Strategic Cost Reduction in Insurance

Current economic conditions, combined with market forces including liberalization that have gained momentum in the Indian insurance industry over the past few years, have caused cost reduction to become a top strategic business priority. The focus of Indian insurers is likely to change from “revenue growth” to “profitable growth” in future.

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For insurers in India, it is imperative to improve their operating cost structure in an increasingly competitive environment, while continuing to capitalize on the opportunities for growth in a largely under-penetrated market.

Further liberalization of India’s insurance sector is likely to intensify competition from foreign players, while emerging opportunities in areas such as micro insurance and health insurance can give rise to challenges on managing network expansion costs against revenue gains.

In Accenture’s view, arbitrary cost reduction is no longer sufficient—and could even be damaging. What is needed is a more strategic approach, where cost cutting is part of a broader agenda of efficiency and growth.

There are different approaches that can be adopted to reduce cost. Short-term strategies may aim to cut expenses as rapidly as possible. Others seek to optimize the current model to move to higher levels of efficiency.

Strategic cost reduction, on the other hand, entails broader ambitions and more far-reaching changes to both the current operating model and the organizational structure—in fact, throughout the value chain. Its aim is not simply to take out cost, but to build capability that supports the business strategy.

Accenture’s approach to cost reduction is more effective than tactical, narrowly-based efforts because it is aligned with the business strategy, it includes the entire enterprise, and it is planned and effectively implemented by an experienced team of specialists.

The magnitude of savings achieved by strategic cost reduction is attributable to its comprehensive approach and its reliance on four powerful interrelated levers that shape the cost structure of the enterprise, affecting the way the insurer conducts every aspect of its business. The levers are

• Operating model integration
• Optimized sourcing
• Sales and service optimization
• Operational excellence

The above levers not only can yield cost reductions—including lower loss costs—but also can equip and position the organization for profitable growth.

Contact us to find out how Accenture can help position your organization for profitable growth through strategic cost reduction.

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