of 24 insurers, the emerging markets’ share of totalrevenues stood at 19.1 per cent in FY 2008. Their share of total assets was just 12.1 per cent inthe same year. Emerging markets are likely to remaina minor contributor to revenues, compared tomature markets, for some time to come.

Insurers’ scope for revenue generation in mature highlysaturated markets may be limited. In their life business,they may rely on achieving growth in the value of theircurrent assets under management (AUM) as growththrough new business becomes difficult. The need torefocus efforts on retaining customers may takeprecedence over new business acquisition and revenuegrowth. For these reasons, our sample of insuranceanalysts identified ‘minimising lapses/surrender rates’and ‘growing the value of AUM’ as the main areas ofinsurers’ customer focus over the next few years.

Insurance analysts have refocused onbalance-sheet strength, robust riskmanagement and operational efficiency.We believe these concerns run deeperthan a short-term reaction to the dentedbalance sheets and revenues of 2008.They also reflect longer-term trends thatshow insurers’ markets are maturing andthat regulation is changing thelandscape. Insurance companies mayneed to update their business operatingmodels to reflect the fact that theirmarket is in transition.

8

While demands on insurers have shiftedsubstantially, their business operating models havenot. Current models have evolved to respond toopportunities for revenue growth in a variety ofmarkets. These same models are now creatingbarriers to more efficient operations and effectivebalance-sheet & risk management.

Based on in-depth interviews with senior insuranceexecutives and in-house focus groups of Deloittepractitioners, many insurance BOMs are struggling to be fit for their purpose.

‘Adaptive’ multi-divisional models dominate No two BOMs are the same, and distilling complexbusiness strategies into summaries can be misleading.However, our research suggests that insurers’ businessstrategies are typically ‘adaptive’.16 This means that theyseek competitive advantage through the slick entry into,and exit from, markets. They rely on speed, timing andthe flexibility of the model to respond to growthopportunities at the local level. Within parameters set atgroup/corporate level, each business unit typically setsits own strategy and tactics to respond to local marketconditions.

To execute adaptive strategies, insurers’ organisationalstructures are typically based on highly autonomousrevenue-generating units that are operated discretelywithin a decentralised decision-making framework.Their characteristics include:

• Divisional decision-making. Divisions typically takeresponsibility for their own profit-and-loss accountand set their own agendas. As they are operateddiscretely, each division has a significant supportinfrastructure of its own. Divisional heads (of productlines, countries, or customer segments) hold keydecision-making rights rather than the heads offunctions (such as claims, actuarial, marketing,underwriting or loss adjusting). There are, typically,many layers of geographic, product and customer-based divisions within one reporting structure.

• Divisions operate discretely from each other.Unintegrated divisions facilitate the bolting on orunbolting of individual business units, acquisitions ordisposals. This allows insurers to grow or shrinkaccording to revenue opportunities.

• Decentralised operating structures. Insurerstypically favour lean group or corporate functions.Such functions manage business units on a portfoliobasis. They set financial performance metrics but donot become strategically, tactically or operationallyinvolved with the running of the business units. There are differences in different regions. In theUnited States, corporate (group) functions may besub-divided into domestic and international divisions.In Europe, this layer is rarely present.

Business operating models struggle to deliver in the new environment

“We have literally thousands of ITsystems that are not linked together.”

Global life insurer

“This industry is littered withunconsummated M&A.”

Global general insurer


Figure 3. Illustrative executing structure for multi-divisional, adaptive business operating models


The most common form among global insurers. This approach fits well with jurisdictions in a heavily regulated industry.

Complements strategies where competive edge isbased on products and manufacturing, and or achieving scaled products.

Suited to distribution-focused organisationsor those with a customer-segmentation focus.

Country/location-led structures Product-led structures

Group/corporate functions (adaptive/decentralised model)

Customer-led structures

North America

Domestic

Europe Asia

Functions Functions Functions

Functions

Canada

US

Functions

Germ

any

France

UK

Functions

China

Japan

Customer Customer

Product type

Product type

Product type Customer

International Individual

Customer

Country/State

Retirem

ent

Annuities

Savings

Protection

Long term

Customer

Country/State

Functions Functions

Savings &Investments

AssetManagement

Functions Functions

Emp. Liab

.

Co

nten

ts

Co

rpo

rate lin

es

Mo

tor

Travel

Personal/Corp. lines

Life Non-life (P&C)

Functions

Functions

HN

WI

Mass A

ff

Local population

SME

Product type

Country/State

Functions

Functions

Industries

National C

orp

Global C

orp

Country/State

Product type

Insurance Corporate

“In contrast to oil-and-gas, investment banking and bancassurancemodels, insurance is typically behind the curve – with too great adivisional focus. But this is changing. We are creating greaterstrength in functions.”

