Sourcing strategy for insurance companies

2010

Competition in the insurance industry has grown increasingly fierce in recent years. Easier access to information on the Internet and redoubled efforts to protect consumers have made prices, costs and quality more transparent. Customers have thus become more sensitive to prices and costs while at the same time demanding higher quality and better service. The industry is responding to this development by importing successful models from the manufacturing sector in an attempt to cut costs and raise quality.

And it has indeed made progress toward operational excellence by reengineering processes, outsourcing support functions and cultivating specialized organizational units in shared service centers that handle specific links in the value chain. Up to now, however, these efforts have tended to focus on rather peripheral aspects of value chain structures – a fact that inherently limits the potential efficiency gains they can yield. It therefore comes as no surprise to learn that, for the average insurer, vertical integration still stands at around 90%.

To exploit greater potential for optimization, insurance companies must dig deeper into the structures of their value chains. Outsourcing activities and moves to set up shared service centers have, however, shown them how difficult it can be to implement and manage collaborative networks that involve external and internal service providers – not to mention the challenge of monitoring and controlling these networks. Expectations of irregularities in operating processes, coupled with customers' negative experience, have understandably made insurers rather reluctant to take the plunge and further restructure their value chains.