Insight

Why insurance business process outsourcing is on the rise—and how it can benefit your firm

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The insurance industry has seen significant growth in recent years as businesses increase their focus on mitigating risk exposure due to an ever-increasing number of events and threats impacting their operations. Many companies are increasing risk coverage in new areas and revising their business continuity and disaster recovery plans in light of such focus.

However, the overall insurance industry is itself not immune to global challenges. The talent shortage, rampant inflation and further challenges have put increased pressure on insurance companies looking to scale their operations and continue to achieve profitable margins.

Against this backdrop, insurance business process outsourcing (BPO) has emerged as an increasingly popular solution for alternative risk transfer, captives and traditional insurance companies alike.

This article will explore the rising popularity of insurance BPO and how it might benefit your firm.

Macro trends driving market forces for insurers

Several macro trends will continue to resonate in the industry throughout 2023 and beyond, including:

  • Profitability challenges: Inflation-driven replacement costs are undermining insurers’ profitability despite the hard market driving large premium increases
  • Industry growth: Growth opportunities for insurance products abound, particularly across the small business market, green energy and related insurance products
  • War for talent: Many insurers are struggling to maintain staffing levels amidst the ‘generational handover’ and global talent shortage
  • Technology shift: Digital enhancements and virtual customer engagement are no longer merely nice to have, as the post-pandemic business environment has taken a particular toll on firms with legacy operating models

The industry response to these forces has created a significant transition toward outsourcing business processes—so much so that the global insurance business process outsourcing (BPO) market is expected to grow at a CAGR of 8.8% and surpass $9.8 billion by 2028.

What is business process outsourcing (BPO)?

Business process outsourcing enables companies to outsource their oversight, accounting and general back-office services to a third-party service provider.

By utilising the expertise of a third party, insurance sector companies can access a large pool of experienced and qualified professionals without dedicating the time and expense required to recruit direct hires or open regional offices. With more bandwidth to focus on revenue-generating tasks, firms can maintain a high quality of service and protect their bottom line during volatile periods.

Which business processes can be outsourced?

Commonly outsourced business processes can be organised into three main categories: the full accounting cycle, corporate transaction support, and bespoke or ad-hoc services.

Full accounting cycle

Third-party firms can take on an insurer’s bookkeeping and accounting data maintenance, investment reconciliations, financial statement preparation, payment processing, invoice preparation, audit pack compilation, data capturing and loss run maintenance.

Corporate transaction support

This category includes client onboarding support (i.e. review of AML/KYC documents), administrative support, regulatory filing assistance and liquidation process assistance.

Bespoke and ad-hoc services

Other functions that can be outsourced range from assistance with policy drafting to the oversight of governance processes, as well as large data capture or migration projects.

The benefits of insurance business process outsourcing

Eliminate staffing pressures

According to the U.S. Bureau of Labour Statistics, 50% of the current insurance workforce will retire over the next 15 years, leaving more than 400,000 open positions. This issue is global; with less than 25% of the industry under the age of 35, insurers worldwide face a serious staffing problem. Outsourcing back-end functions enables firms to improve operational flexibility and scalability as staffing needs change over time.

Reduce costs

Sophisticated systems and recruiting employees represent huge investments that can be avoided by outsourcing to companies with the required resources already in place. Those cost savings can be redirected toward developing new and well-priced insurance products, allowing firms to focus on retaining a competitive edge.

Build partnerships

As the outsourcing industry grows more mature, contracts tend to resemble close partnerships more than mere vendor-client agreements. Third-party partners can help offload the cost of resources, share risks, provide access to regional infrastructure, and share their tech stack, all of which can support rapid growth or offset high turnover.

IQ-EQ has built a strong specialist knowledge base and remains at the forefront of the changing regulatory and reporting landscape impacting insurance sector companies. Get in touch today to learn how our team can support yours.