Global composite insurer

Figure 3 illustrates the multi-layered operating structureof adaptive multi-divisional models and the functionsrequired to support each sub division. In a recent US-based Deloitte survey, 600 insurers were asked to describe their global business operating models

Advantages of ‘adaptive’ multi-divisional modelsBased on the feedback during our interviews, theadvantages of such models include:

1. Flexibility: Divisions without shared infrastructure orfunctions can be easily bolted on or unbolted from the operating model. Aquisitions and disposals canbe undertaken relatively quickly without integrationissues. Adaptive, multi-divisional models are good forcomplex and dynamic environments.

2. Adapting to local conditions and regulatorycontext: Multi-divisional approaches are suited toindustries where the regulatory context for eachmarket is material, or where distribution networksneed to be tailored to local circumstances.

3. Accountability: Divisional-based profit-and-lossstatements can improve accountability.

4. Cost: Decentralised management may be less costly inthe short – medium term at the group/corporate level.

and, specifically, which divisions typically lead decision-making. Some 93 per cent said they are led by country-, product- or customer-led structures rather thanby functions. Of these, 32 per cent use a hybrid mix of allthree, becoming complex multi-divisional organisations.17

10

“Marketing was a case in point. It was the least mature of our functions,lacking the basic tools and programs and was organised on a country-by-country (local) basis. It was on an individual and basic level. No segmentation and proposition strategies had been developed. This was banking 15 years ago – with no functional expertise. But itwas tackled by banks back then. It is still a big issue in insurance.”

Global composite insurer

Disadvantages of ‘adaptive’ multi-divisional modelsFive specific issues can be created by these models:

1. Limited governance and controls: The consistentmanagement of risk and capital can be weakened withindivisional decentralised models. Without a strong groupfunction (or strong functional specialist teams), theinfluence of subordinated control functions – such as risk,compliance, underwriting and finance – can be diluted.Specialist knowledge in these areas can be lost.

2. Duplication of infrastructure: Autonomous divisionswith their own independent infrastructures can producesignificant duplication of IT, processes and functions in adecentralised, adaptive multi-divisional organisation. Few incentives exist for divisions to work together tocreate common processes. Large acquisitions can createsignificant issues if not properly integrated.

3. Limited co-operation due to ‘divisional bargaining’:Strong divisions combined with weak functional teams canlead to poor co-operation. Divisions that must ‘bargain’with each other can create barriers to co-operation leadingto inconsistent (non-standardised) processes. This can leadto IT systems that struggle to be integrated and that haveno common language, which can negatively impactoperational efficiency.18 It can also lead to a lack ofcooperation in serving shared customers.

Without centralised functions to facilitate such co-operation, insurance companies can fail to utiliseshared services (across divisions or functions) in order to achieve economies of scale or other synergies.Insurers have significantly greater IT and M&A legacyissues than other industries.19

4. Lack of mobility of staff, skills and innovation:Divisions acting autonomously can stifle the globalmovement of skills, ideas and leading practices. Specialistsin one part of the business may struggle to share theirfunctional specialist skills if there are barriers to mobility.

5. Added complexity: In the face of weak centralisedgovernance, insurance companies have put in place variousforms of matrix management to forge greater co-operationbetween divisions. This has improved co- operationacross divisions. But it has also led to confusion overroles and responsibilities, competing strategies, furthercosts and issues falling between the gaps.


Figure 4. Business operating models. The maturity lifecycle in insurance.

Strategy

Environment/developmentstage

Mature orstable

Complex, fluidestablished

Centralised control

Regional integration/strong controls for regional synergiesLow integration of divisions

for adaptability

High integration of local functions for responsiveness

Decentralised control

Local control

Structure

Emergingor fluid

2 – Adaptive business strategy1 – Entrepreneurial/integrated business strategy

1 – Functional operating structure 2 – Multi-divisional operating structure 3 – Multi-divisional with regionalfunctions

3 – Planned business strategy


1. Entrepreneurial and functionally integrated models: The first phase is based on an entrepreneurial strategy, growing in either a single country or product market and built around functions reporting to a centralised power (the CEO).

2. Adaptive multi-divisional: Then the model expands outside the domestic market to become multi-divisional (often creating a replica of the existing business unit) with decentralised operations (at the group level) based on product lines or countries.

3. Planned multi-divisional: the multi- divisional structure is complemented by strengthened and regionalised functions, and by stronger group/ corporate functions seeking to move to regional scaled operations in order to deliver wider synergies.

Maturation (phases) of an organisation

‘Regional ‘planned’ models have emergedOur research suggests that some insurers have evolvedbeyond the adaptive, multi-divisional model. Thesecompanies remain multi-divisional, but they adopt a‘planned’ business strategy. To execute planned strategies,insurers need more centralised control and strengthenedfunctions that are scaled to national or regional size.

