New Operating Model for Insurers (Part 1)

Taking a few key steps will enable an insurer to resolve its operational challenges and lay the foundations for future success.


I’ve posted previously on the implications of COVID-19 for insurers’ business models and for insurance products and services. And my survey on changed priorities in the wake of the pandemic showed that insurers feel they have much more work to do on both workforce flexibility and new or revised customer communication and servicing channels.

It seems timely, therefore, to provide a few thoughts on:

  1. The steps an insurer can take to re-design its operating model to meet its new priorities; and
  2. What the new insurance target operating model might look like.

This article covers the first point, and a future article will address the second.


First, a couple of quick definitions. An operating model is a simplified depiction or visualization (a model) of how the insurer operates to deliver on its business objectives. It is both narrower and more granular than the insurer’s business model. Unless it’s a start-up, the insurer will already have a current operating model. Its design for a better operating model for its future is known as its target operating model (TOM).


Unfortunately, there’s no commonly agreed set of dimensions for a TOM.

My own view is that, at a minimum, a TOM needs to consider:

  • Major Business Processes
  • People Organization
  • Key Technologies
  • Locations
  • Governance

This list can be expanded, when appropriate, to include additional dimensions such as:

  • Customer Journeys
  • Management Information Requirements
  • Culture


At its simplest, the operating model can be re-designed using a three-step approach.

A Three Step Approach to Re-Designing the Insurer / Insurance Target Operating Model (TOM)

In the Understand phase, the insurer first needs to establish the scope of the target operating model it wishes to develop, selecting from the list of parameters in the Scope section above. The insurer should also agree on the templates it is going to use to document its current and future models.

In addition, the insurer needs to understand and agree on its value chain. This is important because the value chain captures, in simple terms, what the TOM will be required to deliver.

See also: 7 Business Models of the Future for Insurers

And the primary and support activities in the value chain model also provide a key underpinning for the current and target operating models, because we can structure those models to show how each element of the value chain is currently delivered, and will be delivered in the future.

A typical insurance value chain (which, at this level of abstraction, covers both P&C and life) appears below.

A Model for an Insurer Value Chain or Insurance Value Chain

Once the value chain is agreed on, the insurer should then document the current operating model and (through document reviews, interviews or workshops) establish the challenges arising from the current model.

Some of those challenges may well have sparked the project in the first place. The review might have started, for example, to address a cost problem. But even where the primary challenge is clear, it would be a waste not to consider other difficulties (such as friction points in the customer or intermediary experience) that might also be resolved through a new operating model.

The Analyze phase focuses on understanding the challenges in more detail and considering the ways in which a new TOM could resolve them. In the example I’ve just given, that would require figuring out what types of changes in the operating models (the levers) could be used to address the cost and customer experience issues identified.

It’s possible to jump straight from these levers to potential options for the TOM design. But, in my experience, the range of options available is so wide that a useful interim step is to agree on a series of high-level design principles that the solution must comply with. Examples might be that, “All verbal customer interactions must take place in the customer’s country of residence” or “All locations should use the same core IT systems.”

The Re-Design phase refines the options down to a single TOM, documented using the agreed templates. Of course, this isn’t just a desk-based exercise, as buy-in to the result is likely to be required from multiple stakeholders. The insurer will need a process that involves those stakeholders in the decision-making, both to improve the decisions themselves and to harness stakeholder commitment to the forthcoming transformation.

Often, however, the "target" operating model is not enough. Although it’s the target, it might involve such radical change that it can’t be fully implemented in an acceptably short time. If that’s the case, the insurer may also need one or more interim operating models through which it will pass along the way.

A Transformation Roadmap with one Interim Operating Model

Whether any interim models are required, the final step in the Re-Design phase is to set out the road map for delivering the new operating ,odel(s) and mobilize the transformation program.

See also: How CISOs Are Responding to COVID

Following these steps will enable an insurer to resolve its operational challenges and lay the foundations for future success.

In Part 2, I’ll offer my thoughts on what the new TOM for an insurer might look like.

Alan Walker

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Alan Walker

Alan Walker is an international thought leader, strategist and implementer, currently based in the U.S., on insurance digital transformation.


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