What is Insurance Process Outsourcing?
Insurance business process outsourcing (BPO) is the act of outsourcing various insurance processes to third-party firms that have specialized in offering said services.
Outsourcing is beneficial to insurance companies in the following ways:
- It minimizes operating expenditure and streamlines back-office operations.
- By outsourcing tasks, companies are able to properly carry out their daily functions and build a robust foundation of growth and profitability.
- When implemented correctly, outsourcing helps firms survive in an uncertain economy and come up with strategies for future expansion and stability.
Origin of Insurance Process Outsourcing
Modern insurance as we know it dates back to the ancient world. In the 17th Century, a primitive form of commercial insurance was invented to protect traders and limit the loss of goods. Although insurance in medieval times was not as we know it today, the concept was still the same — to transfer risk to another individual or company in exchange for benefits in the form of cash or other instruments of monetary value.
As the industry evolved, insurance firms encountered many challenges such as changing customer requirements, diminishing returns, strict compliance requirements, and an ever-changing economic environment. As a result, there was a need for businesses to outsource some of their services in an effort to optimize process efficiencies and gain a competitive edge in an industry that was quickly getting saturated.
Insurance Process Outsourcing in the 1980s
It is speculated that insurance process outsourcing existed long before it was recognized as a business strategy. However, it wasn’t until 1989 that insurance process outsourcing was officially recognized and embraced by mainstream insurance companies.
During this time, insurance companies in the industry were struggling financially. In a bid to boost their financial condition and increase profitability, companies opted to sub-contract some services that weren’t linked to their key operations.
As a result, firms started outsourcing the following services to third-party companies that had established themselves as experts in their industries:
- IT services
- Legal services
- Back-office tasks
In those days, outsourcing was merely viewed as a way of saving costs for a business. True to expectations, it helped reduce financial constraints and firms made savings on all sub-contracted duties.
Insurance Process Outsourcing: What It Looks Like Now
As the industry grew and technology took center stage, firms found the need to outsource even more tasks in a bid to improve service delivery and maintain a competitive edge in an industry that was quickly growing.
Insurance companies today focus on formulating products that mitigate risks and safeguard the properties, health, and financial future of clients and dependants. This is their core area of competence.
They now outsource tasks they may not have as much expertise in to third-party service providers. These include IT, finance and accounting, data mining and management, etc. The difference between insurance process outsourcing in the 80s and insurance process outsourcing now is its intense focus on technological capabilities and their rapid advancement.
The Future of Insurance Process Outsourcing
Insurance process outsourcing is here to stay. As more technological advancements emerge, we expect to see insurance companies subcontract more and more of the complex tasks to the experts in a bid to stay abreast with trends and meet their customer’s needs.