In addition to the business-based imperatives to regionallyintegrate (i.e. to gain scale and efficiency); regulatory,financial and tax-based initiatives are also facilitating adrive to regionalise business operating models. For instance, legal frameworks in Europe are working tofacilitate corporates in their move to a region-wide businessmodel through harmonising legislation. Such legal and tax-based developments impacting corporate legal structurescan facilitate simplified and standardised processes.20

We have found that global insurers based in Europe aretypically more internationally diversified and further downthe road in using planned strategies than Anglo-Americaninsurers. However, regardless of location, most insurerswe interviewed are moving slowly towards more plannedbusiness operating models.21

Figure 4 illustrates how some insurance business modelshave moved into this development phase, withregionally integrated operations, stronger centralisationand a planned strategy.

Although insurers may suffer increased short-termmanagement costs and bureaucracy, moving to aregional model has several advantages. It allows forcooperation among divisions at the continental levelenabling standardised approaches and regional-sizedeconomies of scale. Many insurers are de-duplicatinglocalised infrastructure moving towards regional hubs ofshared services. Regional models can also give region-wide representation of functions and controls.

Are insurers being radical enough in re-designingtheir BOMs? Simply regionalising their existingoperations is not enough. To respond to the newshareholder demands for balance-sheet strength,global enterprise-wide controls are required,functions should have greater influence overdivisions, and group control should be stronger.

12

Insurers seeking a strong early position coming out of the crisis will need to meet thechallenges posed by their business operating models. This section sets out principlesfor a new business operating model that will bring improvements to the managementof balance-sheets & risk and operational efficiency.

1 Globally integrated (or enterprise-wide) operations: Existing models are set up forgrowth opportunities in local markets, and insurers are working towards creating regional-scale synergies to achieve improved controls and operational efficiencies. They must bemore ambitious – driving through fundamental change to go for integrated operations on aglobal or enterprise-wide scale. The starting point for each insurer is different. But typicallyinsurers should build stronger divisional and group/corporate functions to facilitate suchintegration.

2 Dual operating model: Moving to a global integrated (enterprise-wide) solution may not beappropriate for all parts of the business as many insurers are in a period of transition,straddling mature and emerging markets. A dual operating model is needed based on twospeeds: accommodating improved control and global scale where possible, while allowing alocalised focus for more entrepreneurial parts of the business (or those subject to uniqueregulatory environments). Being selective is key. Insurers should make distinctions betweenthose operations that should be integrated (standardised and simplified to operate from aglobally integrated model) and those operations which need to operate from a moreautonomous basis to retain flexibility and responsiveness (e.g. difficult-to-scale or highlytailored processes).

3 The right combination: The dual model is not only applicable for the emerging/maturemarkets dichotomy. In defining the right mix of businesses to be integrated or operatedmore autonomously, insurers may choose to distinguish their core business in other terms.Manufacturing versus distribution, commodity versus higher-value business, back-officeversus front-office, life versus non-life, or indeed protection versus savings and investmentmanagement can all be used as a basis on which operations can be selected forintegration across the enterprise.

4 Strategic approach to building models: Initiatives aimed at fixing current businessmodels are often thought up and implemented on a piecemeal basis. This can result ininitiatives that fail to gain traction, leading only to incremental improvements or ones thatmay do more harm than good. Therefore a more strategic approach is required.

Principles for a new business operating model

1. Globally integrated (or enterprise-wide)operations: choose your markets and globaliseProgressing towards global integration (rather than nationalor regional integration) makes sense for a host of reasons.For instance, improved balance-sheet and risk managementrequires centralised and globally integrated functions tocreate a consistent global view of risk and capital. Regionalviews are helpful – especially as legislation is beginning toconverge at the regional level, as with Solvency II. But onlyglobal integration will suffice if multinational insurers are toachieve enterprise-wide control. Capital and risk modelsshould be congruent with operations.

Leading insurers, seizing their chances while thelandscape settles, are aggressively scaling up theiroperations. They are picking their markets, and seekingto win with the advantage of global scale. For instance,some leading manufacturers are seeking to develop asingle manufacturing platform on a continent-widebasis.

To overcome business-model barriers and move to amore globally integrated operating principle, three stepsneed to be taken:

• Create a stronger group/corporate centre tocounterbalance divisional power. Strengthened globalfinancial control and risk governance require group-ledfunctional communities with the power to influencepractices in divisions. A more centralised approachshould also facilitate co-operation betweentraditionally autonomous divisions.

• Led by the group/corporate-level functions, insurersshould seek to further ‘industrialise’ (that is, to simplifyand standardise) processes within divisions andfunctions, leading to potential shared services.

• Then they must integrate divisions and functions atboth the regional and global level in order to achievescale.


