Tag Archives: outsourcing

Is It Time to Outsource Printing?

Determining whether to shut down your internal print and mail operation and outsource to a print service provider, or keep it in-house and potentially make a capital investment in new technology can be a tough conversation.

Those in favor of the latter option will cite concerns over sending customer data outside the organization and advocate that investing in new technology will improve operational workflows, enhance the customer experience and increase brand recognition by adding color to documents, as well as potentially generating a better ROI for the organization. Proponents of outsourcing believe that print is not a core competency and argue that outsourcing to a service provider would be the less expensive alternative.

While there may be a variety of reasons that cause an insurer to consider closing the print shop, a few factors can create the perfect storm.

1. Decline in transactional print volumes

Electronic delivery of customer communications was a high priority for many organizations as a cost-reduction strategy. While adoption rates may have varied, electronic delivery nonetheless caused transactional print volume to decline, even causing some enterprises to consolidate production into one site. Print volumes decline, unit costs go up and outsourcing becomes more financially attractive.

2. Equipment has reached end of life or end of lease

Insurers in need of a technology refresh may not be willing to make the investment or be able to justify the expense. New technology can speed production, streamline operations, enhance documents with color capability and reduce risk; however, if priorities have changed and the customer communications management (CCM) strategy has shifted toward enhancing the digital experience, convincing management to invest in print technology may be a tough hurdle to overcome.

3. Limited or no color capabilities

Some in-plants can only produce output in monochrome, or have very limited color capability. With the demand for color increasing, internal lines of business may look to an outside vendor to meet their requirements for color, and corporate marketing may have already beaten them to it. From a financial perspective, this is a double whammy. Outsourcing a subset of documents to a third-party provider decreases the volume for the in-plant facility and further exacerbates the impact on unit cost. In addition, outsourcing low volume to a third party can be costly for two reasons: higher unit costs from no economies of scale and additional conversion costs if the organization decides to consolidate all print volume with a single service provider in the future.

See also: What Tasks Should Agencies Outsource?  

4. Increased regulatory pressures require full document integrity

Non-compliance with regulations can be costly from a financial and reputational risk perspective. Production issues such as double stuffs or incorrect document breaks create privacy issues with personally identifiable information (PII). Organizations must take the appropriate measures to ensure that sensitive data is secure. Software that provides factory controls and tracking capabilities for each mail piece throughout the entire manufacturing process is critical to ensure correct and complete packages.

5. Single-site operations must rely on third-party providers for disaster recovery and business resumption services

If an enterprise operates one site, or has consolidated sites due to decreased volume, then disaster recovery and business continuity services must be contracted with a third party. Acquisition of facilities due to a corporate merger may not always provide the ability to transition print files from one site to the other if software, equipment and infrastructure differ. Worse yet, sometimes older equipment gained by acquisition must be kept due to machine-specific print jobs.

6. Change in management philosophy

Even without the previous five factors, sometimes a change in senior management philosophy might be the one driver for the decision to outsource. C-level management may believe that print and mail is not a core competency of the overall business and thus should be outsourced to a service provider. While it makes sense to consider outsourcing if print volumes have been on the downward slope, there is no magic number or volume threshold that dictates the exact time to do so.

Understanding the benefits that can be obtained by outsourcing may help to reduce anxiety and clear up the stormy skies clouding the decision process. To start, no capital investment in new equipment is required. Unlike an in-plant operation, service providers have the ability to spread the cost of capital across multiple clients and have made the investment in color technology. Due to greater economies of scale, service providers have great buying power for consumables such as ink, paper and envelopes. In addition, a reduction in postage expense could be realized if postal densities for five-digit and three-digit rates are met.

To remain compliant with certain regulations, service providers must have strict production controls and data security procedures to ensure that sensitive data is protected. File-based tracking tools ensure that files are received on time and that record counts are accurate, while piece-level or page-level tracking ensures that each mail package is correct and complete. Detailed production reports with key performance metrics (KPIs) are available via a dashboard allowing clients to log in, view production job status, request document pulls or re-directs and even create customized reports. To facilitate testing, quality reviews can be performed prior to releasing files into production via a review-and-release capability.

