The Outsourcing Journal recently decided to devote a section of the publication to outsourcing in the insurance industry. Part of writing about that industry is to try to perceive where it's headed. This year there is no way to review the overall performance of the insurance industry without the events of September 11 being the defining moment. However, according to some insurance industry professionals, the terrorists attacks actually goosed-albeit most severely-the industry more pointedly into a direction in which it was already headed.
It appears that the insurance industry is in the beginning stages of a business cycle known as a "hard market," a business climate that is quite conducive to doing good business. Barbara Reardon, CEO of Educating Underwriters, an outsourcing supplier that produces online training content for insurance underwriters, says the industry is primed for a definite upswing after 12 years of a soft market. "We're finally getting the price up because there's less capacity out there and we're finally able to get our pricing up," she says. Reardon predicts that the insurance industry and the suppliers that serve it will start to make money if they can keep expenses down.
While a hardening market may suggest boom times for insurance companies-in addition to the commercial market becoming more aware of the need for sound coverage against natural and, now, terrorism catastrophes-there will be greater capital influx into the industry as investors eye the inevitable upswing. A growing market will bring into sharper focus the need for more innovative products and services as well as superior customer service as the existing players vie for greater market share and greater profits.
A Growing Industry Needs Outsourcing
Throw into the mix the move towards globalization, deregulation and the dissolving of barriers between banking and insurance and what we may experience in 2002 is quite possibly the beginning of the most volatile era ever in the insurance industry. Companies will discover more and more that the expertise and cost-efficiency coefficients needed to drive their businesses do not reside under their roofs-they will have to go outside to obtain the highly specialized work force needed to gain and maintain a competitive advantage. Companies like Educating Underwriters represent the knowledge and expertise that insurance companies don't possess in-house but must obtain in order to compete.
The outsourcing of IT will continue to grow throughout the insurance industry this year and beyond. Industry icons like Prudential and CNA have already seen the advantage of partnering with suppliers to run certain IT operations in tandem with their own capable IT departments.
The virtual insurance company continues to carve out its niche within the industry. Outsourcing allows companies looking to utilize the ubiquity of the Internet to access the best and brightest talent as well as reduce research and development expenditures. They can also take advantage of a supplier's existing IT infrastructure.
As the need for new lines of business arise, insurance companies with only a handful of fulltime employees can outsource to suppliers to gain instant access to highly trained back office workers and new eBusiness technologies. For example, QualSure Insurance Corp. assumed 81,000 homeowner policies from Florida's state-created windstorm insurance pools and, with only eight employees, launched its new business within 45 days of getting approval from the Department of Insurance. QualSure outsourced administrative functions to Computer Sciences Corporation's service centers in Sarasota, Florida and Columbia, South Carolina.
Today's business climate projects a robust future for insurance companies who recognize the benefits and cost effectiveness of outsourcing essential but non-core functions to an outside supplier. When an informed decision is made on choosing a competent, qualified supplier and a fair and flexible service level agreement is in place, outsourcing can be a rewarding and profitable business solution.
Lessons from the Outsourcing Journal:
- After 12 years of a soft market, insurance companies are expecting to see a much better year. They will have to outsource to remain competitive.
- IT outsourcing in the insurance industry will grow this year. So will back office outsourcing as insurance companies need to tap into existing infrastructure and employee talent quickly.
- Outsourcing helps insurance companies add new lines of business quickly.