In these increasingly competitive times, few companies can afford to overlook opportunities to reduce costs by 20%. Last month's headlines announcing CGU's new loss adjusting panel did not reveal the dramatic impact the move had on that market.

Behind the headlines lay the result of a 12-month review of loss adjusting services. Its purpose was to find ways of breaking from tradition and searching for a superior value proposition from the insurance supply market. For CGU, its customers and its shareholders the cost reductions were most welcome and they provided resource to its integration savings. But the news for adjusters was far more profound.

For some, the panel decision meant the end of the road for long-established relationships and the likely consequence of significant reductions in revenue. While for others it was time to pop the champagne and begin planning for major change and increased future workloads. The announcement marked the start of a whole new way of doing business. Bev Fitzgerald, former president of the Chartered Institute of Loss Adjusters, was heavily involved in the process and welcomed its result. He described the news: "This represents a watershed for our industry. We have broken from traditional sleepy arrangements and brought a new commercial dimension to our business."

It has long been recognised that loss adjusters occupy a strategic gatekeeping position in the general insurance chain. They provide critically impartial and professional services to insurers in servicing policyholders, validating cover and reducing risk exposure both during a claims event and beyond.

Moreover, they manage huge settlement sums and influence hundreds of supporting supply markets.

But, with increasing demands on all corners of the insurance industry, not even adjusters can remain immune to the tide of change.

Customer demands for increased service levels at lower costs are trailblazing new paths through insurance. As the industry responds by consolidating to achieve economies of scale, the need to drive out excess cost and improve customer service becomes ever more paramount.

With these pressures, insurers are looking to the loss adjusting community for major improvements in service delivery at a significantly reduced price.

This means major business redesigning and a whole new era of thinking relative to decision support systems. At one level, the process is relatively simple with each of the leading insurers having a simultaneous drive towards improved service and a reduced cost base. Few, however, have achieved the breakthrough results that are needed to prosper in the current economic environment.

Our experience has led us to adopt a successive step-by-step approach. The CGU example is evidence that a managed process of change delivers breakthrough results of 20-30% reduced expenditure as well as a steep change in expectations of service delivery.

The key to success lies in the origins of project governance. Achieving the right mix of cross-functionality in the business project team, together with senior executive sponsorship, is critical: No supplier, however well the commercial relationships have been established, accepts major change willingly and senior level sponsorship is critical to push through the results.

Understanding the strategic vision
Active sponsorship from senior executives can only be achieved with compelling business reasons. The second step of the process requires an understanding of the strategic vision through knowing your customer needs and having a detailed analysis of specific business requirements. These business requirements are usually defined in terms of delivery, quality service, cost and most significantly innovation. In our experience, when either of these first two stages are overlooked, businesses rarely achieve the result they need to transform their customer service.

Supply chain positioning
Supply chain positioning is the third key to successful cost reduction. For every £1 million spent with an adjuster, insurers typically spend a further £15-20m on claims settlements either by cash or through nominated suppliers. Breakthroughs are achieved through careful data gathering and supply chain analysis. Of the successful projects we have worked on, these skills are typically brought in from external consultancy practices which specialise in strategic purchasing and supply chain management.

Rationalising the supply base from a new supplier panel whilst maintaining service levels is another key stage that needs careful management.

Consolidation and change can only be achieved through the insurer understanding its market position and then acting consistently and clearly throughout the supply chain to achieve its end goal.

The process of panel selection involves the activities of enquiry, analysis, assessment and negotiation. Following a successful outcome, the decision needs to be agreed by all constituents and then implemented. This can be one of the most difficult tasks, as many insurers comprise large devolved businesses where decisions are derived from consensus. To be successful, clear alignment with the established business goals is key.

Managing the transition
Finally, managing the transition during the implementation phase is vital to the success of the future working relationship. This means ensuring that service is not adversely affected during the run-down and ramp-up periods. By getting this key stage right, the on-going management framework is established and the insurer can begin to measure value delivery from the lower tiers of the supply chain. Again, our experience in insurance has suggested that total costs and process savings of up to 35% are achievable while service levels are improved.

Throughout these initiatives, there are a number of key dynamics at work. Firstly these changes could not be made without the wind of change currently blowing though the industry. It is these forces that drive the necessity to look for radically alternative ways of driving the claims process.

The industry is engulfed in a series of mergers and acquisitions in an attempt to succeed though creating economies of scale. This provides the perfect seed bed for transformation programmes such as the loss adjuster re-engineering described earlier.

Furthermore, as the industry begins a metamorphosis under the combined driving forces of internet technology and globalisation, general insurers are inevitably looking for further opportunities to reduce their cost base and enhance their service offering to customers through technology-enabled management of the whole supply chain.

There are very few occasions when industry leaders have a real opportunity to shape markets and deliver radically enhanced product offerings. Total cost and process reductions of 20% are not everyday occurrences, but while this window of opportunity presents itself to insurance, we can be assured that there will be some more startling headlines to follow.