Once the decision to outsource has been made, it is time to set sail and begin the journey. Because price will most likely be a significant factor in vendor selection, here are a few tips that should be kept top of mind:

  1. Create a complete inventory of all printed communications to be included in the request for proposal (RFP). Consolidating all print – what is produced internally or by external vendors – with a single provider is the best way to maximize volume pricing.
  2. Understand what is included in transition costs, which can vary significantly by provider. To secure a contract award, some may include a certain number of free hours of development time as part of the transition cost.
  3. Standardizing address location on documents eliminates the need for multiple types of envelopes, streamlines the manufacturing process, allows for jobs to be concatenated together and helps to keep production costs down.
  4. Review SLAs for all applications to determine if there is flexibility.
  5. Contract duration will typically affect price; therefore, annual pricing quoted in a five-year contract will be less than in a three-year contract.

See also: Go Digital… but Don’t Change Who You Are  

Deciding whether to outsource print requires consideration of a variety of factors, but with a detailed analysis of the pros and cons of both options, an informed decision can be arrived at more easily. Many insurance organizations fear losing control because the print shop is not within arm’s length, but the security, output quality, and efficient manufacturing controls implemented by top tier service providers should help to alleviate that fear. No transition is perfect – but the technology, processes, and depth of knowledge offered by a print service provider will ensure smooth sailing.

What Tasks Should Agencies Outsource?

A primary challenge for the leaders of any evolving business is how to best allocate limited resources to achieve desired business objectives. This is particularly true with insurance agencies, where the vast majority of firms are small- to medium-sized businesses.

These firms (and, particularly, startups) must decide whether to handle core functions such as payroll or human resources internally or to outsource such functions to a specialized provider.

Outsourcing can be an effective tool for maximizing resources — but only when certain criteria are met. Some functions are outsourced by default; IT services are a typical example. Most agencies lack the expertise or critical mass to take on this function internally, so they contract with external experts to handle their computers, networking and other information infrastructure. Several other business functions could potentially benefit from outsourcing, but the case is not always so clear.

The agency principal should consider three important questions when evaluating outsourcing opportunities:

1. Is the function critical to your business operation, but not a core part of your strategy?

If a function is not critical to the business, it should almost certainly be outsourced (if it cannot be eliminated). For tasks critical to a business, the manager should consider if the task is a central element of the business strategy. Critical tasks that are not core to the business strategy are prime candidates for outsourcing

2. Is the function shareable?

When a business identifies a function that may be outsourced because it requires special expertise and investment, “shareability” is another consideration. Outsourcing works best when the provider of the outsourced service can leverage its investment in intellectual capital and infrastructure across a pool of similar clients. A robust solution that might be unaffordable for a single firm may become practical and cost-effective when shared as a “multi-tenant” solution (e.g., payroll and HR).

See also: A Revolution in Risk Management  

3. Does the function require significant management oversight?

While it is important that the outsourced service provider give the management team visibility into the function performed, outsourcing efforts often fail if the management team is still required to spend significant, valuable time directing or overseeing the work of the service provider.

The Case for Outsourcing License Management and Compliance Services

The management of insurance licenses and credentials as well as other compliance services is an outsourcing opportunity that all well-run agencies, brokerages and third-party administrators (TPAs) should consider. Let’s look at how license and compliance management aligns with the questions posed above.

Is the function critical to your business operation but not a core part of your strategy?

Insurance licenses must be carefully maintained. Over the last several years, state regulators have become more aggressive in sanctioning agents and carriers for non-compliance. As a result, carriers are less tolerant of violations by their agents and are more selective in the agents, brokers and TPAs with whom they will contract. But accurate and timely maintenance of licenses and other compliance functions is not a central driver of the business strategy. In fact, most agency principals consider license maintenance as a “necessary evil.”

Is the function shareable?

A recently released report by the Professional Insurance Marketing Association states:

“The proliferation of laws and regulations have made it more difficult for carriers, agents, brokers and third-party administrators to satisfy their (compliance) obligations. As a result, regulated entities will likely need to dedicate additional resources to compliance, including personnel and systems….”

