Insurers urged to keep up digital investment during recession

Accenture has urged insurers to avoid making sweeping cost-cutting measures as a way of out the recession.

Instead they should selectively carry out their savings programs and invest more in areas such as digital technology, which will lift productivity and improve product offerings, the consultant says.

“We believe the insurers that outperform in this recession will be the ones who reduce costs selectively by focusing on operational efficiency,” Financial Services MD Marianne Hutchinson told

“Savings will be redirected to targeted innovation and growth opportunities, and we will see a dramatic uptick in technology investment.”

A new report from Accenture says insurers globally may be feeling jittery about spending and compelled to tighten budgets amid predictions the economic slump could last for up to two years.

The report predicts many insurers are likely to follow the standard playbook, viewing cost-cutting as the right short-term response to a recession.

But this strategy may not work for Australian insurers, who are dealing also with the fallout from last summer’s costly bushfires and other natural catastrophes.

“It is critical that Australian insurers carefully balance cost efficiencies and investment in growth opportunities,” Ms Hutchison said. “Targeted investment in innovation and growth opportunities that are closely aligned to their core areas of competitive advantage will reap significant benefits.

“What’s most crucial is knowing your business and devising an objective strategy that fuels the areas you excel in.”

The Accenture report says property and casualty insurers that outperformed during and after the 2000-2002 Dotcom recession had two things in common. They lifted operating efficiency by improving their expense ratios by an average of 3.5%, and used the savings to “invest surgically” in growth.

They achieved 9% higher growth and a 23% advantage in total return to shareholders than peers who did not take similar measures.

The underperformers were those companies that did not successfully invest in growth strategies.

“The evidence shows that insurers outperformed their peers in previous recessions through structural cost reduction and strategic reinvestment of those savings in core sources of competitive advantage to drive growth,” the report says.

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