Tight credit spreads and high asset prices have been among the challenges facing insurers over the last few years. Rather than try to resolve the asset allocation dilemma by simply looking for new asset classes or managers, insurers are looking at making improvements on the costs associated with running their middle and back office operations.
While technology has served a great purpose in making strides for front office operations, insurers have reportedly been slower to assess the potential for middle and back office support. Much of the reason for this can be blamed on issues such as lack of standardisation and interoperability. Many technology providers, however, have addressed those concerns and are able to create and distribute platforms that can overcome these obstacles. Some platforms can simplify standard functions, while others have gone as far as implementing machine learning and artificial intelligence, thus boosting efficiency to the fullest and massively cutting down on costs.
Of course, insurance is a highly regulated industry, which has layers upon layers of compliance. Again, technology has been able to step up to these challenges by consolidating regulatory requirements, so they are addressed in a simplified manner, under a unified platform.
Without a doubt, these technologies come at a cost, and often they can be higher than insurers are willing to spend, especially for smaller operators. That is when outsourcing comes into play. Barring any regulatory limitations, insurers can choose from a plethora of third-party service providers that they can connect with through Software-as-a-Service (SaaS) platforms without needing to invest in the design and build of new technology architecture. Not only does this prevent excessive cost overruns on implementation and maintenance, but also on technology updates.
The key appears to be, that insurers that may be struggling with high overhead or underwhelming portfolio performance do not have to invest their way out of a hole. Cost-cutting through operational efficiency is among one of the most rational decisions that an insurer can make for the long-term.
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