Companies can obviously make investments in infrastructure and training of compliance personnel, but the costs can be prohibitive for small- to medium-sized firms, and the results are less than certain. Compliance managers with significant experience are in high demand and, in certain parts of the country, command salaries in the low six figures. When companies decide to invest in training an employee in this area, they run the risk of losing the employee to a competitor once she has obtained the relevant expertise.

For most small- to medium-sized insurance agencies, the individual responsible for licensing and compliance also bears other responsibilities and lacks deep compliance expertise because he (1) spends much of his time on non-licensing activities and (2) does not receive adequate education and training.

License requirements vary by state, but they apply uniformly to all agency entities. This means that a shared resource (the outsourced license management partner) can assemble a best-in-class service that can be delivered to multiple agency clients on a more cost-effective basis than if the agency built the function internally. With critical mass and an exclusive focus on the licensing/compliance space, an outsourced partner can also stay current on developments across all jurisdictions while maintaining relationships with state insurance regulators to assist clients in avoiding regulatory issues and providing informed remedies when issues do arise.

By assembling an experienced team of professionals, the outsourced license management partner can also marshal investments in systems and infrastructure to make license management more efficient and reliable. Today, most agencies track their licenses on a spreadsheet, which can result in errors, missed deadlines and other issues.

A related issue faced by agencies is continuity of the licensing function. In-house compliance personnel have historically managed licensing and renewals on an ad hoc basis using Excel spreadsheets or conventional paper filing systems. These approaches may work on a very small scale, but they offer very little in the way of checks and balances because institutional knowledge is not easily translated within the organization and is often lost when the person assigned to manage compliance leaves. Because these firms typically lack robust systems and procedures, the compliance function is difficult to transfer to the new compliance manager.

Does the function require significant management oversight?

Agency managers should not need to concern themselves with day-to-day maintenance, while still having ready access to the status of their compliance programs so they can take advantage of business opportunities.

See also: Insurance Coverage Porn  

Here are three case studies of how outsourcing has worked when put in practice by ACCEL Compliance, which specializes in providing outsourced service options for license management and compliance functions for insurance agencies, brokerages and TPAs. ACCEL’s experience illustrates how these functions meet the key strategic criteria for outsourcing.

CASE 1:  Nationally Licensed P&C Brokerage

A nationally licensed property and casualty broker specializing in large complex commercial and municipal construction projects lost its in-house compliance manager and needed to fill the role rapidly.  The firm engaged ACCEL to take over the compliance function, saving the firm the time, expense and risk of recruiting a new hire.  The firm’s president said it saved money and got increased visibility into its compliance function, while ACCEL seamlessly picked up its renewals.

CASE 2:  Nationally Licensed TPA

A nationally licensed third party administrator of life, health and employee benefits for a number of the largest U.S. insurance companies and affinity programs also recognized benefits in outsourcing its license compliance function. The internal compliance manager said, “While we understand that licensing is necessary to our continued operations, it does not drive our business strategy.  Worrying about lapses in licensing was an unnecessary distraction for myself and our executive management team.”

CASE 3:  Small, Independent P&C and Surplus Lines Agency

A small but growing independent property-casualty and surplus lines insurance agency based in the Southeast faced a rapidly expanding licensing footprint. As with many independent agencies, its founder and CEO had grown the business without adding significant administrative staff and the related expense. He recognized the opportunity to outsource his compliance and license management function and engaged ACCEL, which he said “frees me up to manage the growth of the business and drive revenue.”

Gig Economy: 5 Benefits of Outsourcing

The gig economy has taken the world by storm, with more than 45 million Americans participating in it in some fashion. By 2020, one study estimates 40% of America’s workforce will be self-employed through either contract work or freelancing of some sort.

Previously, the biggest challenge for self-employed Americans was discovering new mediums to find work. No more. With the rise in the gig economy, these freelancers have access to millions of jobs at the click of a button. For instance, my company, WeGoLook, pairs freelance workers, or what we like to call “gig workers,” with jobs across the country — and now the world — to fulfill client asset verification requirements.

The rise of the gig economy isn’t just a positive for these independent workers but for businesses and traditional industries, as well. The insurance industry is no different.

