New Operating Model for Insurers (Part 2)

It’s an interesting time for insurers, with changes forced by COVID-19 set against a background of opportunities for digital transformation.

In my previous article (New Operating Model for Insurers (Part 1)), I set out the steps that an insurer can take to redesign its operating model to meet its new business priorities. Here, I’m going to offer some observations on what that new insurance Target Operating Model might look like.

My core assumption is that the insurer wants a model that focuses on delivering a high-quality customer experience at a reasonable cost.

To keep it manageable, I’ll restrict my Target Operating Model's scope to:

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

…and I’ll go no deeper than the design principles level.


I’ll start with locations, as this is a hot topic in a pandemic world.

Insurers’ responses to COVID-19 have proved that remote working is a lot easier than many had thought. But I’m not anticipating that “everyone works from home” will often be adopted as a design principle. Why? Because in certain circumstances there are still benefits from, and even a necessity for, some face-to-face interaction. So I would expect to see design principles such as:

  • All staff should be enabled to do most of their work without attending an office
  • But all staff (or perhaps just certain types or grades of staff) must live within X hours of an office that they can use when needed or when they desire
  • Offices must have flexible space catering for individual working and interactions of multiple types and sizes (for example 1:1s, small group meetings, large group meetings, workshops)
  • Where possible, staff should be hired in low-cost locations ahead of high-cost locations

Each insurer will need to set its own rules for when staff must attend an office and figure out what its resulting occupancy levels and space requirements might be.

Beyond this, there will be customer expectations or regulatory requirements that compel insurers to have physical offices in locations (typically states or countries) in which they sell. Hence, there will often be a principle that:

  • We will locate offices to meet the expectations of both our customers and our regulators

People Organization and Governance

At the level of this article, we can treat these two dimensions together.

As people are replaced by automation, I would expect to see increasingly flat organization structures. So a Target Operating Model design principle might be:

  • Our organization structure will have no more than five layers

There might also be a corresponding principle setting out minimum or maximum spans of control.

But if there are few layers, and staff are highly distributed, there need to be ways to ensure that staff work effectively and make smart decisions without being micro-managed. Possible design principles for governance might therefore be:

  • The mission, values, goals and objectives of the company are the primary arbiter of whether a proposed action or decision is a good one and must be visible to all employees at all times
  • Role descriptions will clarify the limits of a role’s authority and autonomy (its scope, or guard rails), but within those our staff will enjoy a high degree of independence

Of course, a switch to this type of organization is unlikely to be possible without high-quality change management in place.

See also: Should Insurers Use Amazon Model?

Major Business Processes

In A New Target Operating Model for Insurers – Part 1, I offered the following generic insurance value chain, which, at this level of abstraction, covers both P&C and life:

A Value Chain for an Insurer

It’s beyond the scope of this article to take each element in turn, but here are potential design principles that could apply to pretty much all of them:

  • The process should be customer-centric: designed to fulfill its customers’ needs at the highest quality, at lowest cost, in the shortest time
  • The process should be both common and shared across business lines, products and geographies to the greatest extent possible
  • Automation (core automation, artificial intelligence, robotic process automation, etc.) should be employed as widely as possible, to accelerate delivery and minimize processing errors
  • Unless we possess differentiating expertise in a process or sub-process, it should be outsourced to one or more third parties possessing the appropriate expertise

Some of these customer experience and efficiency themes are explored, in a greater level of detail, on my website focused on the Insurer of the Future.

Key Technologies

I’ve left key technologies until last, as some of the major design principles here depend on the areas already covered.

Here, I would increasingly expect to see design principles along the following lines:

  • The primary function of our technology is to automate our Major Business Processes
  • The primary non-functional requirement of our technology is that it be secure from external and internal threats
  • Our IT systems will be shared across business lines, products and geographies to the greatest extent possible
  • Our IT systems will be available to our staff from any location they choose
  • Data will be shared across business lines, products and geographies to the greatest extent allowed by applicable regulation
  • Unless we possess differentiating expertise in a particular aspect of technology (or its design, development or running), it should be outsourced to one or more third parties possessing the appropriate expertise

It is also possible that design principles at this level might lead directly to additional, more specific, principles such as:

  • We will maximize the use of cloud technologies

Technology change is often, of course, the type of change that takes longest to deliver. So it wouldn’t be surprising to see one or more interim Target Operating Models (see New Operating Model for Insurers (Part 1)) as staging points on the roadmap for technology transformation.

See also: 10 Tips for Moving Online in COVID World

* * *

It’s an interesting time for insurers, with the changes to insurers’ business models arising from COVID-19 set against a background of continuing opportunities for digital transformation.

Using the approach set out in A New Target Operating Model for Insurers – Part 1, and developing a set of design principles such as the above, an insurer will be well-placed to design its new Target Operating Model.

And using the specific design principles as a starting point for discussion will help set an insurer on the road to delivering a higher-quality customer experience at a reasonable cost.

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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