The Relevance of Insurance Business Process Outsourcing
Insurance is one of the major industries in the world. Many people’s lives are touched by it in one way or another. The global insurance market is estimated at almost 5 trillion US dollars and growing at over 5% per annum.
In the US alone, net premiums written totaled $1.28 trillion in 2020, with premiums recorded by property/casualty (P/C) insurers accounting for 51 percent, and premiums by life/annuity insurers accounting for 49 percent, according to the Insurance Information Institute.
Property/ Casualty insurance consists primarily of auto, homeowners and commercial insurance. Net premiums written for the sector totaled $652.8 billion in 2020. The life/ annuity insurance sector consists of annuities, accident and health, and life insurance. Net premiums written for the sector totaled $624.0 billion in 2020.
In 2019 there were 5,965 insurance companies in the U.S., according to the National Association of Insurance Commissioners. 2.9 million people were employed by the insurance industry in 2020, according to the U.S. Department of Labor. Of those, 1.7 million worked for insurance companies, including life and health insurers (962,500 workers), Property/ Casualty insurers (665,900 workers) and reinsurers (27,300 workers). The remaining 1.2 million people worked for insurance agencies, brokers and other insurance-related enterprises.
With its focus on data related services, oWorkers provides a suite of services to take operational pressure away from insurance companies and help them focus on their business. It helps that we are led by a management team that has over 20 years of hands-on BPO experience between them.
Challenges faced by insurance companies
Insurance companies face several challenges, some common to business and industries in a free market and some unique to their industry.
As a growing but mature industry, with established processes and systems and products, the margin for differentiating one from the next becomes smaller and smaller. This often leads to thinning margins for many operators either on account of their own investment for the future, or because of a competitor’s innovation that takes some money away. Hence, there is a growing pressure on margins.
With consumer awareness rising and customers becoming more demanding, regulation keeps getting stricter and compliance expectations more demanding.
Technology, that has been an enabler over the last few decades, and perhaps even driven growth, can also become a stumbling block. It needs to be refreshed and upgraded for the company to stay in step with times. This, again, requires investment and focus.
Then there is an increasingly fragile and volatile world that keeps throwing up once in a lifetime occurrences, more often than once in a lifetime. The cost for many of these gets borne by insurance companies in the form of claim payouts. Once again, it puts pressure on the bottomline.
As a business, it is expected that all happenings in the life of a business get funneled into the financial performance of the company, whether through additional cost, or lower revenue, or a combination of the two. This is where the pressures are becoming visible, on the bottom line. And this is what insurance companies are addressing through outsourcing.
Most of our clients, especially the ones from the US and Western Europe, report savings of almost 80% when they outsource to oWorkers. They also find our alternative pricing offers, giving them a choice between output-based and input-based price points, unique and helpful.
How does insurance business process outsourcing help
Stay focused on the big picture
A business has many moving parts. Each part has a different solution for the most effective handling. Getting each part to work in an optimum manner is a tedious task and responsibility. Many of these tasks are transactional in nature and keep on happening all the time. For a management to focus on these moving parts means lesser attention on the core business and its strategy.
Outsourcing enables an insurance company to stay focused on the core business and not miss the woods for the trees, by getting someone else to stay focused on the transactional parts.
Each business has its own requirement of educational qualifications and experience for the people who work there. It becomes difficult for a company to handle the requirements if the workforce becomes very diverse, as is likely to be the case for an insurance company.
Transactional processing requires skills of a different nature from strategy and management. Even sources of the talent are likely to be different. The company cannot hire transaction processing staff from the same business school they hire management staff from.
Outsourcing transactional work releases the company from these confines. An outsourcing partner is much better equipped to hire staff at a lower cost, which is what is required for transactional processing, and then train them for the job.
A company that handles processing for multiple clients develops capability in the supported processes that the principal is not in a position to. This can also translate to investments in process and technology improvements since, for the partner, it is the primary business and not a support function. Consolidating volumes across clients gives them the heft to do so.
Being a business enterprise, the advantage eventually shows up in the income statement. Savings could accrue out of:
- Lower staff cost
- Lower hiring cost
- More efficient training processes
- Optimized infrastructural cost
Insurance business process outsourcing services
Established BPO players like oWorkers provide a wide variety of solutions to meet different client needs. Insurance companies are likely to benefit from the following:
The customer is the reason for the existence of any business. Without the ability to add value to a customer for which she is willing to pay a price, a business has no meaning. Hence, the ability to be there for customers when they need you is paramount.
Customers may want to reach you for a variety of reasons, and through different channels like phone, email, chat or social media. The business needs to set reasonable expectations and then ensure that they can deliver on them. The ability to respond coherently to customers when they reach out to you is important for an insurance business.
oWorkers relies on a multi-cultural, multi-ethnic team across its three delivery locations to support customers in 22 languages. Not only are all our delivery centers equipped to operate on a 24×7 schedule should there be a client need, we are also able to switch effortlessly between work from home and work from office, depending on the prevailing situation, thereby ensuring that customer issues do not go unresponded.
