How to get the most out of your insurance consultant

Estimated reading time: 3 minutes

Scott Eason talks about how you can get the most out of your insurance consultant

More than half of UK life insurance companies (59%) will spend more on actuarial consultants in the next year. This is one of the key findings of our recent ‘Perspectives on Value’ report which canvasses 100 leading voices from 45 UK life insurance firms.

However, while utilisation of external consultants is rising, our research indicates inherent weaknesses in the procurement process presents obstacles to insurance companies achieving better outcomes and value for money.   

The UK life insurance market is under considerable pressure to become more efficient and offer better value to shareholders and customers. This is against the backdrop of structural challenges, namely, tight regulatory oversight, competition for new business and the ongoing difficulty of managing legacy products on inefficient historic IT systems.

To alleviate the burden of managing industry-defining change, actuarial consultants are increasingly engaged to do the heavy lifting and provide expert input on the projects across technology, product and risk areas.

Finding the best, not the cheapest

The report shows an inherent tension between a life insurance company’s wish to appoint the best consultant for any given job and that desire being subordinate to a number of economic factors. These factors can interfere with the appointment process and may result in the insurance company forming a relationship that is neither best suited to the project at hand, nor forges a successful long-term relationship with the business.

This focus on the financial element is confirmed – and may even be caused in some cases – by the increasing use of a formal tender process when appointing a consultant.

RFPs have become more common in the insurance industry. This introduces cost into the process, as consultants cover the cost of bidding for work with higher fees already factored into their bids.

A culture of discounting is compounding the focus on cost savings in the appointment process. The vast majority of companies (77%) expect to get a discount during the tender process, with more than two thirds (69%) expecting to see an upfront discount from those bidding for projects. 

Unlocking procurement potential

Life insurance companies should review their procurement process and ensure their appointments align with the organisation’s objectives and those of their customers. Performance, and appointments, must be assessed against key performance indicators (KPIs), not just the lowest price or willingness to discount.

By placing value for money above basic cost, life insurance companies should better understand the value a consultant relationship adds to the business. This may mean a move away from formal tendering to longer-term, trusted provider relationships to help them achieve their aims. This would allow businesses to better assess – and ensure – the level of value for the appointment of an external expert.

Procurement could have a very positive impact on the appointment process through embedding improved governance into supplier management. Creating frameworks with suppliers that do not require project tenders would allow procurement to measure performance against KPIs and prevent the occurrence of fee padding through regular – and expensive – pitches.

If the long-term goal is to save money, then such frameworks, combined with clear objectives for the project outcomes, will improve governance and deliver cost savings in the long term.