Evolution of Insurance Service Outsourcing

Insurance service outsourcing

Insurance service outsourcing represents one of the largest buyer segments in the overall BPO industry. In 2020, it was valued at USD 5.8 Billion and is projected to reach USD 10.2 Billion by 2028 with a CAGR of 4.20% from 2021 to 2028. Despite constant changes in clients’ needs, insurance support services provided by third parties keeps playing a key role in helping companies perform back-office activities in a cost-effective way.

In fact, the insurance outsourcing vertical is part of the larger banking, financial services and insurance (BFSI) industry. This was one of the first sectors to outsource non-core, transactional activities to external providers. Even if insurance support is not a core activity for some firms, it’s still a service that helps drive business transformation.

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Insurance Service Outsourcing in the 1990s and 2000s

Sourcefit Philippines Outsourcing Blog: Evolution of Insurance Service Outsourcing

Insurance service outsourcing in the late 1980s and early 1990s focused solely on cost reduction. Many companies worked with partners in low-labor-cost locations to leverage economies of scale. A successful insurance support outsourcing partnership reduced overall costs associated with running back-office operations.

The next wave of outsourcing activity incorporated technological advancements. Newer, faster and more sophisticated tools increased productivity and rate of return. IT outsourcing vendors offered these tools to companies in different industries, including the technology-hungry BFSI segment.

In the early 2000s, shared services, or captive centers, were as popular as outsourced insurance support services. The main advantage of the captive center delivery model was that it allowed insurers to assume greater control over processes. Insurance service outsourcing providers back then did not have the expanded capabilities and deep domain knowledge they have now. This type of model made it easier for insurers to centralize operations.

However, the management of captive centers became increasingly complex as the workforce grew and operations were conducted on a larger scale. Once providers matured and acquired sophisticated technology, talent and resources, outsourced insurance became a good alternative for companies looking to establish strong back-office operations.

Insurance Service Outsourcing in 2010 and Today

Business process outsourcing in the insurance industry is characterized by maturity, quality and value.

While cost control and process efficiency continue to be the top drivers of its growth, insurers seek partners that will share risk and provide consulting and strategic services. Today, the insurance outsourcing market continues to thrive, reflected by the increasing customer demand for best-in-class service and the growth in digitalization.

Besides offering insurance support, service providers also offer judgment-based services such as analytics, underwriting, and claims adjudication. Additionally, insurance vendors are no longer external parties that merely provide a service. They have become true partners to business success. They are more accountable and share operational risks with their clients. With deeper domain expertise and greater experience with different types of insurers, vendors can deliver value beyond cost reduction and efficiency improvements.

It’s not uncommon to find outsourcing engagements today that combine unbundled insurance support services like document management with higher-value processes. Such are: underwriting, analytics and product development.

With a surge in demand for full-service offerings in pension and closed block administration, analysts expect the elimination of paper-based work and automation using straight-through processing or STP. As insurers seek innovation, rapid product development, and customer-driven solutions, insurance support partners are aggressively investing in integrated IT-BPO offerings. They focus on long-term value and flexible delivery models.

Most insurers adopt a hybrid approach to outsourcing. They may keep some core activities in-house while outsourcing consulting, strategy and support to different vendors. Other flexible solutions are:

  • Outsourcing support services in lower-cost areas both locally and offshore
  • Hiring part-time support workers such as data entry professionals and mailroom workers.
  • Hiring additional temporary support staff during peak times.

    Factors Driving the Growth of Insurance Service Outsourcing

    Factors Driving the Growth of Insurance Service Outsourcing



    While the overall picture is positive for insurance firms and brokers, key challenges remain across all regions. Insurers in the United States struggle with regulatory changes, tight profit margins, rising competition from new entrants and new products, and slow premium growth. These issues, along with cost pressures, market volatility, and changing consumer behavior are the main reasons why insurance firms outsource insurance services.

    1. Cost pressures and tight profit margins have led to insurance service outsourcing.

    Growth prospects are promising for U.S. life annuity and property-casualty insurance firms, but soft pricing conditions tighten profit margins.

    In Europe, insurance companies are struggling with low business investment and increased competition, while customers are demanding multichannel interaction and personalized products and services. This is pushing many companies to focus on efficiency improvements and cost control through various means, including the selective offshoring of insurance activities.

    Insurers are seeking enhanced risk management and process optimization from their outsourcing partners. Besides integrated IT and end-to-end insurance solutions, cost-effective insurance support services will continue to be in demand. For example, many carriers have leveraged claims processing services and centers of excellence established by insurance service outsourcing vendors to increase profits and reduce the lifecycle claims significantly.

    2. Insurance service outsourcing can provide a competitive edge against new companies.

    New insurance companies are disrupting the insurance value chain, which has become more complicated in the last few years. Insurance aggregators, for example, make it easy for customers to shift from one insurance carrier to another through simple price comparisons. Insurers must devise innovative ways to prevent a further slide in customer loyalty and stay competitive in a price-driven environment. Differentiation can be difficult, so many insurers are turning to third parties to optimize their supply chain, reduce costs, and improve underwriting processes.

    3. Insurance service outsourcing can implement quick and effective updates according to changes in regulations.

    Insurers must be up to date with the constant regulation changes made within their countries. For instance, insurers in Europe had to make operational and strategic changes to comply with regulations established by the Insurance Distribution Directive (IDD), which repealed and replaced the Insurance Mediation Directive in 2018. On that note, in the United States, the implementation of Own Risk and Solvency Assessment (ORSA) required companies to alter their distribution and marketing activities. Service providers can keep your company aligned with the constant changes in insurance regulations.

    4. Technological difficulties have led to insurance service outsourcing.

    Technology is the number one driving force behind most insurance outsourcing partnerships. Insurance firms embrace the importance of the new digital storefront and multi-channel customer engagement. Many companies invest in digital platforms to attract prospects and retain existing customers across all geographies and product categories. For customers, digital transformation improves product transparency and thus, their shopping experience.

    Insurers worldwide invest in data analytics, cloud computing, mobility and social business. These innovations improve underwriting processes and risk management, reduce fraud, and help develop better market segmentation strategies. Technology solutions also help insurance firms optimize processes, improve collaboration within the organization, improve margins, and differentiate themselves from other carriers.

    Sophisticated data collection and analytics tools are crucial for better decision-making. They also provide detailed risk profiles insights, and help create cross-sell opportunities customized to each client. However, technological upgrades and improvements tend to be costly for small and large enterprises alike. This is why many insurers work with service providers to acquire up-to-date and apt technological support integrated with insurance support services.

    To learn more about outsourcing, you can read our Top 8 Qualities of an Outsourcing Company in the Philippines article. We invite you to follow us on social media and to visit our website to learn more about our services.

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