4 Ways Automation Cuts Insurance Operating Costs

In recent years, P&C insurers have seen some of the largest net underwriting losses on record. Amid inflationary pressure that sends the cost of claims soaring and increasingly unpredictable natural catastrophes, underwriting profit has become elusive.

Meanwhile, operating costs are rising. The pressure to modernize has pushed insurers to ramp up IT spending, and year-over-year salary expenses increased by more than 5% across the industry.

So, as insurers struggle to achieve profitability, cost-cutting ranks as a core priority for many organizations. We’ll explore four ways that automation brings that goal within reach—but first, to better understand the role of automation, we’ll dig into the factors chiefly contributing to rising operating costs.

Why are insurance operating costs on the rise?

While a variety of core elements fall under the operating costs umbrella, IT and Operations (which include policy issuance, policy servicing, and claims management) account for roughly 50% or more of a typical insurer’s cost base.

With this in mind, it’s little wonder that modernization drives higher costs since insurers are spending more on tech—often without realizing the desired benefits.

At the same time, the ongoing use of legacy systems alongside modernization efforts has left most insurance companies with a hybrid operating system. With poor interoperability, these systems take more manual work (and therefore, more resources) to manage. The understanding that complex environments are more expensive isn’t just anecdotal—a survey of nine leading insurance companies found that more complex the IT systems equate to higher overall operations and IT spending.

Additionally, the industry’s talent shortage is a key factor driving IT costs higher. Skilled insurance IT staff are harder to come by, more expensive to employ, and less interested in managing outdated systems.

Eventually, the line between IT and Operations costs begins to blur—complex IT systems not only lead to higher IT costs but also to ballooning operational costs and lower productivity. It’s not hard to see why: back-office inefficiencies related to policy and claims management processes inevitably translate to bottlenecks in the customer-facing portions of these workflows. Perhaps unsurprisingly, benchmark reports have found a direct positive correlation between streamlined IT systems and operational productivity in insurance companies.

How can insurers leverage automation to cut operating costs?

While it’s difficult to dependably drive underwriting profit, cost-cutting measures are well within insurance companies’ reach. There are four key ways that an automation solution such as a workload automation and orchestration (WLA&O) platform can help insurers slash operating costs—and quickly.

1. Harmonize disparate systems

As insurers modernize core systems and invest in new applications, most continue to use legacy technology in their core processes. Because these disparate systems typically cannot seamlessly communicate, IT staff are left with additional work, operational productivity slows, and costs rise.

For example, a P&C insurer that has updated their core systems to Guidewire InsuranceSuite may still rely on policy data housed in legacy systems to carry out claims processes. This means that, despite the core systems upgrade, a constant stream of IT tickets would be necessary to carry out the insurer’s business-critical processes.

A comprehensive WLA&O solution can harmonize these disparate systems, creating a single point of control for complex workflows that span multiple systems, regardless of the environment. As a result, insurance companies can both cut costs and unlock greater ROI from modernization.

2. Handle complex daily processes

Many insurance IT teams are so bogged down by business-critical tasks that high-level, strategic projects constantly move to the bottom of their to-do lists. An automation solution with advanced scheduling capabilities and enhanced sequencing flexibility allows IT teams to confidently offload those complex daily processes and (finally) turn their attention to strategic initiatives, such as streamlining IT environments.

For example, Noridian Mutual Insurance Company automated 800+ jobs with cross-platform dependencies that previously fell on Noridian staff. As a result of automating these processes that span modern and legacy systems, IT has supported the organization’s growth by taking on more work than was previously possible.

This type of productivity gain is far from unusual. In a PeerSpot review of WLA&O solution, OpCon, a Senior System Programmer for another large insurance company reported that WLA&O has driven a 10-15% increase in productivity across the organization.

3. Cut down on costly errors

Manual operations are prone to error, and basic job schedulers triggered by dates and times rather than events often encounter out-of-sequence errors that require manual intervention. Leveraging event-driven automation allows insurers to accurately run workflows in dependency chains, controlling previously unpredictable costs related to human or sequencing errors.

In fact, Noridian initially began exploring WLA&O solutions due to the unacceptably high rate of human error they were experiencing—along with downtime between jobs, the organization has seen errors fall considerably.

4. Uncover inefficiencies and unnecessary processes

All too often, insurance companies lack visibility into their processes. Because workflows span disparate systems and many processes (like the underlying systems, in some cases) are decades old, it’s difficult to visualize the job path.

Through flowcharting, a WLA&O solution can provide a single visual representation for a workflow that spans multiple systems. This way, insurance companies can identify unnecessary steps—or even wholly unnecessary processes.

By cutting out unneeded tasks, insurance companies can streamline their operations and shed senseless costs.

Cut costs with automation: How to get started

As costs keep rising in sync with competitive pressure, insurers face a dilemma: spend less money (and risk falling behind) or keep spending (and risk insolvency). Fortunately, workload automation and orchestration solutions unlock a third option: address key cost drivers and maintain a competitive position.

To learn more about how WLA&O can address your organization’s biggest challenges, download our Insurance Quick Guide to Workload Automation and Orchestration or get in touch with our automation experts.