As M&A activities increase, legacy systems fall short

In recent years, insurance firms worldwide have pursued mergers and acquisitions (M&As) as a means of enhancing capabilities, expanding markets, and reducing risk. According to PWC, “the volume of deals greater than $1B in value increased by 17% in 2024, and their average value rose,” adding that about 50,000 M&A deals of all sizes were made in just the last year.

The momentum continues to disrupt the way insurers work. And the procurement office is feeling the impact. Managing risk, containing cost, and enhancing customer experience can be challenging enough without having to do so in a merged IT environment, where legacy systems, data silos, and disparate platforms must somehow work together to ensure ongoing operations.

Everything is affected. Claims management, supplier contracts, compliance reporting, decision inputs. Given the unique nature of the insurance industry, its procurement challenges, issues, and supply chain complexities are distinct.

Indeed, procurement has matured beyond its historically-based tactical, transactional role and is now counted as a vital strategic arm of the finance department. It weighs in on key decisions that affect everything from contract negotiations and risk profiling to premium pricing and product development.

This article will address the various challenges CXOs face in reshaping the insurance procurement landscape and offer a practical pathway to a more modernized, AI-powered approach of pursuing growth and enhancing experience in a post-M&A procurement environment.

Identifying the obstacles

While M&A activity continues to be a leading growth strategy across the insurance industry, it also comes with a unique set of risks and challenges. These include:

• Integrating disparate systems: Managing the complexity of merging different technologies and processes into a cohesive system
• Supplier consolidation: Balancing cost-efficiency with the risk of over-dependence on a limited number of suppliers
• Regulatory compliance risks: Ensuring continuous compliance with evolving rules and regulations while managing operational demands
• Contract transition: Mitigating potential disruptions during the transition from old to new contractual agreements
• Stakeholder alignment: Achieving consensus among key stakeholders with diverse interests and priorities
• Fragmented business operations: Addressing inefficiencies and inconsistencies that hinder seamless business operations

Reimagining procurement in the genAI era

In today’s genAI era, insurance company chief procurement officers (CPOs) must strategically transform procurement into a powerful driver of business value and innovation. This shift is vital, especially with the increasing prominence of genAI, which is now indispensable for advancing procurement capabilities post-merger. To do this, two things must occur.

1. Support systems, platforms, solutions, and data stores must be integrated.

2. The foundational technology to support advanced AI-powered procurement must be emplaced.

To unlock the potential of transforming procurement during an integration, corporate leaders must first assess the maturity of the existing legacy procurement organizations in terms of their ability to deliver on the promise of genAI. Embracing the right transformation levers is therefore crucial, often involving four interdependent changes: redesigning the procurement operating model, elevating its strategic role, digitizing processes, and enhancing team capabilities.

A good starting point is to prioritize genAI use cases in procurement. Use cases may include cost optimization, supplier relationship management, operational efficiency, risk mitigation, and others. These will be the areas in which procurement demonstrates its strategic value to the organization, beyond its historical, tactical function.

It is crucial to evaluate the maturity model by closely examining the people, processes, and technology factors that define each of the six stages

Orchestrating a data- and AI-driven transformation

There is no one-size-fits-all solution, making it essential to examine the “why” and “how” of the transformation itself. This entails defining the purpose and method for achieving the desired change.

Understanding why the transformation is necessary provides the direction, while knowing how to implement it effectively ensures that the change is sustainable and impactful. This is why the approach in procurement transformation is so important—it establishes a clear, structured path that drives meaningful, long-term change one use case at a time.

The real impact of transformation comes when you push the right levers. This effects a turning point where change can truly reshape the organization. When designing the target operating model, it’s essential that it aligns seamlessly with the objectives, mission, and vision defined at the outset. Only by staying aligned with these foundational elements can you ensure that your transformation delivers as promised.

Bear in mind, this goes beyond just streamlining processes or adopting new tools and technologies. It must ensure that people, processes, and strategies are aligned for maximum success. A thoughtful transformation such as this can help calibrate each critical element of procurement, addressing any emerging challenges, while re-imagining procurement as a vital part of an organization’s strategic ecosystem.

The goal is to optimize the entire value chain, making it more responsive, adaptable, and future-ready. When a transformation focuses on meaningful objectives, it accelerates the journey by maintaining a simple, straight-forward approach to enhancing customer experience through smart, effective digital-first operations.

A practical design framework

Having a well-conceived framework for transforming a traditional procurement model into one that is data- and AI-driven is a vital part of achieving quick success. Solution partners who have demonstrated expertise in the insurance space will already have a proven framework from which to begin. This will eliminate false steps and collapse the timeline to completely digitizing your end-to-end, source-to-pay value chain, and unlock new levels of efficiency and innovation along the way.

The focus should be on creating solid fundamentals that support simplicity, enhanced customer experience, and alignment with your strategic procurement goals. This includes driving cost savings, improving category management, ensuring risk and compliance, and optimizing vendor consolidation and management.

AI and genAI tools can be a game-changer in this environment. Look for a provider who offers these tools out-of-the-box, so that you can avoid massive spending and system overhauls on your way to integrating procurement enterprise-wide.

Navigating Transformation Path with EXLs AI and Digital Solutions

• EXL EXELIA.AI™
• EXL XTRAKTO.AI™
• Prebuilt Solutions & Accelerators
• EXL Contract Smart Assist

Achieve your target operating model for rapid results

Transforming procurement in the insurance industry is essential to overcome the complexities introduced by M&A-driven growth. By following a structured transformation approach that establishes a modern, integrated infrastructure for AI, automation, and data analytics, CPOs can unlock significant value, enhance operational efficiency, and position procurement as a strategic enabler for the business. To learn more, or to speak with one of our insurance industry transformation specialists, please visit us online at EXLservice.com.