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Decoding Outsourcing Within the Insurance Industry


Outsourcing in Insurance


Outsourcing, or the use of external competencies, is something that management often considers; What parts of my organization can be outsourced, and what to keep in-house? The question that often arises is, “will this system or process give me a cost advantage if it’s outsourced?” If the answer is yes, then they move the operation outside of the organization.

Unfortunately, the decision is not that simple.

  • What Is Outsourcing?

Let’s first start with the concept of outsourcing.

Finance Norway in 2016 defined outsourcing as “moving work tasks and functions to an external contractor, domestic or internationally. Outsourcing to another country is commonly known as offshoring.”

It is important to separate between outsourcing and purchase of commonly services.

An example could be procurement of legal services related to a specific insurance claim. If this type of service is repeated on a long term with whole portfolios or a variety of cases, then we are closer to defining this as outsourcing. Hence, if you often use one vendor for development and integration work, this external capability is seen as outsourcing. 


  • What Are the Incentives to Outsource?

At its core, outsourcing makes perfect sense for any organisation struggling to carry out processes efficiently and timely with its in-house resources.

A few years back, the primary reason for an organisation to outsource functions was based on cost and time. The functions were non-strategic like logistics and administration like payroll.


Now with a surge in technological innovation and changing customer needs it can become overwhelming for insurers to handle all the work internally. This is where an outsourcing provider steps in and provides the much-needed support to the insurers. They can outsource functions that are more strategic and closer to their core business by partnering with outsourcing providers. These outsourcing providers are highly competitive and advanced, they know their role and understand the need to incorporate latest technology into their processes to serve clients quickly and efficiently.

If managed correctly, outsourcing enables organisations to improve operational performance, vastly improve speed and efficiency through better consolidating and centralising functions. Moreover, these organizations get more time and support to work on devising strategies for growth and scalability, including competitor analysis and understanding client demands.

Insurance companies that strive to keep everything in-house typically end up developing a series of vertically integrated silos that result in extensive duplication and redundancy across businesses and markets. This tends to apply for both small and larger insurance companies.


A report from Gartner Research, Market share Analysis on ITO Services (2017), shows a significant increase in growth from ITO Outsourcing Service providers.

According to the 2019/2020 European IT Sourcing Study by Whitelane Research, over the next two years, more outsourcing is predicted for Europe- 74% of organizations plan to outsource at the same rate or more. 


A survey made by BI Norwegian Business School reports that the main drivers for outsourcing today are:

  • Access to resources and competence 
  • Focus on core business  
  • Reduce production cost  
  • Flexible provision of services 
  • Improved quality of services 
  • Redesign business processes 
  • Accepted practice in the industry 
  • Pressure from competitors 
  • Access to new markets/growth 


  • Experiences and Trends in The Insurance Market Today


Many larger insurance companies in Norway have outsourced most of their functions today, both ITO and BPO processes. We see that companies like DnB and Storebrand have outsourced many of their Business processes and technical development and maintenance. We also see examples of the opposite, where Nordea has reversed and taken back what they had outsourced earlier.

Although the primary focus when looking at outsourcing seems to be cost reduction, there are also other variables to consider for insurance companies.

They see the need to get access to resources with different and better capabilities. Especially smaller insurance companies may have trouble to keep on to the competence. They still want to keep processes that are closely related to their customer in-house for the risk of negative reputation and customer satisfaction. The companies are seeking to handle less administration and have this managed by professional partners. Many want to outsource their IT and core solutions and move closer to “plug & play” with modern SaaS solutions.

Especially claim processes are being outsourced as the companies sees this as a great cost driver, and most of the processes have a potential to be standardized.

 What Are the Potential Risks of Outsourcing?


Without clear articulation of outsourcing objectives, defined parameters to evaluate the quality of service, and selection of tools to monitor performance on an ongoing basis, an insurer could limit outsourcing benefits as well as hinder overall strategic objective achievements.

Without anticipation and identification of critical outsourcing risks and establishment and monitoring of risk indicators, it is more likely to increase operational risk. 

If a service provider is unfamiliar with the legal requirements applicable to the products or services being offered, does not make efforts to implement those requirements carefully and effectively, or exhibits weak internal controls, it can harm consumers and create potential liabilities.

If oversight over and the establishment of appropriate protocols and metrics (goals) to effectively manage the outsourced process is not done correctly, the benefit of outsourcing can quickly translate into a reputational loss.


Key Factors Insurers Should Consider When Outsourcing

  •  Purpose

If you are thinking about outsourcing, make sure to analyse the purpose. What do I risk losing of internal competence, and what will I gain or get access to outside the company? There are highly experienced fintech companies out there that can add value to your business.

The cost of new recruitment is high. When outsourcing your services, you reduce the need of in-house employees and therefore reduce your cost on recruitment and training.

Often a company see the need to shift focus and allocate more of its resources towards core business. The option is then to outsource non-critical functions.

In smaller insurance companies it would be beneficial to have the flexibility to rapidly scale up or down the need for resources. This would be difficult with a normal recruitment process.