2. Dual operating model: allow flexibility for atailored responseThe guiding principle of global (enterprise-wide)integration must not be implemented at the expense offlexibility. Insurers require gains in efficiency andcustomer retention in mature markets while they needrevenue growth in emerging markets. As globaloperating models mature, insurers should seek to movefrom their adaptive multi-divisional models to anacceptance of a new structure based on a dual model.

It is not practical for some business units to be subjectto prescriptive organisational structures or to initiativesdesigned to create scale efficiencies at regional or globallevels. For instance, business units competing inemerging markets, where the customer/client base maybe unfamiliar, often need to spend time and resources inbuilding relationships with new customer segments anddeveloping appropriate underwriting and pricingpolicies. In new markets, sales, claims, actuarial andunderwriting teams need to work together to establishcustomer segments, risks and pricing. Only once theyhave matured should they be separated out to joinregional or global shared-service platforms.

Other operations may also need to be treateddifferently. Business units in mature markets seeking toplace new products, for example, or those subject tohighly nuanced local regulation may also suffer under aglobally integrated regime.

Insurers spanning markets that require these differentkinds of approach need a BOM that fosters globaloperations where possible but that also helpsentrepreneurial units to reach maturity.

Such a dual operating model should be based on threeprinciples:

• Selectivity: Insurers should be selective as to whichoperations go into regionally and globally industrialisedmodels. These decisions should be based on objectives,legislative requirements (including tax) and thematurity of each business unit.

• No compromise on enterprise-wide control:Categorising specific units as entrepreneurial is not a‘get-out-of-jail-free’ card for the local business unit.The need for global capital allocation remains. Localised divisions and functions should be set minimumstandards, but be free to organise according to specificmarket conditions. As they mature, these units shouldbe brought into the global operating model.

• Global (group or corporate level) support for localunits: Entrepreneurial units may still tap into globalmanufacturing capabilities. Providing platform supportfor local units will work if the platform allows suchunits to be responsive to local conditions andcustomers. It is necessary to understand whichprocesses should be common across business unitsand which need to be tailored. As insurers regionalise,these business units should be increasingly supportedand managed by regional hubs.

As global operating models mature,insurers should seek to move from theiradaptive multi-divisional models to anacceptance of a new structure based on adual model.

14

Another way to categorise activities is based on theback, middle and front offices within business units.24

Insurers’ back-office, support and control functionshave often been structured around the front office. This has led to a lack of control and a lack ofstandardised processes within middle and back offices.At the same time, a wholesale move to standardisedcontrols in every office, and in all functions anddivisions, may be costly and impractical.

Commodity areas such as protection and motor maybenefit from a focus on achieving scale. By contrast, inhigher-value areas (such as global commercial lines)the key is to have appropriate client-related data-sharing, risk management and control. The gain or lossfrom the underwriting decision in such cases canswamp any operational efficiencies. Globally integratedscalable models should not be adopted by businessunits where they result in diseconomies of scale

Figure 5 plots the next phase for global operatingmodels – progressing from a regional businessoperating model to a dual model.

3. The right combination. Dual models are notjust about emerging marketsThe dual model approach is not only applicable inthinking about the emerging market/mature marketdichotomy.

The principle can be applied to manufacturing anddistribution.22 Leading insurers who have decided thatmanufacturing is a core competence are seeking toglobalise their manufacturing processes. Due to themulti-divisional approach taken by most insurers, globalmanufacturing may be combined with globaldistribution only for certain commoditised personallines. For instance, creating global direct motoroperations may be possible. Those who deem theirdistribution to be ‘core’ may seek advantage indisintermediating brokers and aggregators from theirdistribution processes as a way to preserve margins.23

Figure 5. Business operating models: Dual models

Strategy

Local model National model Regional model Next generationdual model

Environment/developmentstage

Transitional:Mature &Emerging

Selective centralised control

Global integration/strong controls for global synergies

Migrate asunit matures

Global support platform

High integration of local functions

Regional integration/strong controls forregional synergies

High integration of local functions for responsiveness

Decentralised control

Centralised control

Local control

Structure

Matureor stable

Complex,fluidestablished

Emerging or fluid

2 – Adaptive business strategy

1 – Entrepreneurial/integrated business strategy

1 – Functional operating structure

2 – Multi-divisional operating structure

3 – Multi-divisional regional functions

4 – Global divisions and functions. Local functions

3 – Planned business strategy

4 – Selective planned business strategy



Insurance (that is, protection) or savings andinvestment management is another basis fordistinction. As some life insurers’ businesses move moretowards investment management, the control ofinvestment performance (providing downsideprotection), grows in importance. That magnifies thesignificance of controlling hedging and investment inilliquid instruments. A variety of measures can beadopted – from merely setting policies (around riskappetite, for example, or the level and return ofinvestment spend) to more active control of decisions(as with large catastrophe risks).

