When insurers consider capital management and the need for IT spending, outsourcing naturally comes up. And, for a growing number of insurance businesses, it makes good sense.
Historically, insurers have shunned outsourcing due to deep skepticism that outside parties could develop significant vertical expertise. Many insurance carriers also view payments processing as a mission-critical function that must be handled internally to control costs and guarantee customer satisfaction. But the combination of the ongoing economic malaise, tight IT budgets and the growing knowledge of outsourcing’s competitive benefits have prompted more companies to take a fresh look at the dynamic and beneficial business framework it provides.
Catherine Stagg-Macy, senior analyst with Celent’s insurance practice, believes that the once unthinkable framing out of core business processes such as receivables processing is now considered a viable option. In fact, in a recent survey conducted by Celent, 44 percent of carriers identified outsourcing as an option.
Insurers are outsourcing asset management in greater numbers than ever before, echoes Margolis Advisory Group, which offers consulting services for investment management firms. These companies have established their core competency in insuring risk rather than managing investments, the group notes, adding that it expects outsourcing to gain momentum in the insurance vertical market in the months to come.
Many insurers will see outsourcing as a solution for breaking away from the high costs and constant maintenance issues. Around 70 percent of all the systems currently used by insurers are legacy applications, with some dating all the way back to Vince Lombardi’s championship Green Bay Packers teams. These systems are old and inflexible, and require endless integration, maintenance and support from IT departments.
The reality for many insurers is that dated legacy systems result in a lack of IT integration and poor coordination across mission-critical business applications, creating information gaps and data silos that delay customer responsiveness and real-time data reporting and controls. These data silos heighten costs by demanding additional staff to manage manual tasks, and by paying separate vendors and losing payments. In fact, 70 percent of claims processed through current systems require four to six hand-offs. With customer service as the primary distinguishing factor between insurance companies, failing to provide smooth, satisfying interactions can be detrimental to a business.
Outsourcing also delivers significant process transformation benefits. Take receivables processing, for example. While the majority of U.S.-based corporations process receivables in-house, 59 percent of companies that responded to a recent survey our company commissioned with Aite Group, LLC, a leading independent research and advisory firm, indicated that they are not fully satisfied with their receivables processing. The large majority of respondents indicated that implementing an integrated recievables hub would be a valuable solution to existing disjointed systems and inefficient processes. Undoubtedly, some will look to outsource receivables processing to a provider that has already deployed integrated receivables hubs. By leveraging an outsourced, integrated receivables hub, insurers are able to significantly speed posting, centralize workflow, lower overall operational cost, and enhance customer service.
By some customer estimates, consolidating receivables functions onto a single platform can also improve collections by 20 percent. This type of return can transform an insurer's business.
Michael Corbett, chairman of the International Association of Outsourcing Professionals believes that the outsourcing industry is rebounding from…. "As companies recover from these tough economic times, outsourcing will enable them to emerge as leaders in the new global economy,” he says.
Through outsourcing, insurers are able to achieve improved capital management without the IT spend. By reducing overhead, building agility, improving cost efficiency and managing mission-critical information with greater granularity and insight, more profitable business decisions are being made, all while improving the customer experience.