The insurance industry is facing great challenges. While the currently difficult economic environment burdens especially composite insurers due to increased claims ratios, life insurers are faced with the long-term effects of demographic changes. An erosion of the portfolio of policies perceptible over time and the simultaneous overall decline in the number of new policies will not be the only consequence that has to be answered by changing the traditional business model. In addition, the need to act will even further grow due to the increasing intensity of competition already noticeable at this stage.

Against this background, an active cost management can contribute significantly to preservation of the economic capacity to act, because contrary to other actuarial components, the numerator of cost ratio can be influenced directly by insurance companies.

But how can a sustained success in the improvement of the cost structures be achieved? A deliberate cost management requires transparency in the cost structure. Only those companies who know their costs and are able to allocate them to cost and revenue units appropriately, will be able to make the right decisions. Often, this demands a change in the cost allocation methodology: Overall cost allocation via assessment has to be replaced by an activity based costing that focus on the real consumption of resources.

To improve cost control in the insurance industry, Plaut applies flexible planned costing - proven in the manufacturing industry for a long time - to the services industry:
This approach unites cost center accounting with elements from activity based costing and profitability accounting into integrated service costing. The determination of standard costs thus enables a broad deployment of modern controlling instruments.

The customer requirement is used as the basis for costing as well as for the subsequent periodic cost allocation, which does not only underline the paradigm shift in the cost allocation, but also allows for "thinking from a market point of view" which today is more necessary than ever. The biggest advantages ensue for insurance products (or shared services) with a high degree of standardisation and recurrent workflows, that can be reproduced in process flows with frequencies and time standards. For less specific workflows, which are more common in the indivual business, cost allocation based on hours would be the right means.

Based on customer requirements, sales volumes such as the number of new Riester-contracts or the number of damage events are fed into the cost allocation model. Via the underlying quantity structure, the necessary activity quantities are transferred to those cost centers that are committed to activity output, where they are evaluated applying the tariffs of the cost centers. Thus, it is possible to balance scheduled activity with staff capacity already within the plan, which provides maneuvering room for steering available resources to a high level of activity.

The retrograde activity quantity accounting, based on sales quantities and sales hours flows as marginal costing into multi-stage contribution margin accounting, where plan/actual comparisons show the level of target achievement. By using the flexible template allocation method, it is possible to allocate service costs to profitability segments within a multidimensional reporting cube, in order to be able to fulfill even legal reporting requirements like showing costs of functional areas (e.g. acquisitions costs, administrative expenses, claims handling costs etc.) without additional effort, beside the management information needed.

By deploying flexible planned costing in insurance companies, controlling instruments that have been successfully deployed in the manufacturing industry can be used in insurance companies. Industrialisation of the insurance industry that has been repeatedly discussed will become a reality from a controlling point of view. Plan/actual comparisons enable efficient cost control, in which activity and consumption deviation analyses can provide important information for cost management and an optimisation of internal workflows. An integral cost component splitting and carrying along of cost documentation up to the products or result units offer additional possiblilities for analyses.

The described approach can be applied in both shared services and integrated insurance companies and can be completely mapped in the standard software SAP ERP. A functional and quantitative scalability of the solution guarantees investment safety even for initially limited implementation scopes.

Integrated service costing is incorporated in the process of corporate planning as a part of operative planning. Plaut attaches great importance to the use of standardised structures when building up the data and allocation model, to be able to completely exploit the advantages of the integrated approach reflected in high data quality and process acceleration. Here, the administrative effort is minimised by using standardised methods.

Feedback from already realised projects prove the amortisation of implementation costs within just a short period of time.