Many insurers have efficiency and/or cost reduction as a strategic priority. Yet in practice, we often observe the same pattern: despite various programmes and initiatives, operational costs continue to rise gradually.Operational costs do not increase due to a single project or department. Instead, they build up almost unnoticed within day-to-day processes such as policy administration, invoicing and distribution. Inefficiencies that may seem limited in isolation can collectively have a structural impact on service delivery, costs and operational agility.
Based on our practical experience within the sector, we see five recurring causes that play a similar role in almost every organisation.1. Legacy systems that make processes complex
Many insurers operate systems that have been expanded over the years. New functionalities have been added, integrations have been built, and processes have been adapted to meet changing requirements.
Such a landscape is rarely fully redesigned. Instead, it continues to grow step by step.
As a result, seemingly simple processes—such as policy creation or invoicing—often run across multiple systems. In practice, this means employees carry out additional checks, record information in multiple places, and processes take longer than necessary.
What emerges is a form of operational complexity that is not always immediately visible, but is clearly felt in daily work: more manual checks, duplicate registrations and longer lead times.
This complexity makes processes not only more expensive, but also less predictable. While IT costs are usually transparent, the additional operational costs that arise from this often remain out of sight.
2. Workarounds that become permanent
Change in the financial sector is anything but slow. New regulations must be implemented, distribution models evolve, and products are continuously adjusted. Deadlines are fixed, while systems and processes are not always immediately equipped to support them.
To comply with laws and regulations on time, temporary solutions are created. For example: an additional Excel file to verify data, a manual check before a process can proceed, or a parallel process to mitigate risks. At that moment, given the time pressure, all of these are logical choices.
The issue, however, is that these solutions rarely disappear. What started as temporary becomes part of daily operations. Teams grow accustomed to them, new colleagues adopt them, and gradually the number of additional steps in the process increases.
As a result, processes become increasingly complex to manage and information becomes more fragmented. In this way, a pragmatic temporary solution quietly turns into a structural cost driver.
3. Fragmented data and shadow administration
Another recognisable phenomenon is the emergence of shadow administration: separate Excel files, independently maintained datasets, or local overviews that teams keep alongside central systems.
This often happens because central systems do not provide all the information required for day-to-day management. Reporting does not align well with what teams need, or data is not considered sufficiently reliable for operational decision-making.
4. Lack of insight into cost drivers
Many organisations know exactly what they spend, but have less clarity on why those costs arise.
Costs are often reported by department or budget, while the actual costs originate in processes such as:
- policy administration
- claims handling
- customer changes
- distribution chains
Without insight at process level, it remains difficult to address inefficiencies in a structural way.
Organisations that make costs transparent at activity or process level often gain, for the first time, insight into:
- the required capacity and costs per process
- the extent to which IT systems support daily operations
- the cost-saving potential of investing in structural and sustainable IT solutions
5. Unclear responsibilities across the chain
In many organisations, the operational chain spans multiple teams:
If responsibilities are not clearly defined, a familiar problem arises: everyone focuses on their own area (silo thinking), there is limited understanding of the work of other teams, everyone works hard, but there is no overall visibility or control across the entire chain.
As a result, inefficiencies persist, such as:
- duplicate checks
- high levels of errors and rework
- waiting times between teams
- escalations without a clear owner
Clear governance and ownership are essential to structurally control costs.
Why hidden costs often persist
What these five causes have in common is that they are not directly visible in traditional financial reporting.
They are embedded in processes, systems and manual work.
This is why effective cost management almost always starts with one step:
creating transparency in the operational cost structure.
By linking costs to systems, processes and activities, organisations gain insight into where costs truly arise and where improvements are possible. This makes it possible not only to reduce costs, but also to maintain structural control over the cost base.
Conclusion
Hidden costs within insurers are rarely the result of a single issue. They arise from a combination of legacy systems, workarounds, fragmented data, lack of cost transparency and unclear governance.
Organisations that address these structural causes often find that cost reduction not only delivers financial results, but also leads to:
- higher customer satisfaction through faster processes and improved service quality
- greater control over operations through better management information
- a more agile organisation, as there is a clearer understanding of the impact of changes
And that is becoming increasingly important in a sector where efficiency and scalability are under growing pressure.