Trimming the Fat: Reducing Insurance Operating Expenses for CFOs through Strategic Backoffice Automation

The insurance industry is no stranger to challenges. In 2023, the US Property & Casualty (P&C) sector, including insurance agencies and Managing General Agents (MGAs), experienced a net underwriting loss of $32.2 billion, according to InsuranceBusinessMag. This marked a worrying $7.6 billion increase from the previous year. These figures highlight the urgency for insurance agencies and MGAs to reduce their Insurance Operating Expenses.

What Does Insurance Operating Expense Entail? The phrase ‘Insurance Operating Expense‘ refers to the array of costs associated with upholding insurance policies within the corporate sphere. These costs encompass a spectrum of financial obligations, from the payment of policy premiums to various administrative charges, all of which can obviously influence the financial health of a business.

Compounding these financial pressures, natural catastrophes in 2023 led to approximately $100 billion in insured losses, according to Swiss Re. To navigate these financial complexities and reduce Insurance Operating Expenses, insurance agencies and MGAs need to explore innovative solutions. One such solution is to leverage back office automation and Insurance Automation.

These back-office automation technologies offer the transformative potential to refine operations, streamline complex processes, and upgrade aging IT systems. By integrating advanced automation, insurers can cut unnecessary expenditures, boost overall productivity, and enhance client satisfaction.

Source: mckinsey/industries/financial services/our insights/what drives insurance operating costs/

The Rising Insurance Operating Expenses: A Wake-Up Call for Agencies and MGAs

Insurance agencies and MGAs have been grappling with the rise in Insurance Operating Expenses. This surge has been driven by an 11.9% increase in incurred losses and loss adjustment expenses (LAE) and a 7.3% rise in other underwriting expenses. Economic losses from natural catastrophes, including those not insured, were estimated at $260 billion in 2023, adding further to the insurance industry’s financial burdens.

The Case for BackOffice Automation

Insurance agencies and MGAs must focus on operational efficiency to reduce insurance operating expenses. Backoffice automation offers an effective solution for streamlining workflows, reducing manual errors, and freeing up human resources for strategic tasks.

For instance, operational functions such as IT, finance, payroll, billing, and legal can account for a significant portion of an agency or MGA’s budget. By automating some of these tasks, insurance firms can reduce the time, effort, and money wasted on inefficient processes. This, in turn, can lead to significant reductions in Insurance Operating Expenses.

Back-office automation also has the potential to enhance other aspects of the insurance business. It can expedite the underwriting process, reduce agent onboarding time and costs, and help manage producer license compliance. By automating these processes, insurance agencies and MGAs can significantly save Insurance Operating Expenses.

How Automation Equips Insurance Agencies and MGAs for Dynamic Risk Landscape

1. Facing Inflection with Innovation: As insurance agencies and MGAs stand at an inflection point due to economic uncertainties and evolving risks, backoffice automation becomes essential. By automating routine tasks and processes, firms can focus on addressing the new challenges and opportunities presented by the market, thus maintaining relevance and resilience.
2. Navigating Rate Volatility through Efficiency: The mixed landscape of rate hardening and softening requires insurance firms to be agile. Strategic back-office automation can help manage Insurance Operating Expenses more effectively, allowing firms to remain competitive regardless of rate fluctuations. Even in a volatile market, enhanced efficiency can lead to better rate setting and premium growth.
3. Closing Protection Gaps with Automation: The evolving nature of risks, such as cyber threats and supply chain vulnerabilities, calls for innovative insurance products and processes. Insurance Automation can empower carriers to develop new offerings and underwriting models, helping close protection gaps and assert their role in a world increasingly conscious of risk management.
4. Transformation from Art to Science Enabled by Technology: As the report highlights the need to transform capabilities to address new risks, automation technologies such as AI and ML can facilitate this shift. By automating data analysis and predictive modeling, carriers can enhance underwriting precision and claim handling, transitioning from traditional methods to data-driven, scientific approaches.
5. Strategic Actions Empowered by Automation: The strategic actions outlined in the report—such as differentiating beyond price, product innovation, securing capacity, and developing new capabilities—are all supported by back-office automation. Automation can help carriers streamline operations, manage costs, and free up resources to invest in areas that will define their distinctiveness and future-proof their business models.

Drawing insights from the Organization for Economic Co-operation and Development (OECD) detailed reporting on insurance financials, one can see the importance of managing Insurance Operating Expenses effectively. For example, from 2012 to 2022, gross operating expenses for domestic life insurance undertakings in the United States have risen from $67.534 billion to $83.700 billion, indicating a marked increase. This trend is mirrored globally, with Japan experiencing a decrease from $51.558 billion to $34.268 billion in the same period, reflecting the impact of strategic operational changes and possibly the adoption of automation technologies.

For insurance agencies and MGAs, these figures underscore the potential for office automation to play a significant role in curbing Insurance Operating Expenses. By implementing Insurance Automation solutions, agencies can capitalize on the opportunity to streamline processes and achieve cost efficiencies, as evidenced by varying global trends. The data paints a clear picture: strategic automation is not just a pathway to modernization; it can be a critical factor in financial performance and the sustainable management of operating expenses.

Moreover, more is needed to implement a one-time cost-reduction strategy. A shift in corporate culture towards ongoing cost vigilance and continuous improvement is imperative. Through a comprehensive approach that melds innovative technology with robust performance management, insurance businesses can achieve a sustainable reduction in Insurance Operating Expenses, positioning themselves for enduring success in a fiercely competitive industry.

The Path Forward: Strategic Automation

With mounting Insurance Operating Expenses, insurance agencies and MGAs must adopt strategic automation. This involves optimizing operations, automating manual tasks, leveraging AI and ML, and harnessing insurance technology.

Strategic automation helps reduce Insurance Operating Expenses and improves service delivery. For instance, insurance firms can offer faster and more accurate assessments by automating the underwriting process, enhancing client satisfaction and retention.

Furthermore, by automating agent onboarding and producer license compliance management, insurance agencies and MGAs can reduce overheads, minimize compliance risks, and improve their relationships with producers.

Conclusion: Automation Has Become Imperative for Agencies and MGAs

Recent data shows that reducing Insurance Operating Expenses is not discretionary but a strategic imperative for insurance agencies and MGAs. However, they can turn the tide with back-office management and Insurance Automation.

Transform the way you manage your Insurance Operating Expenses without missing a beat. With over 15 years of industry experience, Insurance Back Office Pro provides professional back-office services through 8 global delivery centers that work around the clock, providing 24/7 support to ensure that your agency or MGA is always ahead of the game.

Embrace the power of back-office automation and tap into a wealth of expertise that can transform how you manage risks and serve your clients. Don’t let the complexities of today’s insurance landscape slow you down. Propel your business into a future where efficiency and strategic automation open the door to new opportunities. Get in touch with us now to start your journey toward streamlined success.