Insurance Industry Growth and the Gig Economy

According to an Insurance Institute survey, more than 40% of insurance companies plan to hire 100 or more employees between 2016 and 2017. A third of these jobs will be brand-new rather than replacements. This is becoming standard across the board as technology continues to change how the insurance industry operates.

The word “outsourcing” is often misconstrued, with negative assumptions about offshore job movements and layoffs. The insurance industry, however, can easily leverage gig workers and maintain a traditional workforce.

See also: 6 Points to Consider When Outsourcing  

Here are five benefits to outsourcing traditional insurance work to gig workers:

Worker Outsourcing Benefit #1: Looming Talent Gap

A study by McKinsey & Co. revealed that 25% of insurance professionals will retire by 2018. Baby boomers are finally taking that retirement — all the millennials are applauding! This is going to leave a massive workforce gap in the insurance industry.

Gig workers and outsourcing can help fill the massive vacancy left by retirees. Think gig workers aren’t specialized or professional? Think again. With the rise of the gig economy, shared marketplaces and smartphone technology, gig workers are more professional, knowledgeable, trained and equipped than their freelance peers in the 1990s and 2000s.

Worker Outsourcing Benefit #2: New Workforce, New Priorities

Millennials are much different than their parents. They crave flexibility and experiences above all else. Sitting in a cubicle from 9 a.m. to 5 p.m. is likely not a professional priority of the typical millennial. This is why we have 53 million freelancers in America — a trend that will only increase into the future — and may be why millennials are the biggest demographic within that group. They want flexibility and the opportunity to be their own boss.

This isn’t to say millennials don’t want full-time jobs, but the astronomical increase in gig workers in the U.S. indicates changing work priorities among millennials.

By 2025, millennials will make up 75% of our workforce, so it’s best we pay attention!

Worker Outsourcing Benefit #3: Business Flexibility

Outsourcing to gig workers will allow insurance carriers to remain flexible amid the ebb and flow of consumer demand and business requirements. More importantly for insurance carriers, on-demand workers provide flexibility because they allow companies to adjust to sudden staffing shortages when surges in demand occur.

Natural disasters, for instance, place enormous pressures on claims processing and verification, right at the time when customers need it the most.

Worker Outsourcing Benefit #4: Lower Costs

In lieu of a full-time employee with a salary and benefits, gig workers can be leveraged to provide on-demand expertise when needed. Gig employees are much more flexible than traditional full-time employees and have more technological tools at their disposal.

Now, I’m not saying an on-demand workforce replaces technical or certified field personnel, such as claims adjusters, but gig workers can augment and, in some cases, replace the full-time staffing requirement.

See also: On-Demand Economy Is Just Starting  

Reduced costs also emerge in the form of fleet vehicle costs, equipment maintenance, travel expenses and much more.

Worker Outsourcing Benefit #5: Information Flow

Now, more than ever, companies can tap into on-demand workers through various marketplaces that make up the gig economy, or what many term the “sharing economy.” The boom in the gig economy means a faster flow of information for traditional carriers because of its reliance on digital and mobile platforms.

Gig workers can quickly digest information and relay it in real-time faster than a traditional employee. An insurance carrier would need to have thousands of local field agents to cover the space new sharing economy companies are covering by pooling gig worker talent.

For instance, at WeGoLook we can dispatch any of our more than 26,000 “lookers” nationwide to gather information relevant to an insurance claim, asset verification, document retrieval, notary services and much more. To rival this, a traditional insurance carrier using the old employment model would need thousands of salaried positions placed strategically across the country. Or they’d require a web of complex contractors, which, in turn, would need to be closely managed by human resource professionals.

This is no longer necessary thanks to the rise of the gig economy.

Imagine what a workforce of 26,000 full-time employees would cost. But you can now have those employees at your fingertips just as you would if they were salaried — all by embracing the gig economy model.

See also: How On-Demand Economy Can Prosper  

As you can see, there are many benefits to embracing an on-demand workforce, particularly for traditional insurance carriers. This is not only because of a looming worker shortage but because hiring on-demand workers will reduce costs, increase information flow and will force the adoption of new technological trends.

Are You Fit Enough for Growth?

