Joint study by the European Financial Marketing Association (Efma) and Roland Berger Strategy Consultants

Over 50% of European insurers expecting to consolidate into shared service centers

• Companies expect cost savings up to 10%
• Loss of local know-how and of the proximity to market as main disadvantages
• Whereas global insurers have already consolidated selected function in shared service centers, regional players are lacking behind

Shared service centers have been a growing trend among insurers, and are implemented to save costs and improve service quality as well as for monitoring purposes. The scale of this change in the industry is shown by the fact that reinsurance, asset management and IT-related functions were at least partially centralized by more than half of the companies surveyed. And, particularly for IT-related functions, the share of service provision through shared service centers has potential to be further increased. These findings emerge from a study by Efma (the European Financial Marketing Association) and Roland Berger Strategy Consultants entitled "Shared service and competence centers for insurers". The study identifies opportunities and hurdles and makes suggestions for ensuring the successful use of shared service centers.

"In the aftermath of the financial crisis – with expected regulatory changes, difficult market environments and shrinking profits – European insurance companies reacted to keep costs under control. One of their preferred cost-control levers has been to change the operating model by implementing shared service and competence centers," comments Patrick Desmarès, Secretary General of Efma. European insurance companies expect to save up to more than 15% in costs by using shared service and competence centers, depending on tasks and functions.

Labor costs are not the focus

A further finding of the survey was that the number of insurers driving product development (at least partially) via shared competence centers will increase by between 40% and 55%. "In contrast to popular market trends, shared service and competence centers for insurers are not located primarily in low-labor-cost countries," notes Hendrik Bremer, Financial Services Partner at Roland Berger Strategy Consultants. European insurers state that the main criteria to decide on a location are the availability of functional and language skills as well as the proximity to headquarters, and the latter is more important than labor costs, in spite of the fact that cost is the main reason to centralize functions.

Challenges for realizing the associated benefits

However, the report found that there are downsides to the use of shared service centers. "Major disadvantages are the loss of local know-how and of the proximity to market. Moreover, shared service centers offer less flexibility and shared competence centers less market-specific knowledge," says Desmarès. To generate the discussed benefits and to manage the disadvantages of shared service and competence centers, special attention has to be paid to the definition of interfaces and service level agreements (SLAs) as well as to harmonized processes and the employees' know-how level (in the case of shared competence centers).

Global players are further along than local insurers

Whereas global insurers have already consolidated selected functions – such as IT and reinsurance – in shared service and competence centers, smaller, more regionally operating insurance companies have implemented them only partially. "For larger insurers, further consolidation provides opportunities. This is reflected in the very large numbers of respondents to our survey who expect further consolidation in the near future," notes Hendrik Bremer.