In 2024, the U.S. insurance industry saw plenty of growth, marked by improved profitability and performance across various sectors. The year ahead marks a promising year for insurance companies, even despite the usual challenges, namely: rising costs, stricter regulations, and high customer expectations. To maintain a competitive edge, many companies are leveraging outsourcing providers to offload key business functions. By working with insurance outsourcing services, companies can accomplish streamlined operations, reduced costs, and improved customer service to reach a wider market.
Challenges and Opportunities in the Insurance Sector
The insurance industry, particularly the health insurance sector, faced some challenges in 2024. Underwriting profits declined, leading to a 14% drop in net income in the first half of the year compared to 2023. However, the industry also saw a 6% increase in direct written premiums, indicating continued revenue growth. Higher interest rate levels are also fueling better investment yields for life and health insurance carriers, which is what’s expected to boost profitability in 2025.
So how exactly can an insurance company stay ahead and harness this growth in the industry? To attract both consumers and distributors, companies may need to invest in core system modernization such as automation, and even rethink some of their processes.
Outsourcing for Insurance
To remain agile and responsive in a dynamic market, insurers are transforming their operating models by prioritizing customer- and product-centric approaches. Many carriers are outsourcing some of their back-office functions, using managed services and business process outsourcing providers (BPO) to boost efficiency and cut expenses.
According to Deloitte, life and annuity carriers are partnering with outsourcing providers to amplify their core insurance capabilities. In the study, they found that these are the most popular functions being outsourced to third-party providers:
- 60% of respondents outsource sales and marketing
- 54% outsource billing
- 50% outsource underwriting and suitability
- 37% utilize insurance policy administration outsourcing
- 36% outsource product design and management
- 21% are outsourcing data management
Benefits of Outsourcing in the Insurance Sector
Why exactly are companies delegating some of these important functions? Over the years, outsourcing through a BPO has become a popular and effective strategy for insurance companies to stay cost-efficient while scaling up their teams.
Let’s explore the reasons why these insurance companies are outsourcing some of their processes:
1. Cost Optimization
Insurance companies need to balance their financial capabilities, making it necessary to cut costs in order to stay competitive. Outsourcing helps by providing access to an external provider’s resources at a fixed rate, which covers the costs of their outsourced team’s operations, benefits, and management costs.
The location of the outsourcing provider also affects the savings earned. Onshore and nearshore outsourcing can reduce costs by 10-20%, while outsourcing to the Philippines can save up to 70%.
2. Enhanced Business Focus
Insurance companies looking to modernize are improving their practices in non-core areas like customer service, IT, and marketing. Outsourcing customer support benefits insurance companies as well, allowing them to cater to large volumes of inquiries while still maintaining a customer-centric approach. By outsourcing these functions, companies can improve efficiency, free up resources, and allow their core teams to focus on growth-driving tasks.
3. Access to Skilled Talent
Outsourcing bridges talent gaps by connecting companies to skilled professionals for both general roles such as customer service, IT, marketing, and more specialized tasks like claims processing, underwriting, fraud detection.
Outsourcing providers can tap into a large talent pool, and can even handle the recruitment, training, and management processes to ensure productivity and business alignment.
4. Scalability & Flexibility
Modern insurance outsourcing services go beyond just filling basic roles. Some specialized providers offer flexible engagement models that support long-term growth. Providers now act as business partners rather than just service vendors. For example, some outsourcing providers offer continuous training for outsourced teams. Others offer to refine workflows for their clients, optimizing business processes and even implementing performance monitoring initiatives.
5. Advanced Technology
The insurance industry has traditionally relied on manual processes, but outsourcing providers these days offer advanced tech infrastructure to streamline operations. Leveraging modern tools and technologies by integrating them with existing systems makes it easier for insurance companies to stay agile, ultimately creating gap-free workflows.
In Conclusion
To overcome challenges, insurance companies are utilizing outsourcing as a better strategy for growth. To modernize processes and empower their teams to accomplish more, outsourced support serves as a valuable partner to improve efficiency and drive long-term success.
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