During the second half of 2020, FTI Consulting’s Global Insurance Services team picked the brains of some key players in the UK life market to understand how they were managing their expenses. This was supplemented with analysis of public and private data.
At the time, the (first) lockdown was over and there was hope of the worse being behind us – little did we know! Along with the hope though, there was uncertainty – many insurers experienced difficulty getting budget sign off from their boards – the future “normal” took many different, but credible forms. What’s more, most Executive Directors (i.e. CFOs and CEOs) struggled to justify their expense projections to their NEDs as they did not fully understand where their organisations were really spending their money.
Positioning for success in the new normal
It had become clear that COVID necessitated a rethink on expense optimisation for insurers to position themselves for success post-pandemic. Our respondents revealed that any recent optimisation that had occurred was limited, but the pandemic had given new impetus to existing plans and necessitated some quick thinking where this topic was not previously on the agenda. Expense ratios vary enormously across the market; company size is clearly an important factor. However, even amongst the top 20 firms, ratios for savings-type business show a 10 fold difference between those at either end of the efficiency scale – the winners here owing a lot to top-line growth, whether through acquisition or new business. There is therefore a lot to play for.