It is one of those things where one takes an insurance policy for the purpose of securing yourself against an eventuality but hopes that it never comes to pass.
Claims processing, hence, is a sensitive and critical area of operations in an insurance business. Not only must it be handled expeditiously, it also needs to be handled with the utmost care. Not only must the processors be sensitive to the claimant’s situation, he is already in a bad one if he has raised a claim, it means that an unfortunate event has happened, they also need to ensure that the insurance companies interest is protected. Not only can claimants make errors in claims, but fraudulent claims are not unknown.
An outsourcing partner can take away the pressure of quick and accurate processing of these transactions from the insurance company, like oWorkers is able to, with its team of trained staff. Being a preferred employer in our delivery locations gives us access to the best BPO talent. After a rigorous pre-selection evaluation covering EQ and IQ, apart from communication skills, selected staff are put through a training program before they are permitted to handle customer transactions.
Revenue realization through insurance business process outsourcing
It is critical for a business to ensure that the revenue generating machinery keeps ticking. Without revenue, nothing can work. For an insurance company, revenue realization happens in the form of premia that the insured pay for the privilege. This is a transactional process that could run into thousands and millions of transactions every few days.
In addition, there are many related activities like accounting, processing of agency and agent commissions, handling delayed payments, etc. By outsourcing these transactional activities to a partner, an insurance company makes headroom for focusing on strategic activities for its business.
oWorkers has forged long-term partnerships with major technology companies. This enables us to deploy the most advanced technologies for processing of client transactions in an efficient manner, including those related to payments and collections.
A related area where an insurance business process outsourcing partner can create value for the client is through direct sales, especially if they are also handling customer support activities. Being the one most often in contact with customers gives them a unique position to interact and make suggestions that could meet other requirements while pushing the business of the client.
oWorkers has opted for the employee model, as compared to the freelancer and contractor model adopted by some of its competitors. This gives oWorkers greater flexibility in deployment while creating a pool of motivated, long-term staff. It even creates a cadre of able supervisors coming up through the ranks, for better management. The motivation of staff is reflected in the scores of 4.65 or more that we routinely received from employees, both past and present, on platforms like Glassdoor. This gives us an edge in handling direct sales for insurance clients.
Actuarial science is the method of determining and evaluating the financial impact of events or risk. Usually mathematical models based on past data are used, adjusted for future events and their likelihood, to arrive at an assessment. In insurance, this process enables companies to determine the amount of cover to be offered as well as the premium to be charged for carrying the risk. They have to find the right balance between risk and reward. If the premium is too low, the insurance company will lose money if the event materialises. If too high, an insured may not find it worthwhile to insure.
Since the fundamental principles remain the same, even though actuaries are seen as a core function in an insurance company, with standardisation coming in over the many years the process has existed, there is increasing openness in adopting insurance business process outsourcing for actuarial services as well. Being complex processes, this could even translate to an insurance knowledge process outsourcing, of course within the larger BPO umbrella.
Operating out of super secure facilities with ISO (27001:2013 & 9001:2015) certification, oWorkers has been a trusted partner for processing sensitive information on behalf of clients. Being in the Eurozone also makes GDPR compliance a requirement, and not a nice-to-have.
Underwriting and Policy Servicing
Underwriting is a key part of the process through which the insurer determines the coverage that can be offered, along with the premium. Though actuarial tables are the starting point, underwriters also make an effort to take into account the unique situation of a customer to figure out if the coverage or premium needs to be different. In a way, they connect the dots between actuarial tables and the customer.
A partner can help here too. They can process endorsements and cancellations, carry out research to seek information that would help underwriters reach decisions and process renewals. An engaged partner can provide support in a lot of areas of underwriting.
With deep roots in host communities, oWorkers is uniquely positioned to access short-term resources like no other provider can. We can hire an additional 100 people with a 48-hour notice, for underwriting or any other requirement. This saves unnecessary cost for our clients who would otherwise need to keep idle resources on the payroll for handling unforeseen spikes on a few days of the year.
Support Services as a part of insurance business process outsourcing
What we have discussed so far are activities that are integral and unique to the insurance business, such as premium collection, actuarial services and claims processing.
What we should not lose sight of is that an insurance company, operating in a regulated environment, also has to operate many other functions and fulfil many other external requirements that might be common to all businesses. Some of these are:
- Hiring people
- Managing the payroll
- Regulatory returns
- Accounting and taxation
- Billing and account receivables
- Data entry for Machine Learning
- Technology support
- Social media moderation
The list is indicative, not exhaustive. It is meant to highlight the wide variety of support services needed by a company. While providing support for the core insurance activities of a client, an insurance business process outsourcing company can broaden the remit and support the client in many other ways, as highlighted above and deliver the benefits of cost reduction and efficiency in additional areas.