Outsourcing Insurance Business – Common Misconceptions


In the present Internet fuelled environment of daily living, businesses are not restricted by geographical boundaries. In fact the world now is a global village where the best deals, the best marketing strategies and the best professional expertise are all available at the click of a mouse.

Thus most industries have chosen to outsource certain activities to take advantage of lower administrative costs or get the benefit of the latest advanced tools and technologies. This is especially true in the insurance sector where products are complex, inter-related and so customer centric that for accuracy and preciseness of services, huge investments in hardware and software are required. The main areas that are generally outsourced by insurance companies relate to insurance policy management, insurance agency management, claim administration and data services.

However, there are sceptics who challenge this concept of outsourcing in the insurance sector and this has given rise to certain misconceptions about it. Cynics point to aspects about outsourcing that they say is not beneficial. These include –

  • Lack of Supervision – Critics point to the settlement of claims scenario and say that lack of direct supervision over claim processing by the insurance issuing authority leads to a fall in efficiency and speed. This is not true. Outsourcing in fact speeds up the process as technically trained people in outsourced agencies armed with the latest technologically advanced tools have all relevant details of the insurance policy at their disposal and can quickly process the claim.

  • Lack of Security – Insurance is a highly sensitive sector where personal information of clients is involved. Therefore it is often felt that transmitting confidential details offshore might lead to concerns in case of any breach in security. In reality this is a rarity as most outsourcing companies have a Non-Disclosure agreement with their customers and hence are legally liable for any leaks. Further they also have systems in place that pre-empt this possibility.

  • Lack of Communication – It is argued that insurance is a continuous interaction with customers and any delay or break in the communication chain will slow down the process of issuing policies, settling claims or even updating data. This is another misconception as communication between even far flung corners of the globe today is lightning fast round the clock with backup systems to take up the slack should anything fail in the first place.

  • High on Expenses – Critics of insurance outsourcing say that using local resources like workforce and hardware is more cost effective. But again this is not true. The rise in demand for insurance policies especially after increases in threat perception the world over has made outsourcing more profitable. Companies who exclusively offer outsourcing services have massive infrastructure in place that offer economies of scale. The higher the volume of insurance business given to them, the lower is the cost.

Insurance outsourcing is here to stay. The hard reality is that it is more cost effective and customer service oriented – two pillars on which this sector is primarily based.