When it comes to scrutinizing costs, most insurance companies can say, “Been there, done that. Got the T-shirt.” Managers are familiar with the refrain from above to trim here and cut there. The typical result is flirtation with the latest management trends like lean, outsourcing and offshoring. However, the results tend to be the same. Budgets reflect last year’s spending plus or minus a couple of percent.

Meanwhile, managers attempt to develop strategies to capitalize on the trends reshaping the industry – customer-centricity, analytics, digital platforms and disruptive delivery and distribution models. Yet, after all of the energy companies exert to reduce expenses, there is often little left over to spend on these strategic initiatives.

Why do you need to look at your expense structure?

A variety of pressures have led carriers to improve their cost structures. In all parts of the market, low interest rates and investment returns are forcing carriers to scrutinize costs to improve return on capital, or even to maintain profitability to stay in business.

After all of the energy that companies exert to reduce expenses, there is often little energy left over to spend on strategic initiatives.

P&C carriers with lower-cost distribution models have been able to channel investments into advertising and take share, forcing competitors to reduce costs to defend their positions. Consolidation in the health, group and reinsurance sectors have forced smaller insurers to either a) explore more scalable cost structures or b) put themselves up for sale. For life and retirement companies, lower interest rates have taken a toll on the competitiveness of investment-based products.

This spells trouble for companies that have not adequately sorted out their expense structure. And a shrinking insurance company sooner or later will run afoul of regulators, ratings agencies, distributors and customers. Even if expenses are shrinking, if revenue is declining more quickly then the downward spiral will accelerate. It is virtually impossible to maintain profitability without growth. Expenses increase with inflation, tick upward with each additional regulatory requirement and can spike dramatically when attempting to meet customer and distributor demands for improved experiences and value-added services.

The reality is that companies have to grow, and that’s difficult in a mature market, especially in times when “the market” isn’t helping. What’s the key to success, then? In short, growth comes from better capabilities, service, customer-focus and products – all of which require continuing investment in capabilities.

See Also: 2016 Outlook for Property-Casualty

The math doesn’t work unless you’re finding ways to spend less in unimportant areas and allocate those savings to more important ones. If your answer to any of the following questions is “no,” then it’s important that you look at your allocation of resources for capital, assets and spending:

  • Are you making your desired return on capital?
  • Are your growth levels acceptable?
  • Do you have an expense structure that lets you compete at scale?

The transformation of insurers from clerk-intensive, army-sized bureaucracies to highly automated financial and service operations has been a decades-long process. The industry has invested heavily enough in standardization and automation that one would expect it to be a well-oiled machine. However, when we look under the covers, we see an industry with a considerable amount of customization and one-offs. In other words, the industry behaves more like cottage industry than an industrial, scalable enterprise.

We know that expenses are difficult to measure, let alone control. But why are they so intractable?

The industry’s poorly kept secret is that insurers, even larger ones, have sold many permutations of products with many different features. All of these have risk, service, compensation, accounting and reporting expenses, as well as coverage tails so long the company can’t help but operate below scale.

Why are expenses so intractable? The issue is scale.

What defines operating at scale for you? A straightforward way to answer this question is to consider whether you’re operating at a level of efficiency on par with or better than the best in the marketplace. Where do you draw the line? The top 10% to 15%? The top 20% to 25%? Next, ask yourself if you, in fact, are operating at scale. Remove large policies and reinsurance that disguise operating results, then sort out how many differentiated service models you are supporting. Are you in the bottom half of performers? Are you in the top 50% but not the top quartile? Are you in the top quartile but not the top decile?

Every insurer needs a more versatile and flexible expense structure to fully operate at scale and be more competitive.

Competition is changing

Customers now have access to a wealth of information and are increasingly using it to make more informed choices. New market entrants are establishing a foothold in direct and lightly assisted distribution models that make wealth management services more affordable for more market segments. Name brands are establishing customer mind-share with extensive advertising. FinTech is shifting the way we think about adding capabilities and creating capabilities in near real time. Outsourcers are increasingly proficient and are investing in new technologies and capabilities that only the largest companies can afford to do at scale.

