Outsourcing’s Role in Moving Companies Beyond Their Potential
From the top of the world in 1909, Robert Peary wrote in his diary, “The Pole at last!!! The prize of three centuries, my dream and ambition for 23 years… It all seems so simple…” In reality, Peary and Matthew Henson’s arrival at the North Pole was anything but simple. Perry had devised a method for moving people and equipment over the ice, using a series of constantly rotating supporting parties who moved in advance of Perry and Henson. Except for the final 133 miles, the supporting parties carved out a trail through the snow and icy ridges, built igloos and deposited supplies for the Perry party behind them. Their work made the famous explorers’ trek as easy as possible, keeping them fresh for the final assault.
That’s the strategy Drew Barkley used to advance his company’s capabilities in the marketplace. When his investment group formed DS Barkley Insurance Management in November 1998, the long-term business plan was to do business with a diverse number of insurance companies and reinsurers. As a managing general agency (MGA), DS Barkley acts like a wholesaler – it’s comparable to being a locally owned independent bottler for a soft drink manufacturer.
The company’s plan was to develop a multistate business with nonstandard personal auto as the product line’s backbone. “But I knew insurance companies would never come knocking on my door and say, ‘Will you sell this for us?'” Barkley says.
Instead, DS Barkley creates insurance programs, approaches existing insurance companies and sells them on the new program, then pays the insurance company partner a fronting fee of 3% – 6% of the premium that’s written. DS Barkley then does all the work on behalf of the insurance company, including marketing and servicing the product, as well as all the back-office processes. Drew Barkley, president of the DS Barkley, says his company’s program is very attractive to insurance companies who are looking for new revenue without having to market and service it or provide IT systems for it.
Sounds simple. But it’s not.
For every dollar in insurance written in the new product line, DS Barkley pays approximately 30 cents commission to the insurance company. That leaves 70 cents available to pay hospital bills and body shops for the insured’s accident. If there’s any profit to go into DS Barkley’s coffers, the company must have the process expertise and underwriting methodology to reduce the 70-cent payout.
In addition, it must compete with other MGAs that want to partner with the insurance companies. “We work very, very hard to put systems and processes together to show the insurance companies that not only are we better than the other MGAs, but we also are better than the insurance company would be if it were to do this,” says Barkley.
Tough benchmark. And the startup DS Barkley couldn’t afford to spend the capital for those systems and processes.
Qualities Much Prized
DS Barkley partnered with outsourcer, Results International Systems to handle the back-office functions (processing policies and claims, billing insureds, handling accounts receivable, generating basic reports). As Barkley explained his business goal of being better than the insurance companies to the Results management team, they began to explore together how to improve other areas of performance. Now the Results-developed systems and applications dazzle the insurance companies as to DS Barkley’s superior capabilities. The outsourcer’s work is carving the trail ahead of DS Barkley.
The first performance problem solved was how to slice and dice insurance data by underwriting and claims criteria in efforts to find meaningful information that indicates what groups of people are more likely to have accidents. The data helps DS Barkley know how to adjust its rates or change underwriting criteria so that it results in lowering the 70-cent payout. “I have to be able to show the insurance companies and reinsurance companies that I can drill deep into our data to find that information,” says Drew Barkley.
Results, which has knowledge of the insurance industry, engineered the solution. They found a company with a system that compacts data. Results now outsources that system and compacts DS Barkley’s data then electronically sends it back to Barkley on a daily basis. Results also customized and implemented a software product that allows it to extract and compare bits of data. “In one hour, I can capture the requested data, move it to Excel tables and provide any insurance company or reinsurance company virtually any report for any time period for any selection criteria that they want,” explains Barkley. The solution has the added benefit of mirroring DS Barkley’s data.
“Not only does this solution allow me to compete,” says the company’s president, “but we probably have better data extraction and data availability reporting than any other MGA and more than 75% of the insurance companies in the country. If Results hadn’t come up with this solution, I would be struggling to prove to the insurance companies that we could do what I said we could. Those relationships would then be at risk, and this business would be at risk.”
The next problem solved by the trail carver, Results, was how to deal with the insurance industry trend of putting more sales power into the hands of independent agents. The practice of insurance companies installing their proprietary software on agents’ systems was cost-prohibitive to DS Barkley.
He collaborated with Results to become competitive with the trend and also to increase performance at the agent level. Results built a solution that Web-enabled DS Barkley’s entry system. It reduced Barkley’s customer service calls by two-thirds since agents now can get policy questions answered through the Internet. The flow of information was scripted so efficiently that Barkley says even his internal staff now prefers to use this system. Moreover, it expanded DS Barkley’s market, since the service is available 24×7 in all states.
The Web solution also solves another problem. As markets tightened, Barkley says companies were pressuring him to lower the percentage of premium paid to his company. So he had to devise ways to be more effective in order to remain profitable. They collaborated with Results on Web-enabling a process for agents to issue new policies in their offices. It chopped the process that had been taking two-three weeks for policy issuance down to one day!
Gone was the need to send applications and checks in the mail, order motor vehicle reports and underwriting information through the mail, and printing policy cover pages to be mailed to the new insured. Before, if an agent’s work was backlogged, or if a check didn’t go through the bank, it slowed the policy issuance (and DS Barkley’s revenue) down even more. Also gone is Barkley’s overhead for data entry and mailroom staff. He estimates that the outsourced solution will allow the company to double or triple its business without adding more back-office personnel.
From Ideas to Reality
Signed in late 1999, their five-year outsourcing agreement is priced at a set hourly fee, no matter whether Results is performing back-office functions or developing new solutions to enhance DS Barkley’s performance. Barkley says he grew up in the nonstandard auto insurance business. “My father had a small company in Ohio, and I learned the business from the ground up way back before there was such a thing as a P.C.” And before outsourcing.
Drew Barkley says the most valuable aspects of the relationship with Results are the rapport at different levels and also that both companies are on a similar track. “We’re both small businesses that are growing,” he explains. “We sort of feed off each other. And we’re both very creative. 80% of the Results programmers and staff are originally from India. They have a very good work discipline and are very customer-oriented. If you are fortunate enough to find an outsourcing partner whose business plan as well as short- and long-term objectives are in common with your own, you can really make it work.”
Lessons from the Outsourcing Journal
- Outsourcing back-office functions can allow a company to double its business without having to hire more personnel.
- Effective Web-enabled processes increase customer satisfaction and revenue and allow entry into new markets; but implementation and ongoing support often are cost-prohibitive without outsourcing.
- Outsourcing allows small companies to compete with larger ones by transforming important, non-core processes to be higher quality and more cost-effective.