Opinion: An SOS for insurance operations

The collapse of Carillion this year, which was the largest strategic supplier to the UK government, resulted in the loss of almost 1,500 jobs and a cost of at least £50m to taxpayers. Carillion’s downfall caused widespread criticism of the practice of business process outsourcing (BPO), and led some to even question the business model itself. Before going into liquidation in January, the company employed 46,000 people worldwide, including 20,000 in the UK, and held a wide range of government contracts in the UK.

Jo Sellick, managing director of recruitment specialist Sellick Partnership, said: “Theresa May must take a close look at the government’s outsourcing model and examine whether it is truly sustainable for private firms and their tens of thousands of workers who fulfil such contracts.”

In January, after the company issued a profit warning, almost £1bn was wiped off the value of Capita, which works with many (re)insurance firms. For a company with diverse projects, such as HM Revenue and Customs and TV Licensing in the UK, shares in the FTSE 250 firm fell to lows last seen in 1998. The leadership admitted the group’s business and operational models had become too complicated. They lamented there was no “Capita way” and customers were being treated as “an afterthought.”

Many insurers, reinsurers, brokers, and MGAs use BPO in some capacity. In a rightly conservative industry, (re)insurers are frequently reluctant to relinquish the reins, particularly to their core operations and their data. So, traditionally, the BPO arrangement has involved deploying an outside supplier to undertake the staffing of highly repetitive back office or IT functions. Such arrangements often lack strong planning and foresight. They largely involve BPO providers throwing relatively inexpensive and generic resources at projects or functional silos to scale back their clients’ internal workforce and to remove some onshore manpower cost from the bottom line. 

Unlike traditional outsourcing, Strategic Operations Support entails calculated and technologically enabled problem-solving — be it for specialised projects or as long-term and expanding engagements

For service providers to remain relevant in the modern, intelligent automation-driven industry landscape, they must offer hands-on skills and insurance aptitude that add real value to business procedures. And for (re)insurers to gain substantial benefits, a new breed of service providers must have deep domain expertise as well as practical experience in leveraging all types of advanced technology and data sciences.

Unlike the traditional BPO model, their teams must be equipped to support (re)insurers without constant hand-holding, and with the forward-thinking propensity and agility to seamlessly fit in and act as operational, technology, and analytics experts in the core value chain of any type of insurance organisation.But the business of insurance, and the global competitive and collaborative conditions surrounding it, are fast changing, especially considering policyholder demands.

The advent and impact of intelligent technologies such as robotic process automation, artificial intelligence, and machine learning are also creating disruption. In this environment, one outcome of the rapid pace of change is a tipping point in resource and workforce management, where the traditional BPO model — which brings little added payback beyond cost arbitrage — is no longer strategically viable.

Indeed, the conditions call for a newly emerging service model — I have termed it Strategic Operations Support (SOS) — which unifies profound insurance expertise with a multifaceted understanding of emerging technology to improve business efficiency. SOS is, of a course, a deliberate pun on the maritime distress call of “Save Our Souls,” but it does capture the sense that the industry needs a strategically aligned rescue from the outdated and growth-limiting BPO model.

BPO allowed (re)insurers to outsource repetitive administrative functions. SOS, on the other hand, enables those same companies to employ domain-specialist partners for dexterous support in core functions across the insurance lifecycle, while accruing the same beneficial conservation of time, resources, and operating costs. The consultative service capable of providing the holistic, informed approach of SOS, allows (re)insurers to focus their energy and talents on the activities that really matter — policy-holder requirements, pricing, market opportunities, distribution and service.

Unlike traditional outsourcing, Strategic Operations Support entails calculated and technologically enabled problem-solving — be it for specialised projects or as long-term and expanding engagements. By definition, the SOS contributor is consultative, knowledgeable, and appropriately assertive to challenge convention, proactively embedded and agile, and highly accountable for effective insurance workflows. As a result, SOS can reduce substantial expenses for accomplished resources, mitigate operational risks, and help (re)insurers achieve expansion and productivity more quickly and consistently.

(Re)insurers can expect SOS providers to devote their attention to the intricacies of product development, underwriting, policy, and claims administration, as well as finance, technology and data sciences, regulatory compliance and more. By assigning accountability for the outcomes of those activities, (re)insurers can reduce and control operating costs (and non-compliance penalties), and improve processes and methods. They can take advantage of prevailing capabilities, focused expertise, and professional objectivity to ensure workflow agility, competitive responsiveness, and to optimise internal resources. Meanwhile, (re)insurers can devote their attention to generating revenue, earning market share and return on equity, driving up shareholder value, and satisfying policyholders.

The requirements of digitally enabled policyholders, the exponential rate of technological change, and the rapidly shifting regulatory, business, and competitive arena of (re)insurance have never been more dynamic. Such combined developments and more are forcing (re)insurers to ponder two key questions: Are our operations streamlined, sustainable, scalable, and fit for purpose? If not, do we have the internal resources and experts to address the operational or technological shortfalls? When the answer is no to either question, SOS may well be the right call for help.