4. Piecemeal change to make way for strategyInsurers have recognised that their current BOMs arestruggling to deliver operational efficiency and effectivecontrol. Many are working feverishly to fix some of theproblems. But change has been piecemeal and the impactonly incremental and may, in some cases have done moreharm than good. Based on our interviews with seniorinsurance executives, the sidebar highlights some of theinitiatives currently underway in leading institutions.

• Adjusting their global footprint, either to exploitemerging-market growth or to create regional or globalsynergies.

• Consolidating divisional operations (by geographies,product lines or customer segments).

• Reviewing functions in order to understand which can beshared, consolidated, offshored, or outsourced.

• Standardising operational activities to allow for greateruse of IT and common processes across divisions andfunctions.

• Reorganising group/enterprise teams (by, for example,redefining decision rights) to create more effectivecentralised functions.

• Developing new strategies to optimise the deploymentand retention of critical talent.


There are many and various skill-setsinvolved in BOM changes. Risk andactuarial teams need to help createdynamic capital models that workefficiently; HR, IT and other functionsare required to work together for acultural change in operations bothwithin and across divisions; while legaland tax teams have to facilitate changesto the underlying structure of BOMs.

There are many and various skill-sets involved in BOMchanges. Risk and actuarial teams need to help createdynamic capital models that work efficiently; HR, IT andoperations are required to work together for a culturalchange in operations both within and across divisions;while legal and tax teams have to facilitate changes tothe underlying structure of BOMs.

Few insurers have a co-ordinated strategy for theseinitiatives. And this can cause problems. For instance, it is possible to implement an extensive and costly ITprogramme that fails to put in place the people strategythat is required to execute and embed the programme.Such initiatives can also fail to achieve the necessarycommitment from business units due to the weakinfluence of group functions.

Figure 6. Insurance firms’ business-model initiatives, 2009

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Insurers should take a more co-ordinated approachto change and re-appraise current BOM changeprogrammes. Moving away from uncoordinatedpiecemeal initiatives to a more strategic approach isrequired. Globalising and industrialising operationsdesigned to gain scale must be carried out on aselective basis. With this selective principle in mind,insurers should take the following steps totransform their business operating models:

1. Assess the current business operating modelstrategy and structureOften initiatives to change the business operatingmodel are not strategically analysed or driven intandem. This can result in business strategies thatare misaligned with the organisational structure.Articulating the strategy and then making decisionsabout the BOM requires several stages:

• Assess the insurance value chain. Which parts are most valuable? Open business models are becoming crucial for strategic positioning.25

For instance, decisions made about the role ofintermediaries, the use of aggregator sites andproduct sourcing through open architecture all have consequences for the business model.

• Business strategy and the operating structuresrequired to execute it should be aligned – forinstance, corporate strategy should reflect the growthprospects of markets and the need to focus oncustomer retention (persistency) in mature markets.26

• Assess if the current business operating model isappropriate. Many insurers struggle to define theBOMs they currently have, let alone in the future.They should check their existing model for gaps in itsability to deliver the new strategy.

2. Address balance-sheet efficiency and riskmanagement as a prioritySome insurance firms are struggling to convinceshareholders that their balance sheets are soundand that writing new business is not being done atthe expense of disciplined underwriting and pricing.

Insurers should:

• Raise the priority of balance-sheet & riskmanagement, and efficiency in operations, on thecorporate agenda at both the group/corporate anddivisional levels.

• Strengthen the functions that affect these priorities(such as tax, finance and controls, actuarial, riskmanagement and compliance, IT and internal audit)at both divisional and group level in order to exertmore influence over autonomous divisions.

• Build functional specialist teams in these areas at thelocal, national and regional/global levels so they canshare leading practice.

• Consider a transformation programme for the financefunction, including management-informationsolutions to improve the measurement andmanagement of capital allocation.

• Review the product base to understand its capitalefficiency.

3. Define the core businessBOMs have become more complex and opaque as the boundaries between insurance companies,intermediaries and distributors have becomeincreasingly blurred. Open architecture is alsoforcing strategic decisions about whethermanufacturing and/or distribution is a corecapability. At the same time, insurers are facingchoices over the role of mature and emergingmarkets in driving strategy. Without a cleardefinition of core and non-core operations,diversified insurance companies can becomeunfocused. Insurers should:

• Define their core and non-core operations.27

• Simplify core operations and processes for scale andefficiency (see Sub-section four). Seek functionalexcellence in these areas.

• Offshore or outsource non-core back- and mid-officeprocesses. And/or create an affinity relationship forfront-end origination. (i.e. open architecture).

