- Where Insurance & Technology Meet

Outsourcing 2.0: Suddenly A P&C Best Practice For A New World

by Stephen Applebaum and Alan Demers

We have all been living through a period of intense uncertainty for almost three years and the pace of disruption shows few signs of slowing; instead it is morphing.

Our New World

The degree to which the post-COVID world in which the Property & Casualty insurance industry operates has changed, and how quickly, cannot be overstated. The impact has been pervasive and has affected the entire social, economic and political world in which we live and work. Nothing and no one have been spared.

Inflation, both social and economic, emerged suddenly this year and has driven up insurance claim costs and severity with no end in sight, causing insurers to play “catch up” through double digit premium increases and extreme overhead reduction actions, including downsizing of both physical facilities and workforce while simultaneously struggling to find talent for open positions.

Workforce Transformation

The American workplace is also in extreme flux. Work From Home (WFH), originally a rational response to COVID lock downs, permanently changed and crystalized perceptions of how work can get done. For many workers, that necessity has become a preference and a whole new lifestyle. Even today, workplace occupancy is approximately 50% of pre-pandemic level. Between 2019 and 2021, the number of Americans primarily working from home tripled from 5.7% (roughly 9 million) to 17.9% (27.6 million), according to a 2021 American Community Survey (ACS) estimate released by the U.S. Census Bureau.

Add to this the impact of the Great Resignation in which employees have voluntarily resigned from their jobs en masse, beginning in early 2021 in the wake of the COVID-19 pandemic. Among the most cited reasons for resigning are wage stagnation amid rising cost of living, limited opportunities for career advancement, hostile work environments, lack of benefits, inflexible remote-work policies, and long-lasting job dissatisfaction. Many have expressed today’s ease in switching companies as job location and relocation is no longer a barrier, adding to the list of reasons. Quiet quitting has further exacerbated the complication for employers.

At least half of the U.S. workforce is “quiet quitting,” according to Gallup. These workers are still fulfilling their basic job duties—but they’re no longer willing to put in extra (unpaid) hours, take on new duties or “step up for the team.

Insurance claims organizations are facing high turnover rates while losing seasoned and experienced talent as the workforce ages.  This talent drain is impacting claims across the board and has had a disproportionate impact on more complex claims, such as injury and attorney represented cases. Thus, insurers are prioritizing their focus on meaningful loss cost containment to offset these major headwinds.

Outsourcing 2.0 to the Rescue

All of these factors have caused Property & Casualty insurers to reassess their operational strategies, especially around cost management and workforce reductions and shortages, both voluntary and involuntary. Digitization and automation of claims processes is somewhat a modality of outsourcing where enabled customer self-services replace claim adjuster functions. Photo inspection and estimating with AI is just one, albeit significant, example.

While technology and automation efforts are showing progress, there has not been enough to address increasing service demand. Outsourcing is a viable operational solution, but not in the way that we may remember it. Outsourcing is nothing new in the insurance industry. In fact, insurance has led the way in many respects, adopting and relying on vendor partners to address a wide variety of business tasks, processes and claim related customer services over the past 20 years or more. These have included professional, IT, project, process and operational outsourcing as well.

Whether you call it contracting or parceling out, subcontracting, consigning, relegating or handing over, a new paradigm, “Outsourcing 2.0” has suddenly become opportune for P&C carriers seeking to address the impact of all of these “new world” realities. Outsourcing 2.0 is deeper and broader reliance on a combination of technology and vendor partners spanning more sophisticated incumbents, newer and start-up companies alike. Today’s insurance ecosystem has advanced to deliver capabilities such as shared responsibility for managing loss costs via partnerships which has traditionally been considered off limits or only performed with significant oversight by carriers. Outsourcing 2.0 is inspired by:

  • Push toward automation of underwriting and claims processes, touchless, straight-through-processing
  • Insurtech influences in which insurance models are birthed digitally and thus offer digital native claims experiences but also rely on outsourced support
  • Shift from protect and pay insurance to avoid, detect and resolve models are increasing demand for outsourced services
  • Overall recognition to make simpler, minor claims as easy as possible and a conscious choice to trade indemnity spend to curtail loss adjustment expenses

Furthermore, insurance organizations who possess specific expertise in specific operational areas and who have learned the “secret” of attracting and retaining highly skilled talent in the face of the workforce transformation described earlier, have realized the opportunity to offer these services to the marketplace as a new revenue center in an outsourcing model.