See Also: Don’t Do It Yourself on Property Claims

The competitive landscape will continue to change. More products will be commoditized – after all, consumers prefer an easy-to-understand product at a readily comparable price. As they do now, stronger companies will go after competitors with less name recognition and scale and lower ratings. Customer research and behavioral analytics will more accurately discern life-long customer behavior and buying patterns for most lifestyles and socio-demographic groups. The role of advisers will change, but customers of all ages will still like at least occasional advice, especially when their needs – and the products they purchase to meet them – are complex.

Table stakes are greater each year and now include internal and external digital platforms, data-derived service (and self-service) models, omni-channel distribution models and extensive use of advanced analytics. The need to improve time-to-market has never been more important. Scale matters. Because they can increase scale, partners also matter even more than in the past. If they have truly complementary capabilities, new partners can help you improve your cost curve because you can leverage their scale to improve yours (and vice-versa).

In conclusion, all companies – regardless of scale – need to ensure that their capital and operating spending aligns with their strategy and capabilities and the ways they choose to differentiate themselves in the market. In this transformative time, the ones that can’t or won’t do this will fall increasingly behind the market leaders.

Implications: Leave no stone unturned

  • Managing expenses is a job that is never finished. Even if you’ve already looked at expenses, it doesn’t mean that you get a pass from scrutinizing them afresh. You will always have to keep rolling that particular boulder up the hill. Acknowledging that you could always manage expenses better is the first step to doing it well.
  • Identify and commit to the cost curves that get you to scale. This may require new thinking about sourcing partners and which evolving capabilities hold the most promise for the future of the company. How transformative do your digital platforms need to be? Can the cloud help you operate more efficiently and economically? How constraining is your culture, management and governance?
  • Every company needs to invest. Every company needs to be “fit for growth.” You will need to increase expenses where it helps you compete and decrease it where it doesn’t. Admittedly, this is hard to do, but the companies that don’t do it successfully will be left by the wayside.

Getting to 2020: the Finance Function

Even as economies recover, the insurance sector continues to face many competitive pressures and regulatory challenges. Yet a new drive for growth is emerging. The 2014 EY Global Insurance CFO Survey captures the priorities and challenges for finance and actuarial teams as they seek to support business growth strategies while addressing regulatory and cost pressures.

Delivering more value to the business through performance measurement and improved decision support is the top priority for the finance function through 2020. Among senior finance professionals participating in the survey, 71% indicated that “being a better business partner” ranked among their top three priorities, with 35% placing this as number one.

As insurance companies around the world continue to invest in data management and analytics capabilities, the role of finance and actuarial functions has become even more critical. The processes and systems supporting these functions are key to developing deep insights into business performance, as well as customer needs, preferences and behavior. In response, finance leaders have been increasing their efforts to improve the capabilities of their organizations to meet the new demands. In the survey, 89% of respondents stated that they have either begun a change program or are in the planning stage.

However, the drive to better insights is not without challenges. Among the issues is the impact of continuing regulatory compliance demands. According to 35% of those surveyed, implementing new regulatory and financial reporting requirements was the highest priority for finance and actuarial organizations; 56% ranked this among their top three. As a result, the ability for these organizations to strike a balance between delivering value to the business and meeting daily operational demands will continue to be a challenge.

Not surprisingly, the current data and technology footprint will require significant change to meet the challenges of the finance function of the future. Across the finance operating model, survey participants scored data as the least developed capability on average, while technology recorded the greatest gap between current and required future state.

Other Key Findings

  • Top three business drivers: #1 growth, #2 managing costs and #3 regulatory changes
  • Two-thirds of respondents rank data and technology issues among the top three challenges facing finance and actuarial functions; participants on average score data as their least developed capability
  • By 2020, the most significant shifts in maturity levels by operating model will be in data management and technology capabilities
  • Respondents expect onshore shared services to support transaction processing functions, with outsourcing selectively used for payroll and internal audits
  • Decision support and controls are expected to account for a larger share of finance and actuarial headcount by 2020

What insurers must do

We see three key areas where insurers can take action:

  • Modify current reporting processes by developing an efficient reporting solution architecture.
  • Deliver timely and relevant management information and link strategic objectives to performance indicators.
  • Improve finance and actuarial operational performance by using the right skills and processes to strike a balance between effectiveness and efficiency.

For the full survey from which this excerpt was taken, click here.