Practical steps towards a strategic approach


4. Simplify and standardise processesInsurance BOMs have become highly complex. Many business units are accustomed to autonomy.And product sets vary enormously, from complex lifeproducts tailored to individual jurisdictions tocommoditised general insurance that can span theglobe. Attempts at reducing complexity have workedto a degree. But as insurers have streamlinedprocesses or adopted new technologies, furthercomplexity has often arisen.

Divisions and functions seeking to differentiatethemselves on operational efficiency should look toindustrialise their operations. They should:

• Strengthen the group role in facilitating divisionalbargaining.

• Seek greater commonality in technology andoperational infrastructure, especially around supportand back-office functions. Working towards acommon language for IT and other processesinvolving management information (MI) should be an initial goal.

• Develop a common global footprint. This should begeared for operational efficiency in mature markets(where, our research suggests, most of insurers’assets are still held), and for growth in emergingmarkets.

• Tailor the footprint to reflect the company’s lines ofbusiness or customer segments. For instance, non-lifepersonal lines is increasingly a commodity businesswith similar features in most mature markets, implyingthere is capacity to further develop commonprocesses.

• Adopt simplicity and standardisation whereverpossible throughout the value chain.

• Communicate internally, to promote internalunderstanding of current business operating modelsand to foster a common vision and rationale behindproposed changes and the future model.

5. Scale up where appropriateInsurers do not always maximise their potentialscale advantages – for the same reasons they havenot simplified their BOMs: Organisations led byautonomous divisions have caused duplication andinefficiency. They need to:

• Define what is globally scalable and what is not. Local sales/distribution is often based on prevailingbroker/distribution networks and nationaljurisdictions. While distribution may be difficult toglobalise, a global/regional manufacturing (andproduct development) capability may be created.

• Enable offshoring and set up centres of excellence for selected functions. Give these functions anopportunity to scale up on a regional or globalbasis.28

• Seek scale opportunities in negotiating with volumedistributors. For instance, in sharing data acrossmarkets, disseminating best practices around claimsand other core processes, and creating regionalprogrammes around risk classes. Also, scarce technicalskills (for example, in investment, underwriting oractuarial) can become trapped in one country whenthey could be serving several.

18

6. Allow functionally integrated, autonomousoperations where necessaryOperational efficiency is critical to gainingcompetitive advantage in commoditised marketswhere revenue growth remains difficult. However, it is important that entrepreneurial units,often carrying out a revenue-growth agenda, arenot crushed by a stifling business operating modelbased solely on the mature-market ethos.

• Functions such as product development, underwriting& claims, and sales & marketing will have to workclosely together to achieve specific customer andproduct knowledge in unfamiliar territories. Such territories may be emerging markets or businessunits in mature markets seeking to sell innovative newproducts. Reliance on regional or global scaledoperations may stifle such co-operation.

• However, opting out of balance-sheet and riskmanagement processes is not acceptable. Althoughoperational efficiency at the local level may becompromised as entrepreneurial units rely on theirown infrastructure rather than shared services,entrepreneurial units must be subject to standardisedfunctions relating to capital management and risk.Dynamic economic capital modelling requires risks tobe measured on a like-for-like basis across the entirebusiness.

7. Communicate about the BOM to the externalworldInsurers are not banks. However, the financial crisishas had a substantial impact on them, partlybecause they failed to convince shareholders oftheir financial viability. This was in part caused by alack of enterprise-wide transparency and suspicionabout insurers’ reporting and accountingprocedures. It was also caused by a failure tocommunicate adequately with the market.Shareholders, insurance analysts and customers are demanding greater transparency. Insurersshould:

• Revamp their financial and risk reporting to aidtransparency for all stakeholders. Be at the forefrontof compliance with globally trusted accounting andrisk measures, and with regulations and accountingrules (such as IFRS, MCEV and Solvency II).

• Be in a position to explain their business goals andstrategy, and how the business model will achievethose goals.

• Improve their investor relations, giving transparencyover capital requirements and new business growth,attempting to foster a greater degree of trust.


Conclusion

Shifts in the shareholder agenda, regulatory change and the recentfinancial crisis have highlighted organisational issues and constraintswith current business operating models.

At the same time, a number of financial issues (ranging from optimising tax domicileto risk governance and capital allocation) have become hot topics, affecting businessoperating models. Finally, changes to the competitive landscape are forcing insurers toredefine their markets, core competencies and their own relationship to the insurancevalue chain. These factors are demanding insurers rethink the principles behindbusiness operating models.

Most insurers are responding by moving to scaled operations at the national andregional level. It is now time for insurers to aspire to global integration. This calls for a rebalancing of powers. Functional heads need more influence, especially over areasconcerning risk and balance sheet management, and centralised control is required todrive co-operation and synergies between divisions (in charge of products, customersegments and/or countries).

