Revenue Down, Claims Up, Expenses Flat—Oh,
My!
By
Ed Fenwick
Vice President
The long view forward is worse than Dorothy’s when she looked down the
yellow brick road and imagined lions, tigers, and bears (“Oh, my!”).
Lacking a pair of magical ruby
slippers, we see companies pursuing two distinctively different
approaches to this long-term challenge of aligning operating
expenses with the new normal of lower expenses and higher claims.
Some are pursuing transformational strategies to achieve a
significant shift in cost structures. Others are taking the
traditional approach of increasingly tighter annual expense control.
Both approaches have risks. The
risks are primarily related to time. The transformational strategy
faces the risk that the organization will not be able to pull off
the change in the timeframe needed to significantly impact expenses.
The current economic environment may continue so long that the
traditional, incremental approach ends up in a dead end where
service starts taking a serious hit—further
hurting both revenues and claims.
Our thinking is that the
transformational strategy will produce more long-term winners than
the incremental approach. Why? Two reasons:
