Joe Zanko, Director, Shared Services & Outsourcing Advisory
In the face of increasing regulatory scrutiny, decreasing margins, and the need for better controls, today’s insurance companies are seeking ways to gain operational improvements and realize cost savings to bolster their bottom lines.
Following are three KPMG recommendations to help insurers achieve these goals:
Rebalance contractor/employee headcount ratios and responsibilities
Driven by perceived temporary workload increases and a hesitance to make permanent role commitments to in-house staff, many insurance companies over time fall prey to an out-of-sync balance of employees to contractors. In fact, we’ve seen organizations in which there is a two-to-one ratio of contractors to employees. While at first blush this may appear to be a solid staffing strategy, it can in fact be detrimental, resulting in undefined roles between in-house and contract staff, poor project management practices, lack of accountability for deliverables, unexpected costs, and loss of “tribal” applications and business knowledge when contractors move on to engagements with other organizations.
To correct this imbalance and mitigate these issues, insurance companies should:
- Attain the right contractor to employee staffing levels
- Define the roles whereby employees are the business line experts, architects of necessary solutions, and experts in strategic technologies. Contractors would then be responsible for outcome-based delivery including documenting requirements, handling applications testing and maintenance, and delivering efficient process-driven activities.
- Develop employee skills. In this new, rebalanced model, employees must excel in business knowledge, governance, architecture and key technologies, areas likely out of their current realm of experience. However, ad hoc, on-the-job-training is not sufficient. To succeed, organizations must institute formal employee development programs while developing specific job roles and expectations for their in-house staff members.
Move from staff augmentation to creative partnership arrangements with key service providers
In a concession to augmenting employee staff with contractors, many insurance companies hire X number of rate card-based bodies with the required type of expertise from a third-party staffing firm, or have their procurement departments bid a business line-written statement of work out to multiple service providers. Unfortunately, both of these approaches are sub-standard. Alternatively, engaging in collaborative creativity with primary existing service providers not only brings more suitable, talented, and qualified personnel into the mix, but also significantly accelerates the staff augmentation process.
KPMG is currently assisting a major insurance and retirement plans provider with such an initiative. We began by helping the company develop a request for information (RFI) for its six largest application development and maintenance (ADM) providers. We then clarified with the client what “partnership” meant to it, and conducted face-to-face meetings with each of the providers to gain full insight into the types of flexible and creative partnership-oriented staffing arrangements they have fashioned with other clients. After the down select, we worked closely with the client and the provider to build a model for partnership and delivery that allows for high-level, rapid definition of the types of work and projects requiring staffing, thereby enabling the right resources to be brought to bear at the right time. Key to the model is an available staffing pool approximately 30 percent of whom have the core, required special expertise in specific technologies or lines of business within the client company to serve as full-time contract staff. The other 70 percent will be utilized as flex resources during times of increased demand. This model reduces administration and costs, speeds right resource deployment, and places delivery accountability in the lap of the service provider.
Consider outsourcing select core processes
Many, if not most, P&C and life insurance companies have already outsourced a wide range of back-office processes in human resources (HR), finance and accounting (F&A), procurement and real estate and facilities management (REFM) functions. But an increasing number are starting to investigate how outsourcing core processes such as claims administration, policy origination, reinstatement, and closed book of business can help them achieve their end-state objectives, particularly in the cost savings arena. In doing so, one early adopter has experienced a 40 percent reduction in claims settlement times; while another has seen a 30 percent increase in daily collections.
While none of these tips are easy to implement, they are critical to achieving success in today’s highly scrutinized, yet profitability challenged insurance landscape.
For more from KPMG, visit the KPMG Shared Services and Outsourcing Institute.