Seven tips for successful insurance process outsourcing

By | January 23, 2006

Outsourcing often receives a bad rap, with large corporations using it to reduce staff count, bureaucracy and overhead. However, for smaller companies such as small and medium sized insurance agencies, outsourcing can be a valuable, even critical tool to facilitate cost-effective growth and stimulate productivity, particularly when experienced staff are hard to find or expensive to hire.

Imagine insurance underwriters and producers spending time on routine data entry, rating, invoicing, ordering and reviewing inspections and MVRs, generating loss runs and issuing policies. Clearly, an agency’s knowledge workers are overqualified and overpaid for many of these kinds of tasks. Experience shows that it is far more profitable to deploy them on new business development and renewals–activities that require high-level interpersonal skills and risk control judgment.

The question is how to outsource the routine, repetitive components of an agency’s back office in a manner that preserves the integrity and security of the agency, boosts competitive advantage in areas like service quality, promotes staff morale, lowers costs and facilitates growth with minimum disruption to agency operations.

The following seven lessons address these critical issues and represent steps that all small and medium-sized agencies should go through when conducting due diligence on insurance process outsourcing.

1. Outsourcing is about growth, not downsizing.
The New York Times columnist, Thomas Friedman said it best in his recent best selling book, The World is Flat: “The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists–not to save money by firing people.”

For agencies where all your people are valued and experienced, your goal is not to downsize and cut costs, but to make the best use of their time. By outsourcing routine tasks, agency costs are reduced, liberating resources that can be deployed more productively.

2. Keep control of your systems and security.
In traditional business process outsourcing, companies offer cost savings by shifting you onto their agency management system, which they can operate faster, quicker and cheaper than you could do yourself. The problem is that if the relationship falters due to price increases or a decline in the quality of service, your agency is stuck, lacking both the systems and the people to run your critical back office functions.

A new approach is to have the outsourcing company connect remotely to your system, learn your processes, follow your procedures and essentially become an add-on to your agency. The same way you connect to your server from home, they can do from their offices. All the information stays on your server and can be monitored daily by your managers. Should you ever decide to end the relationship, you can change your password to maintain exclusive control and access to the system. Outsourcing can be a powerful tool for improving efficiencies and costs, but you should always keep control of the keys to your information and system security.

3. Communications are critical.
There are a number of key elements to assure effective communications between your service provider and your home office.

Go with an industry specialist rather than a generalist. This means choosing a service provider that understands the operational challenges and objectives specific to your kind of insurance agency.

Make sure your service provider has its corporate head office or at least a fully functional branch office located in the United States. If you ever need to troubleshoot issues, or quickly implement new tasks and procedures, you’ll need local support that understands your needs and can act with the speed, efficiency and responsiveness you require.

Check the quality of the service provider’s staff. Your staff needs to work with the employees of your service provider on a daily basis. It is important that these employees approach their tasks with diligence and intelligence and can communicate responsively and professionally with your staff. Always check the education level of your provider’s staff as well as their professional and English proficiency. Reducing E&O from levels current in your organization is definitely possible, but depends upon the quality, education and training of your service provider’s employees.

4. Ease of implementation
Some outsourcing solutions can involve substantial investment in new IT systems, processes and training. Others do not. It often depends on how your service provider connects to your office and whether the solution requires you to migrate to another system or continue to use your own. Often the most painless and effective outsourcing solutions do not require you to change any of your systems or processes, meaning that the learning curve takes place within your service provider, not among your staff. Find out the typical length of time to implement outsourcing solutions, compare costs between solution providers and ask for references to learn about other client experiences.

5. Winning internal support
Critical to the success of any outsourcing project is the support and buy-in of your staff. This is why outsourcing solutions that involve downsizing do not make sense for small and medium sized agencies.

Staff need to understand the objectives behind the outsourcing project: that it is designed to enhance their positions, making their work more interesting by stripping out the routine, monotonous and low-value tasks and consequently raising their productivity and impact within the organization.

Management needs to provide clear direction, be responsive to questions and concerns and reassure staff that the outsourcing solution is designed for their individual benefit as well as for the agency as a whole.

6. Due diligence for proof of concept
It all sounds great: outsourcing can provide powerful operational and cost efficiencies, but what is the track record of the specific service provider? The first place to start is obviously with their existing client base to find out the concerns, challenges and solutions they went through, and whether there has been a net improvement to top and bottom lines since the service was provided.

Trial periods are an excellent way to develop comfort with the way in which the service provider operates, the quality and professionalism of its staff, its efficiency, processing turnaround times, error rates and customer service levels.

7. Economics
Last but not least, the economics have to make sense. Offshore solutions offer the best returns on investment–as long as quality control can be maintained. Examine your current fully loaded costs of doing the work in-house, including salary, benefits, hiring, training, management supervision, attrition, and then compare these costs to your service provider’s solution.

Besides purely financial gains, there also may be intangible yet significant benefits to outsourcing, such as the greater ease of adding capacity to your operation by documenting workflows, and by placing the burden for hiring, management and quality control on the service provider.

By following these seven principles, agency owners and managers can generate substantially greater confidence about pursuing outsourcing as a means of making their agencies more efficient, more competitive and more profitable.

Dan Epstein is the vice president of business development for ReSource Pro, a New York-based company that provides back office outsourcing services to wholesale and retail brokers in the insurance industry. Its data processing center is located in Qingdao, China.

About Dan Epstein

Dan Epstein is the Chief Executive Officer of ReSource Pro. After joining ReSource Pro as Vice President of Business Development in 2005, he became CEO just a year later, leading it from a small startup to a company with 3,000 employees in delivery centers in the U.S., China and India. Epstein has degrees from Columbia Business School and the London School of Economics. He served in the military in the Israel Defense Forces, conducted economic research in East Africa, performed international trade work in the U.S. House of Representatives, and recently served as Vice Chair on the board of the World Future Society. More from Dan Epstein

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