Insurers are targeting policy administration for efficiency gains as they try to offset low investment returns by improving their operational performance.

The World Insurance Report on property and casualty insurance in 19 countries compiled by Capgemini and EFMA, the European banking and insurance association, finds insurers are working to cut expenses across claims, operations and distribution.

It says that although many insurers cannot raise premiums because of competition, the relative concentration of the Australian market means insurers here are likely to continue pushing up premiums to cover costs.

“Competition is also likely to increase in the Australian market, including entry and expansion by foreign players, so a price war could still ensue, making it more difficult for incumbent insurers to use price increases to cover costs.”

The report says Australian insurers are improving underwriting results by focusing on better risk pricing and reserve estimation for natural events.

Most existing players have successfully used their scale to keep operational ratios stable.

As insurers globally drill into their back-office functions looking for efficiency gains, policy administration is being targeted, with companies investing in policy issuance, policy and contract maintenance, billing and premium invoicing and reminders and renewals.

“It is notable that these are areas in which insurers have been investing in recent years to enhance cost efficiency and effectiveness,” the report says.

Although improving policy administration affects the bottom line most directly, “it can also have a positive impact on the top line, because of the potential to improve satisfaction levels among customers and other intermediaries”.

The report says companies recognise the considerable resources needed to maintain legacy IT systems.

Capgemini’s Head of Insurance Australia, Alfred Flockstra, says the older systems struggle to meet the needs of tech-savvy consumers who want to update their details or find information online.

Australian companies have legacy IT issues because of the number of mergers and acquisitions in the sector, which has led to them inheriting older technology that is difficult and expensive to change.

But he told insuranceNEWS.com.au the local companies are working on efficiencies and a considerable number of business intelligence projects are under way.

Mr Flockstra says transformational change is needed so business performance issues are merged with business strategies, rather than treating elements of performance as an IT project.

He says this would improve companies’ top and bottom line performance.