According to a new report by leading independent consultancy Barnett Waddingham, spending on consultants by insurance companies is expected to rise over the coming year. The ‘Perspectives on Value’ report, which researches the views of 100 leading figures across 45 UK life insurance companies, cites complexity and structural challenges as the primary drivers behind the forecasted increase.
Over half (59%) of UK life insurance company respondents indicated they will spend more on actuarial consultants in the coming year. Almost a third (30%) of respondents believed it would stay the same, while just 11% said it would decrease. A high number of respondents (54%) are changing or have changed actuarial consultants recently.
According to Scott Eason, partner and head of insurance consulting at Barnett Waddingham, consultants are increasingly being engaged to reduce the mounting burden on insurance companies.
"Spending in the insurance industry is set to increase and evolve in the coming years..."
“The UK life insurance market faces a number 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 overcome these challenges, the industry has become more dependent upon the engagement of external consultants in recent years. Actuarial consultants are being brought in to do the heavy lifting and provide expert input on the projects that proliferate across technology, product and risk areas.”
Though 'risk management' and 'technology review' will remain almost unchanged in terms of their relative proportion of overall spend over the next three years, the report shows other technical areas will see a surge in demand. ‘Data management’ and ‘analytics skills’ are expected to rise rapidly to the second most in demand areas, increasing to 39% from 26% over three years.
“Spending in the insurance industry is set to increase and evolve in the coming years, as the need for enhanced data and analytical solutions comes to the fore,”
Search for value
While the report clearly shows reliance on external consultants is rising, Barnett Waddingham’s research indicates there may be some inherent weaknesses in the procurement process that present obstacles to insurance companies seeking the best outcomes.
Mr Eason, said: “The report shows cost saving is the primary reason for engaging consultants, with 63% of respondents citing cost as the highest-ranking indicator of value. However, the search for value for money must be balanced with the need for best fit and a focus on cost may be preventing this objective from being achieved.
“An increased focus on cost and brand is deflecting the search away from factors based on skills, delivery, cultural fit, location and experience of the client or the sector. This is likely to deliver poor value for the insurance company,”