The UK life insurance industry has become increasingly dependent upon the engagement of external consultants in recent years. This trend is set to continue, with demand anticipated to increase further over the coming year.
Scott Eason, Partner and Head of Insurance Consulting, talks about the mounting pressure and changes on the UK life insurance market.
The search for the insurance consultant which is the “best fit” must be balanced with the need for value for money. However, focussing too much on cost might prevent ever finding that perfect fit.
Scott Eason, Partner and Head of Insurance Consulting, talks about the importance of getting the selection process right when looking for a new actuarial consultant - is the best necessarily the cheapest?
In the UK life insurance industry, there’s little process in place to understand how a consultant, once appointed, is achieving their objectives. Underperformance is costly, and regular feedback is generally only offered when it is negative, and rarely when positive.
Scott Eason, Partner and Head of Insurance Consulting, talks about the process used to assess consultants after they have been appointed and how companies can ensure they're getting the best value for money.
Pressure is mounting on the UK life insurance market to become more efficient, as well as offer better value to shareholders and customers.
As a result, life insurance companies are increasingly turning to third-party actuarial consultants. However, our report suggests this appointment process can be vastly improved.
Our research indicates insurance companies are focusing on cost and brand when seeking external consultants, rather than factors based on skills, delivery, cultural fit, location and experience. All of which is likely to result in poor value for the insurance company.
When appointing an actuarial consultant, life insurance companies should make sure it aligns with the organisation’s objectives and those of their customers. Value for money means more than basic cost, and as our report suggests, by better understanding the value a consultant relationship adds to a business, the better the appointment process, and the better the results.
Consultants are generally appointed as a result of an ad hoc review (59%), an instruction by the board (58%) or because internal resources have failed to resolve a particular problem (54%).
These all point to a need to solve a specific problem – or series of problems – within that business.
This suggests that consultants have specialised skillsets that should be the key differentiator in a selection exercise.
However, these other qualities are likely to remain ‘ideals’ if the process of appointing a consultant focuses upon ‘price’.
“The way many life insurance companies run their appointment process is inherently flawed and, in many cases, based on arbitrary decision-making. Formal tendering that focuses on costs will often fail to deliver value for money or a return on investment – declared as two of the principal objectives in appointing consultants.”
Further highlights of the research include:
Well over half (59%) of UK life insurance company respondents indicated they will spend more on actuarial consultants in the coming year. A high number of respondents (54%) are changing or have changed their actuarial consultant recently.
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.
The life insurance companies surveyed acknowledged they do not manage consultant relationships well and look to those they appoint to help them set clear objectives. This perhaps explains why there is such an inherent flaw in the performance monitoring and management of consultant relationships.