  • Define good and solid KPIs – How do you define success?

There are three important steps:

  1. Defining measurable performance indicators
  2. Baselining existing performance
  3. Continuous advancement

When outsourcing to a third party, it is important that you agree on common goals. Your partner must be measured on the same goals as your company. Make sure you are aligned and following the same objectives.

The objectives must be solid and the reporting should be structured and automated (create good dashboards).

All the data, reports and measures must be easy to control and verify. Avoid the “watermelon effect”, meaning your provider sees and reports green, while the customer sees red.

Make sure to regularly update and adjust your KPI’s. In the beginning of an outsourcing project, it is often necessary with detailed and a high number of KPI’s/SLA’s. As you go along, the number of KPI’s can be reduced as you learn and get new base line.

  •  Cooperation and development – How do we become great together?

When you as an insurance company have initiated a process of outsourcing, prioritse to spend some time to get to know your partner/vendor. An example is to conduct kick-offs and establish a good working environment where you create a space for good discussion and acceptance for different opinions.

You need to have dedicated individuals with the responsibility for each area of the outsourced process. These people must have the proper mandate and the authority to execute on behalf of the organisation. It is presumed that those responsible are well acquainted with the framework and agreement between the parties, as well as the processes / systems for which they are responsible.

If disputes arise, there must be clear escalation mechanisms so that disputes are dealt with quickly and effectively as they arise.

Does it matter if you use a small versus a large vendor? Yes, it may.

Often a smaller vendor can work more agile. Clarifications are done quickly with a smaller organization with a flat organizational structure. A smaller vendor will often be more specialised in the competence you need, and since they normally do not have a large brand to lean on, they may have a higher focus on price competitiveness. It may also be easier to test them out with smaller projects.

Local presence could also be preferred. If the vendor has resources in more low-cost countries, having local customer facing resources can reduce risk and improve the success rate. Then the vendor has the local knowledge and understanding of culture, language or product. This makes collaboration easier.

  • Cost / benefit – how is the business case?

In the insurance market today, we see an increase in capital requirements. There is a high pressure on cost efficiency and the wages are relatively high. Outsourcing may help you to lower your cost on development, but you need to be aware potential additional cost that may arise with outsourcing.

Outsourcing may lead to an increase in administration. You need to follow up your partner closely, and there is a risk of reducing your time to market.

If an insurance company decides to outsource some of its services like digital development, operating systems etc. the company finds itself in the need of changing some working procedures. This often leads to an increase in standardisation and a more professionalised workflow, which again creates a more effective organization.

Outsourcing may reduce the ability to experiment, test and quickly adapt to changes. However, a good vendor or partner is aware of this and applies this as part of the day to day business. With the right partner, an increase in the ability to experiment, test and quickly adapt to changes should be a positive outcome from the external competence you employ.

If the insurance company constantly needs to verify, do Q&A’s, follow up on errors or redo specifications, this affects the speed of deliveries and the ability to adapt. Always seek to improve the way you work to make the collaboration more effective.

  • Specifications and working methods

The transition from internal development to external partner can often be troublesome in the beginning. You need to have structured points of contacts so that everyone knows who to contact and for what. And you need to work agile. Kanban and/or Scrum are commonly used in projects to ensure efficiency and frequent deliveries.

It is all about the specifications. If you are developing a new solution, tool or changing a process, the specifications are the key to success. You need to be detailed and accurate in your specs. This will reduce the risk of errors and misunderstandings when you collaborate with an external partner. Make sure to have a delivery plan, prioritize testing and always do a retrospect so you learn of your mistakes and your successes.

With close follow-up and good dialogue, the potential is significant for you to create more streamlined operations that will add value to your business. You will be able to create better and more effective solutions for your customers and you as an insurer can concentrate on delivering on your core business.

  • Compliance – laws & regulations

This is an important part of any outsourcing, especially for an insurance company. There are clear regulations for those who wants to outsource parts of the operation. Both Financial Undertaking Acts and the European Banking Authority have regulations to follow.

There is an extensive list of factors to consider. For example, can a third-party vendor get access to sensitive data, and/or process this information?

If something would occur that forces you to take back your operations, are you then able to do this on a short notice? This also is regulated by the Financial Undertaking Acts (Lov om finansforetak og finanskonsern).

What about your IT and data security? Can your services be hosted outside EU or Norway? Are there any other limitations?

The use of a subcontractor commits. Do you have control on how the subcontractor is conducting its business? How are they following up on wages, work environment and sustainability?

  • It takes time…

Always define a detailed timeline with milestones.

Start with an isolated project with a low degree of complexity. Measure closely, follow up and learn.

Do not expect to capitalise on the transmission too soon. It takes time to adapt to a new way of working. Your partner also needs the time to familiarise themselves with your products and customer needs.

  • Should you start small, or just go big?

As mentioned, it could be wise to gather experience and knowledge. Start by outsourcing smaller tasks with low complexity.

Analyse the progress and the added value, adjust and improve so that you are ready to take on to the next step of the process. Too much at once will reduce the possibility of success and will give an increase in cost and decrease in delivery.




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