Can better resource management help P&C out of its slump?
It may be tempting for P&C insurers to react to underwriting losses by reducing labor costs, but this approach is flawed.
While most sectors of American insurance have recently experienced minor to moderate volatility, property and casualty has suffered steep and unambiguous losses, prompting industry leaders to reevaluate their business models.
P&C underwriting losses ballooned to $26.9 billion in 2022, according to Verisk. That’s the largest underwriting loss the industry has seen since 2011. Even with instability in Eastern Europe, inflation and supply chain bottlenecks, this falloff in revenue was sharper than analysts had predicted; more than six times the $3.8 billion underwriting loss in 2021. Unwriting losses also were reflected by a decline in net income — shrinking from $62.1 billion in 2021 to $41.2 billion in 2022.
It’s tempting for P&C insurers to react reflexively to these losses by reducing labor costs. However, this approach is often the wrong one to take, resulting in loss of talent, slowing down an organization’s growth potential once risk profiles change and macroeconomic conditions improve.
Instead, as part of a broader strategy to control costs, they should consider an alternative approach to labor that will improve how they deploy their labor force, increase efficiency and future-proof their organizations. This can be achieved by improving how their internal resources are allocated.
Resource management smarts
Poor resource management is not unique to P&C companies. Before getting into P&C specifics, let’s ground our conversation in a recent survey of 39 companies, conducted by the Resource Management Institute (RMI). Their study concluded that there are divisions of resource management ripe for big gains in efficiency. In RMI’s third survey, they concluded that forecasting and capacity planning, along with developing a skills inventory, continue to be areas that can be improved on. Governance was another area where significant upgrades could be made.
Another survey by RMI, designed to better understand how effectively corporations are managing their human resources, looked into factors that prevent the efficient use of resource management tools. They found that 54% of organizations have no access to real-time project KPIs, and nearly 35% of project managers formulate resource plans using Excel. Moreover, 77% of survey respondents had not yet put in place resource management software, which would provide a way to generate “what if” scenarios.
Many of those surveyed expressed distrust and frustration with their current state of digital resource management tools. While this all sounds a bit technical, what it boils down to is, even if companies had such digital tools, they weren’t necessarily getting the most out of them.
The areas for improvement RMI’s study identified included forecasting and capacity planning (83%); reporting, dashboards and data analytics (79%); skills development planning (65%); skills inventory and database capabilities (64%); and project staffing (52%). While the greatest deficiencies they identified remain unchanged from year to year, a desire for skills development capabilities, a critical component to effectively reallocating internal resources, has been gaining ground, up 13% from RMI’s previous survey.
Clearly, companies could be doing more to make full use of digital resources. For example, without an exacting skills database, resource planning would remain in the rearview mirror and a largely ineffective process.
What this means for insurers
Resource management measures can be brought to bear in the P&C world where ideally the insurer leverages change management know-how and technology tools to create a strategic roadmap — dedicating time and resources to higher priority work and using the leftover resources for auxiliary functions.
Choosing what constitutes “high priority” is a difficult question, as insurers often have to choose between a long-term vision and short-term profit. However, with the right data, there’s much less guesswork involved in this decision. But the idea is to gain a full, transparent view of their organization — identifying how personnel, capital, and technology are spread throughout various projects.
For instance, regulatory projects, which potentially carry severe fines from local or state insurance bodies, should be prioritized highly and attention should be paid to ensure the project is delivered on time. Other short-term payback items — like rate adjustments within a policy admin system — likewise should be prioritized highly as the investment in projects like this will often have a high short-term value which can then be redeployed elsewhere. Projects that impact the underwriter, broker and client journeys also tend to take priority over other items, as streamlining the underwriting process by focusing on projects in this area carries several knock-on benefits besides pure operational expense reduction.
Organizations looking to overhaul resource management processes should prioritize three key improvements before making additional redesigns — standardizing, formalizing, and centralizing the demand management and intake, capacity planning, and tracking and reporting processes. Done manually, these processes can take days, even weeks to complete. Advancements in data science expedite these three key functions to nearly real-time.
Suddenly, gaps in an organization become apparent, allowing an insurer to course correct around how best to allocate resources. This optimizes the use of internal labor to minimize the expense of hiring new personnel. For example, within an actuarial organization, resources may be deployed to several different projects. Instead of having only a view at the highest level of each project, a leader with this process and tools could realize that a rate adequacy study project is severely behind, potentially directly impacting premiums for the current and future years, and shift project resources over from other less important projects.
An essential part of this is getting the right data input. However, that’s only one half of the equation. The other half is the use of advanced analytics to get dashboards and management processes to work in lockstep with each other. A lack of coordination often results in organizations severely underestimating a gap in personnel — a 20-person hole could appear to be a 60-person hole, but with the right inputs and analysis, that gap can be shrunk back to 20 people.
Seeing the enterprise in one unified dashboard helps eliminate reliance on multiple ad-hoc spreadsheets of questionable accuracy — streamlined data sheds light on problems, which lets organizations resource at the right level. With the right level of sophistication and standardized process, leaders can utilize this “digital twin” of their organization to make prioritization and allocation decisions to avert delays and cost overruns.
Once a P&C insurer has spent time laying out all these functions, they can add more and more nuanced categories, skills, and list staff who have these skills, opening up the opportunity for additional analytical layers and ever more nuanced workforce re-combinations. This is not just a matter of overlaying new software onto an organization’s resource management function, it’s continuously feeding the data into it that will make it do its job.
Modern approaches to resource management will help P&C adopt a more flexible approach to their workplace. Perhaps they could look to recent events in the life insurance sector, where, to address the sharp increase in demand for fixed annuity products, carriers shifted their staffing around to better meet consumer demand.
While 2022 was challenging for the sector, by taking the guesswork out of staffing at the right levels, carriers can weather choppy waters and stay on a more even keel.
Brian Nordyke (bnordyke@ssaandco.com) is a vice president and Jonathan Schwartz (jschwartz@ssaandco.com) is a director at SSA & Company, a global management consulting firm.
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