Yet driving towards greater centralisation and functional control must be temperedwith the need to give local autonomy, where justified by market requirements.Insurance is in transition requiring flexibility in the globally scaled operating model.This is particularly true in response to most global insurers’ expansion into emergingmarkets. The mantra of “globalise and industrialise” must be refined. It should only be followed on a selective and pragmatic basis. This does not meanthat initiatives to improve the business operating model should be piecemeal. Work streams must be put in place that are aligned to the strategy, coherent with the increase focused on balance sheet management and operational efficiency andeasily, persuasively communicated both internally and externally.

20

1 Allan Afuah, Business Models, (University of Michigan, Irwin, 2004).

2 Considerable variation in performance exists. For instance,P&C providers have performed above trend for the sector.

3 Combined ratios among our sample of top global insurersincreased by two percentage points to 91.8 per cent in2008. It is acknowledged that the combined ratio is notentirely reflective of operational efficiency, taking intoaccount underwriting performance also. The loss ratio andexpense ratio for our sample of 24 insurers both increasedby 2.2 percentage points in 2008. However, over theperiod 2005-2008, the combined ratio and loss ratiodropped by 6.5 and 5.2 percentage points respectivelywhereas the expense ratio remained flat.

4 This drop in share price was not restricted to the Deloittesample of 24 insurers. The Dow Jones STOXX 600 insuranceindex dropped nearly 32 per cent over a similar time frame.

5 A recent study by Deloitte on European insurers’ EVperformance calculated an average fall in EV of 9 per centin FY08, with only a few notable exceptions showing anincrease. Deloitte LLP, Market Confused Embedded Value? The Deloitte View on Year-End Value Results, (UK), 2009.

6 In our view, revenue growth may have been accepted byinvestors on the grounds that they could estimate EVcontribution to profit that new business could havegenerated. With the realisation that profit could beunreliable, as suspected for some time before the crisis, theshift of focus was a way to analyse the insurance sectormore effectively.

7 Deloitte Research, The IFRS Journey in Insurance: a LookBeyond the Accounting Changes, Deloitte LLP, 2008.

8 Total revenues include: premium income; reinsuranceincome; investment and trading income.

9 From our sample of insurers, combined ratios dropped 6.5 percentage points between 2005 and 2008, indicatingslightly improved efficiency and the benefits of theinsurance cycle. However it is the belief of industrycommentators and senior insurance executives that there ismuch scope for efficiency gains within insurance. In fact,90 per cent of insurance analysts in our sample suggestedinsurance was less efficient than other areas of financialservices.

10 In the United Kingdom, the Retail Distribution Review’s banon commissions in 2012 may result in fewer new businesssales in the UK life industry. IFAs may be less able to churnportfolios to sell new products. However, on the upside,less churn in back books increases persistency, resulting inthe value of back books improving and a lowermanagement burden. This primes the back book fordisposal to a consolidator. See: Deutsche Bank, UK LifeAssurers: Living in the Past, 28 July 2009.

11 Some global capital efficiency may also be achievedthrough the use of an intragroup reinsurance vehicle.Business operating models and capital structures should be congruent.

12 According to JP Morgan, IAS 39 accounting changes couldhave a profound effect on reported numbers, makingequities less attractive. See: JP Morgan, EuropeanInsurance, Europe Equity Research, 8 July 2009.

13 The Economist Consensus forecasts: 2009, Deloitte Analysis.

14 OECD Composite Leading Indicators, 2009.

15 Use of this term is adapted from Allan Afuah, BusinessModels, Allan Afuah, (University of Michigan, Irwin, 2004).

16 In the ‘adaptive’ insurance organisation, there are fewoverarching goals for the organisation at Group/Corporatelevel. Rather, the global business strategy is “pluralistic”,comprising many objectives set at the local level.

17 Of a US (largely domestic) sample, 6.1 per cent werecountry-led, 14.5 per cent were product-led, and 14.8 percent were customer-led. Among major global insurers wewould expect the country-led numbers to be significantlyhigher. See: Deloitte DTT, New Global Operating Models ina Shifting World, Insurance D-Brief, March 2009.

18 Many executives have been burnt by expensive integrationprojects which have not worked out. However, integrationtechnology has dramatically improved in a very short timemaking integration a more realistic prospect.

19 Insurers are behind the curve in using shared services.Deloitte Research, Fifth Annual Survey: Offshoring in theFinancial Services Industry, 2008.

20 Specialist teams in the area should be represented at thehighest levels and be integral to BOM change initiatives.

21 Regulation in Europe is in principle fostering a region-wideapproach. Solvency II is an example of how supranationalregulation can facilitate the consolidation of balance-sheet-related processes. However, the financial crisis has erectedsome barriers to this approach. National governments havebeen concerned to ensure that capital in each nationaljurisdiction is adequate to underwrite risks within thatjurisdiction. This potentially restricts the flow of capitalfrom one part of the business to another, and makes thecase that not all processes – even within finance, actuarialand risk functions – can be translated globally.

