A financial services company offering insurance products and banking services wanted to streamline its mailroom division and reduce operating costs. The existing mailroom employed more than 200 people to process tens of millions of mail and documents annually—a very expensive process. The client worked with an insurance outsourcing provider to create a solution for its inbound mailroom process.
The client chose an on-site location for its mailroom services to meet security needs. The new mailroom was staffed by the vendor’s employees who handled document scanning, data entry, indexing, and payment processing. The provider worked closely with the client’s human resources department to ease the transition to the new system and avoid a mass layoff of employees. The provider ensured that affected employees had multiple options (finding another job within the company, receiving a retirement package, or employment with the service provider with 10 percent salary increase).
Through outsourced insurance support, the client improved customer service, retained experienced staff, and ensured that staffing levels were always adequate. The provider also improved overall efficiency by streamlining operations and reducing the amount of touch points.
A global provider of life, health, and general insurance products wanted to improve service quality, people management, and profitability through the use of innovative but cost-effective solutions. The company was struggling with dropping customer satisfaction due to poor reporting and analytics. It wanted to establish a center of excellence (COE) driven by strong analytics to gain insights into its operations and improve claims and underwriting efficiency. The firm decided to work with an insurance service provider to address main challenges and achieve long-term goals.
After conducting an in-depth study to understand the firm’s challenges, the service provider created a new operating model for the center of excellence. The main goals of the service provider were to streamline processes, reduce overheads, introduce best practices, and improve compliance over three years using a four-phase delivery model. The service provider first set up a center of excellence composed of 60 percent offshore team members and 40 percent onshore staff.
In a year’s time, the client was able to reduce onshore operating costs by GBP 1.3M through outsourcing of its COE to a low-cost location. The service provider also standardized and consolidated disparate processes, provided end-to-end accountability, and improved the quality of customer support through better controls. The offshore insurance support team received the Customer Excellence award within the firm’s general insurance department.
An insurance provider based in Australia faced multiple challenges. It wanted to increase debt collections, shorten the claims lifecycle, retain existing clients, and build a loyal customer base. The client decided to outsource general insurance debt recovery/motor claims recovery and dispute management to a third party insurance support specialist to address these issues.
The service provider first identified inefficiencies in the claims life cycle that needed to be eliminated. Next, it reorganized processes based on type and complexity to improve efficiency in a short time, delegated team leaders and members with similar skills to achieve project goals, and deployed dedicated oversight for client interaction. Through Six Sigma best practices, sophisticated tracking systems, and workforce redistribution, the vendor was able to increase productivity and service quality while reducing overall operating costs.
In the first year of the outsourcing partnership, the client’s daily collection increased by 25 percent. Improved customer satisfaction led to a reduction of claim settlement time by 35 percent (from 212 to 137 days). The process of sending claims to the legal department was also shortened to less than 2 days from the previous 25 days—a 90 percent improvement. Overall, the insurance support provider helped the client generate 5 percent of new business or about AUD 3.6 million in a year.
Regulatory and compliance issues, market volatility, and emerging technologies are changing how insurance companies do business. Today’s insurers are looking for innovative and cost-effective solutions to old and new problems. Stakeholders, decision makers and leaders are challenging traditional business models and looking at outsourcing, shared services and other strategies to be able attain operational flexibility and adapt to a constantly changing environment.
Outsourcing of insurance support services and core activities is standard practice in this mature market. Initially, insurance firms started transferring responsibility for transactional, non-core activities to third parties. Insurers and service providers have since moved on to higher-value services, but the outsourcing of support functions remains popular for businesses of all sizes. Many back-office and insurance support tasks are being outsourced to near- and offshore locations due to labor arbitrage and economies of scale benefits. However, onshore outsourcing of support functions is also common for companies seeking to protect their business reputation and access local expertise.
Instead of outsourcing, some firms establish captive centers or shared service centers that handle both support and core insurance functions. The shared service model is a form of outsourcing within the company that enables parallel processing and independent operations regardless of geographic location. Both outsourcing and shared services allow insurers to access low-cost resources, standardize processes, and improve service quality. One option is not necessarily better than the other, and the success of an outsourced insurance support project depends on several factors.
Four key dimensions should be considered before outsourcing any insurance support activity: ownership, location, coverage, and structure. According to a recent study, the ownership dimension identifies the entity that will provide the insurance support service (internal or external service provider), while the location dimension identifies the location of the support service (local, near-shore or offshore). The coverage dimension determines whether outsourced support services are domestic, regional or global, and the structure dimension determines the number and type of support services that are ideal for outsourcing.
An effective outsourcing strategy begins with a process driven assessment using a set of decision criteria that determines how a certain support function is critical to the business, whether it can be performed effectively outside the organization, and whether the support function can enhance customer service quality. This set of criteria can help a general insurance provider determine whether mailroom services, for example, can be better performed in-house, through a shared service center, or handled by a third party insurance support service provider.
Insurance support outsourcing should be seen as a solution to achieve business goals and not as an objective in itself. When deciding whether to outsource document management or customer support, for example, here are some key questions to ask:
Answering “yes” to any of these questions can help leaders decide whether insurance support needs can best be met through the use of internal resources or resources provided by an external party. Outsourced insurance support can be the perfect solution for a startup, an insurance firm entering a new market, an established company expecting rapid growth within a few years, or any company that lacks capabilities to meet persistent challenges.
Once you have made the decision to outsource insurance support functions, the next step is to choose an outsourcing delivery model. You can adopt a hybrid approach (keep some insurance support functions in-house and outsource only certain activities), or you can outsource all of your non-core insurance support functions to a service provider. Most providers offer flexible solutions that allow clients to scale up or down easily. Whatever delivery model you choose, here are guidelines to ensure the success of your outsourcing strategy:
Prepare for outsourcing. Spend as much time as you can planning and developing your insurance support outsourcing strategy. This includes allocating enough time and resources for research, choosing a provider, and transitioning to the new system.
Plan for additional expenses. Any outsourcing campaign always entails an investment that can potentially reduce overall costs over the course of the partnership. The cost of outsourcing support functions can sometimes exceed the cost of running in-house processes. However, the higher costs reflect the true cost of running a top-performing facility. Plan for the cost of system integrations and upgrades, and do not expect unrealistic savings, even if the provider offers the lowest industry rates for their services.
Monitor performance. Most insurance support providers monitor their own performance and issue reports to the client on a regular basis. However, this can be limiting and inadequate. Many outsourcing projects have failed because of lack of oversight and poor performance monitoring. It is crucial to assign a team or a top-level manager dedicated to monitoring vendor performance and compliance to service level agreements (SLAs). Defining and documenting clear objectives, responsibilities, metrics, and penalties/rewards are essential to the success of insurance support outsourcing.
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