Summary
Insurers unlike other industries have had profitability to mask their cost inefficiencies. I have yet to get an immediate answer of (CFO, CHRO, CTO)'s of large insurers or integrated financial services companies to the question what is the cost of their function. Forget for a minute they are support functions to the businesses they lead. Core to the outsoursing question is understanding the true cost to serve and then where and if can it be done better. These functional leaders need to understand the cost to serve of their entire function, their core processes within their functions and then finally prepare a business case for what should be done internally that is core to their business and what could be done externally to the extent it is both cost efficient and cost effective.
Analysis
Many large insurers and integrated financial services firms are currently in the middle of strategic consulting exercises to answer this question by function and then by process for their client organizations. The implications, as with other industries that have led the way in understanding their cost to serve and then doing something about it, are transformational.
The next question then is will insurance companies have what it takes to invest in transformational activities to insure their own financial and strategic sustainability. What it will take is one or two large insurance carriers to completely change their underlying cost to serve and thisw will lead to a repricing of current future offerings and a shift in market positioning that will tough to recapture withouot a similar transformational investment by comparator companies.
All that Allstate, State Farm, Progressive and others need to look to for Wall Street pleasers is P&G, IBM, Pepsi, Walmart, UPS, FedEx to name a few to see how the conformists are faring.
While this may be a valid question to answer...it may already be a foregone conclusion.
All it takes is one company to redefine the rules of competition. Then the rest are left with catching up.