22 For more information on Deloitte’s perspective ondistribution see: Deloitte Research UK. Face to Face with theFuture: Sustainable solutions for the £66 billion distributionchange facing life and pensions providers, 2006.

23 Broking is attractive in today’s conditions as intermediatingis less capital-intensive than underwriting.

Notes


24 Front-office activities tend to be market-specific (specific toeither a local market or product-type) while back-officefunctions and support and governance functions have moresimilarities. There are often good reasons for localised orproduct-specific front offices (for example, regulations incertain jurisdictions or customer-centred policies wherevariations are significant). But improved controls can becreated in more standardised mid- and back-officefunctions and certain product/customer types.

25 Open business models are based on the idea thatcompanies look outside their boundaries and across thesupply chain for solutions, H. Chesbrough, Open BusinessModels: How to Thrive in the Innovation Landscape(Harvard Business School Press, 2006).

Key contacts

Andrew PowerInsurance Strategy Partner+44 (0)20 7303 [email protected]

Mark FitzPatrickInsurance Leader, UK+44 (0)20 7303 [email protected]

Russell CollinsFinancial Services Leader, EMEA+44 (0)20 7303 [email protected]

Research contacts

Chris GentleHead of Deloitte Research UK+44 (0)20 7303 [email protected]

Seb Cohen Deloitte Research, UK (report author)+44 (0)20 7303 [email protected]

Contacts

26 Retention strategies tend to be local and market-orientedas they are based on enhanced customer contact.

27 Focusing on core is a clear trend. HSBC has a strategicrelationship with AXA Solutions to run telephony and back-office support of functions for selected commerciallines. This initiative started in France and was recentlyrolled out for their UK operations.

28 Zurich Financial Services has shifted some national shared-service functions offshore to regional/global hubs inPoland and India.

Global Insurance LeaderJoe GuastellaUnited States+1 212 618 4287 [email protected]

Americas

Argentina Carlos Srulevich +54 11 43202734 [email protected]

Bermuda John Johnston +441 292 1301 [email protected]

CanadaTodd Roberts+1 416 601 [email protected]

MexicoGustavo Bohórquez +52 55 50806201 [email protected]

United StatesRebecca Amoroso +1 973 602 5385 [email protected]

Asia PacificRegional LeadersHitoshi Akimoto Japan+81 3 4218 4858 [email protected]

Terry MezgerChina+852 2238 7264 [email protected]

Australia Stuart Alexander+61 2 9322 [email protected]

IndiaSachin Sondhi+91 22 6619 [email protected]

IndonesiaRiniek Winarsih+62 21 231 2879 [email protected]

KoreaSung Ki Jun+82 2 6676 [email protected]

Ki Ryong Bae+82 2 6676 [email protected]

MalaysiaMargaret Kek+60 3 7723 [email protected]

New ZealandMichael Wilkes+64 3 363 [email protected]

Greg Haddon+64 9 303 [email protected]

PhilippinesDiane Yap+63 2 581 [email protected]

SingaporeKenny Young+65 6530 [email protected]

Ei Leen Giam+65 6216 [email protected]

TaiwanJohn Chen+886 2 2545 9988 [email protected]

Deloitte Touche Tohmatsu member firminsurance sector contacts

ThailandNiti Jungnitnirundr+66 2 676 5700 [email protected]

VietnamHung Truong+84 4 3852 [email protected]

Europe, Middle East and Africa(EMEA) Regional LeadersFabien Sauvage France +33 1 55 61 41 63 [email protected]

Peter WrightCentral Europe +420 246 042 888 [email protected]

AustriaJosef Schuch+153700 7100 [email protected]

BelgiumFrank de Jonghe+32 3 800 88 [email protected]

CISMaxim Lubomudrov+749 5787 0600 [email protected]

DenmarkLone Møller Olsen+45 3610 [email protected]

GermanyManfred Boegle+49 89 29036 [email protected]

IrelandMary Fulton+353 141 [email protected]

ItalyVittorio Frigerio+39 [email protected]

LuxembourgOlivier Lefevre+352 45145 [email protected]

Benoit Schaus+352 45145 [email protected]

Middle EastJoe El Fadl+961 1 [email protected]

NetherlandsHans de Witt+318 828 [email protected]

Leon Veenhuijzen+318828 [email protected]

South Africa Andy Rayner+2721 427 [email protected]

Spain Jordi Montalbo+34 932804040 [email protected]

SwedenGoran Engquist+4685 [email protected]

Switzerland Andrew Gallacher+41 44 421 [email protected]

United Kingdom Mark FitzPatrick+44 20 7303 [email protected]

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