Outsourcing certain insurance processes to third-party vendors can be the key for insurers to unlock operational efficiency and stay agile and responsive in the modern insurance market. While there are incredible upsides to working with an outsourced insurance partner, there are also some common challenges that can arise. However, by implementing strategic solutions throughout every stage of outsourcing, insurers can ensure a successful engagement. We’ll explore these strategies in more detail below.

1. Task Delegation Woes

When outsourcing insurance processes, effective task delegation can be a challenge. Insurers who have previously handled everything on their own may lack confidence that tasks will be completed to their standards, making them hesitant to relinquish control.

While delegating, it’s important to maintain clear communication between in-house and external teams to give the outsourced provider the support they need to be successful. In addition, insurers need to provide detailed standard operating procedures (SOPs) or thorough explanations of how they want certain tasks to be completed.

This may include a step-by-step walk-through, video tutorials, or other methods of knowledge transfer to guide the provider. It’s also good practice for insurers to provide and define the metrics, KPIs, or quality standards they will hold the provider to for quality control purposes.

2. Language and Cultural Barriers

Another issue that can arise during insurance outsourcing is language or cultural barriers. These roadblocks have the potential to impact effective communication and service delivery. Offshore outsourcing partners might find this more of a challenge than onshore teams, which is something to keep in mind during vendor selection.

These barriers don’t just impact on the insurers’ ability to delegate tasks effectively and communicate with the provider. They might also make it more challenging for the provider to deliver policyholder-facing processes such as customer service or sales support.

The policyholder experience and loyalty to insurers can be damaged if outsourcing is not handled properly, so it’s important to smooth out these differences from the onset of the engagement. Such barriers should be assessed while initially vetting outsourcing partners, allowing insurers to gauge the language competency of the provider beforehand. Any obvious challenges can be addressed early on to determine if they’re a cultural fit, and if they have the language skills necessary to offer top-tier support to policyholders.

3. Data Security Concerns

Outsourcing certain insurance processes to a third-party vendor can bring concerns around data privacy and the security of policyholder data. Due to the nature of the insurance business, insurers collect, manage, and store a wealth of sensitive policyholder data, so it’s essential to safeguard and protect such data at all times.

When working with an outsourced provider, insurers need to be sure they have the proper infrastructure and processes in place to keep policyholder data secure. Any breach or data leak can be potentially devastating to policyholders, as well as seriously denting the insurer’s reputation. Agreements such as Service Level Agreements (SLAs) or non-disclosure agreements (NDAs) can help outline insurers’ expectations regarding data security and provide a path for recourse should they not be followed properly.

4. Quality Assurance

Outsourcing certain business processes brings the risk that the third party will not provide the same level of care or quality standards that the insurer’s internal staff delivers. However, insurers must uphold the high level of service quality that their policyholders are accustomed to if they want to retain their trust and loyalty—even when utilizing a third-party outsourcing company.

As we mentioned above, it’s important for insurers to set and define clear KPIs or metrics for measuring the outsourced provider’s delivery. Insurers need to clearly communicate what their quality standards are, and how they will assess the provider’s performance to maintain quality service delivery even when their internal team is not as hands-on in the process. Once the outsourced provider is fully operational, quality assurance checks at random can help insurers feel confident that services are being delivered to their standards.

5. Regulatory Compliance

The insurance industry is highly regulated and always evolving, so it’s crucial for insurers to find the right outsourcing partner who is well-informed on industry regulations and has practices in place to meet compliance standards and adapt to the changing regulatory landscape.

To navigate the legal complexities of working with an insurance outsourcing company, insurers should conduct thorough due diligence of providers before initiating engagement. This will help ensure they comply with industry regulations and are committed to compliance. After beginning the engagement, insurers should continuously monitor and frequently audit the outsourced provider’s processes to ensure ongoing compliance.

6. Vendor Selection Dilemmas

With so many possible insurance outsourcing companies to choose from, it can be difficult for insurers to properly assess all the options in the market and select the one that’s best for their needs. Going further, insurers who have never worked with an outsourcing company before may not know what questions they should be asking or what criteria to use to vet providers against one another and select the best option.

To make an informed decision on which vendor to use, insurers may want to consider some of the following for each provider they’re considering:

  • Industry expertise: How long have they been in operations? What is their reputation in the industry? Do they have specific insurance industry expertise?
  • Scalability: Do they have the capacity to scale operations up or down as needed?
  • Compatibility: Are they aligned culturally? Can their technology and other tools be integrated into internal systems?
  • Compliance: Do they have the necessary certifications to operate in the industry? How do they handle compliance matters?

7. Operational Resilience

Operations need to continue running smoothly even when processes are being transferred to a business process outsourcing (BPO) company. Disruptions to service during the migration can detract from the policyholder experience and leave them frustrated. Thus, while there can be some roadblocks to achieving it, a seamless transition and operational resilience should be the goal.

To mitigate the risks of operational disruptions while transferring processes to a third party, insurers should develop a robust business continuity plan detailing the procedures and protocols that should be followed in the case of a significant disruption. It’s also important to conduct a thorough risk assessment ahead of time to understand which areas are most at risk of disruption during the transition in order to be adequately prepared.

8. Cost Management

Oftentimes, insurers will outsource to help secure cost savings and keep labor costs and other related expenses down. However, outsourcing can entail hidden or surprise costs that impact on profitability.

To help prevent this, insurers interested in outsourcing should take some time to reasonably budget how much they have available to spend on a monthly or yearly basis. When speaking with various providers, this budgeted value can act as a guiding target that will help keep them profitable.

Thus, defining the budget and scope for insurance outsourcing early on will help insurers avoid pursuing an engagement that costs more than is feasible for their business. While vetting potential providers, insurers should inquire about all costs associated with the outsourced services and the specific pricing model they utilize in order to make an informed decision about which one to work with.

9. Talent Retention

Even when working with an outsourced provider, insurers need to have plans and strategies in place to retain skilled talent for successful continued operations. High turnover rates of outsourced talent can be costly to insurers, so they need to find the right balance between offering attractive compensation and finding a cost-effective outsourcing partner. The upfront investment of time and resources that go into onboarding a new provider can be substantial. Thus, implementing the right strategies that lead to a long-lasting engagement can help produce a positive ROI for outsourcing initiatives.

Relationships with outsourced providers go two ways, so just as the providers need to demonstrate their competency through high-quality service delivery, insurers also need to invest in their long-term relationships with BPO providers. Aside from attractive compensation, insurers can implement other talent retention strategies like performance incentives or talent recognition and appreciation programs to encourage quality service.

Charting the Course Forward in Insurance Outsourcing

Despite the common challenges that can arise when outsourcing key insurance processes, this business model continues to grow in popularity with insurers at all levels. Each of these roadblocks can be effectively overcome with the right strategy, helping insurers unlock attractive cost savings, efficiency improvements, and better profitability without detracting from the policyholder experience.

As the industry continues to evolve and experience growing competition and changing consumer demands, outsourced providers will play an increasingly important role in the future of the insurance market. It’s crucial to find the right outsourced partner, such as Covenir BPO.

Our experienced onshore team of industry experts is committed to delivering the on-brand and proactive service that your policyholders have come to know and expect from you. No matter where you need support in your operations, Covenir BPO can custom-tailor our services to give you the people power you need to thrive in the modern insurance market.

If you’re ready to get started, reach out to Covenir, and let’s talk about our custom outsourced insurance solutions.