While some life insurers are merely hoping to ride out the
global recession, many sense the imperative to expand their
international footprint.
As global markets continue to develop and become increasingly
inter-connected, many insurance companies are re-examining their
operating models in hopes of taking advantage of new global
opportunities.
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A new report from Deloitte’s Insurance Practice, Financial
Foresight: Global Operating Models, suggests the global operating
models insurance companies are using today are an incipient
response to changing business drivers. For example, in many cases,
the prevalent model is region-specific, which can lead to
duplication and lack of flexibility in both capital and talent
deployment.
Joe Guastella, principal and global insurance leader in Deloitte’s
Insurance Practice, told LII that for many life insurance companies
around the world, operating models exist not by design, but by
default.
An experienced insurance consultant with stints in several
Asia-Pacific markets, Guastella has been intrigued by the issue of
operating models in the life sector for years now, and said he
senses an emerging era of global opportunities once the smoke
clears economically.
His consultancy is presently in the middle of a series of in-depth
client interviews on the subject, which has convinced Guastella
that players worldwide are getting serious about restructuring
operating models with an eye toward greater efficiency,
maximisation of economies of scale and harmonisation of governance
structures.
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By GlobalDataBig changes ahead
“You are going to see a lot of things happening in the near
future,” Guastella said. “There will be more regionalisation, a
rethinking of international market presence, as well as some truly
global deals, all of which makes the question of operating models
timely and important.”
Examining operating models raises many important questions for
insurers about how to make design choices along the dimensions of
product, customer, and geography. Where most operating models in
the past focused on a single country or region, emerging models
take a broader view of the global marketplace.
“There is no one-size-fits-all global operating model,” Guastella
said. “Each insurer must design a model that reflects their global
business strategy.”
Global operating models need to be structured to balance cost,
enable control, leverage limited skills, and share innovation.
Designing and transitioning to a new global model requires a clear
understanding of the issues, trends, and challenges that insurance
companies face around the world, coupled with a framework that
leverages synergies and capitalises on each organisation’s unique
strengths, he said.
Developing an effective model
According to the report, developing an effective global operating
model requires a framework comprising of three principal elements:
the business strategy, which entails customer segmentation,
products and services, and distribution; the operating strategy,
which encompasses governance, financial stewardship, organisation
(both functional and geographic) process and technology; and the
people component, which includes the development, deployment and
performance management of human resources.
Guastella said the report underscores the need for life insurers to
take a deliberate approach to examine how they operate globally.
This includes integrating global acquisitions, standardising global
operations, optimising the operating model to drive cost benefits
and developing and retaining key talent.
“Each step raises questions that lead to systematic analysis of
current operations, with the goal of consistency of operations on a
global level,” he said.
Global operating models are complex, and becoming more so with each
passing day. Managing the conflict between what decisions are made
globally, regionally and locally is important to balance both
compliance and effectiveness. Many insurers have gone through
multiple acquisitions and integrated those deals to varying
degrees, adding to the complexity as corporate strategy
changes.
Operating models clearly is an issue on the radar of
insurers.
According to an informal poll Deloitte recently conducted among
some 400 executives, two-thirds reported that their companies have
reviewed their global operating model once (31 percent) or more (36
percent) in the past 12 months.
As companies develop a global model, it is important to undertake a
diagnostic process to understand the desired target structure, how
the current model links to that structure, and how functions are
aligned.
Customer-related functions such as sales can be located close to
the market, while functions related to developing the customer
proposition, such as product development or underwriting, tend to
be more centralised, as do overhead and support functions, both for
reasons of economy of scale and to make sure there is adequate
control.
Levels of control vary widely worldwide, Guastella said, and are
reflective of cultural values that must be taken into account when
developing global operating models.
The challenges to working within a global operating model are also
variable, he said, citing Deloitte’s recent online poll, in which
executives said effective governance and decision making, clearly
defined structure and roles, the assignment of profit and loss
accountabilities and working in a multicultural environment all
posed challenges.
“We always grimly acknowledge that culture is huge, and we pay it
lip service, but unless you have been through a multicultural
acquisition, you have no idea how important it really is,”
Guastella said.
“It is one of the greatest challenges to working effectively within
a global operating model.”
The report’s bottom line: as multinational insurers increase in
complexity, and continue to adapt to meet new market conditions,
regulatory and stakeholder requirements, it becomes imperative to
design and manage organisational change on a global level. While
Guastella readily admits this is no easy task, he said there is no
time like the present for insurers to tackle the task of operating
model revision.
“This will quickly become an incredibly important mission for
insurers looking to consolidate and synthesize global operations,”
he said.
“This was a huge issue before the economy took precedent, and it
will soon re-emerge as a strategic imperative.”
