Aussie insurers to slash costs by 30% with tech revama

Insurers’ operating costs have surged—20% for incumbents.

Rising natural disasters, inflation-driven claims costs, and heightened regulatory scrutiny have pushed up underwriting expenses of Australia’s general insurers by around 20% over the past seven years, according to a McKinsey & Co. report.

Meanwhile, insurance costs are becoming increasingly unaffordable for consumers, the report titled “The productivity imperative for Australian general insurance” by Angat Sandhu, Bernhard Kotanko, and  Joseph Tesvic with Rahul Das stated.

Insurers’ operating costs have surged—20% for incumbents, 37% for international insurers, and over 100% for challengers. 

To address this, the focus has turned to productivity improvements across labour, IT, and third-party spending, which could cut costs by up to 30%.

Labour productivity efforts include zero-basing functions and strategic partnerships, with some insurers reducing costs by 20% to 40%. 

Offshoring rates for Australian insurers remain lower than international averages, but strategic overseas centres are helping insurers access talent for technology, cybersecurity, and data analytics.

Insurers are also streamlining processes with task-capture software to eliminate unnecessary steps.

In IT, improvements could yield 20% to 30% in cost reductions. Insurers are modernising systems, with generative AI offering 30% to 70% gains in routine tasks. 

Tech simplification has helped reduce operating costs by 10% to 15% through “application simplification factories” and cross-functional teams that address tech debt.

For third-party spending, insurers are aiming to save 10% to 20% by optimising procurement and rationalising real estate. 

Whilst Australian insurers generally maintain larger, more expensive office spaces than their global counterparts, some are rethinking workplace models to cut costs, such as adopting remote claims centres and subletting offices.

Insurers are urged to make productivity a top strategic priority, set bold targets, integrate AI, and closely monitor productivity programs. 

With the Australian insurance sector facing a difficult outlook, these strategies are seen as critical to maintaining financial resilience and keeping insurance affordable.