Leading Areas of Outsourcing Opportunity

There are several specific areas of interest from carriers seeking to quickly lower operating costs while improving claim outcomes, including policyholder satisfaction across the entire claim process:

  • Loss Intake; Apps, on-line tools, external Contact Centers, partner vendors (detect & report)
  • Investigate; External SIU, records and clinical management, forensic data providers
  • Evaluate; virtual inspection tools, photo analysis, medical management, geospatial data and imagery, managed repair providers
  • Negotiate; Litigation Support Services, vendor partner granted authority
  • Finalize; Digital payments, external subrogation firms

Other forms of outsourcing include training and upskilling typically sourced and managed internally by carriers. And, on the cutting edge are examples such as digital claim platform providers, essentially managing all or most of the claim on behalf of carriers. While outsourcing of these core areas is not entirely new, the degree, scope and external reliance is expanding rapidly and is reshaping claim adjusting, especially in personal lines.

Vendor Partner Selection

Selecting and managing vendors has always been an important decision for any carrier. Today, vendors are often viewed as partners, especially when it comes to security and privacy management or developing future-forward roadmap solutions. It’s no longer a buy and supply relationship for many providers and carriers alike. Forging partnerships have become a critically important strategy in business in general and specifically in effective cost containment, making partner selection more critical than ever.

Changing Vendor Partner Marketplace

In addition to the shift from a vendor to partner relationship, the vendor space is changing as well.  Venture capital backed consolidation, advances in technology investments and growth due to carrier outsourcing are most pronounced. Within the injury claim investigation and evaluation space there is consolidation among records management, investigation firms and medical management companies while many remain regional and state specific. Meanwhile, carriers are increasing their appetite to outsource, automate and provide more tools to adjusters. This coincides with the aforementioned claim adjuster talent war and acceleration of retirements during the Great Resignation. However, insurers demand efficiency without sacrifice to claims management quality, namely the ability to manage loss costs effectively. Vendors capable of offering national or multi-regional coverage is a must have when competing for carrier’s attendant geographic claim footprint. Procurement experts are focused on partnering with firms which match these priorities.

With advances in technology comes the need for tighter controls, security and privacy. Vendors manage an array of private, personal identifiable information and sensitive data when it comes to legal, medical and claim investigation materials. The vendor partner of today, must meet stringent SOC compliance, cyber risk protection and business recovery requirements on an ongoing basis in order to compete. When working with new vendors, this stage of compliance can take months of time to review and satisfy.

Outsourcing has moved front and center as the industry transforms to manage today’s new realities. Partnerships with fully integrated national service and technology providers possessing deep expertise in claims management, training, contact center operations, medical, record and investigation management bolstered by powerful new technologies will be the hallmark of the insurance market leaders of the future.

About the Authors

Stephen E. Applebaum, Managing Partner, Insurance Solutions Group, is a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the entire North American property/casualty insurance ecosystem focused on insurance information technology, claims, innovation, disruption, supply chain, vendor and performance management. Mr. Applebaum is also a Senior Advisor to Waller Helms Advisors.  WHA is the premier investment banking boutique focused on the crossroads of the Insurance, Healthcare and Investment Services sectors.

Stephen is a frequent chairman, guest speaker and panelist at insurance industry conferences and contributor to major insurance industry publications and has a passion for coaching, mentoring, business process innovation and constructive transformation, applying disruptive technology, and managing organizational change in the North American property/casualty insurance industry and trading partner communities. He can be reached at [email protected].

Alan Demers is founder and president of InsurTech Consulting LLC, with 30 years of P&C insurance claims experience, providing consultative services focused on innovating claims. After initiating and leading claims innovation at Nationwide, Demers collaborates in the forefront of InsurTech, partnering with insurance leaders, startups, design thinking experts and service providers to modernize personal, commercial and specialty claims.

As Vice President of Claims Innovation at Nationwide, Alan conceptualized a vision and road map to build next-generation claims, automating and digitizing claims experiences, progressing from inception through prototype testing. He served as a founding member of the Corporate Innovation Council and played a key leadership role in establishing goals, practices and an innovative culture at Nationwide.

Alan is an accomplished executive leader and has worked for two separate Fortune 100 insurance companies in a number of corporate, national and regional leadership roles among personal, commercial, non-standard and specialty lines claims. Prior to leading claims innovation, he served as head of claims for Nationwide’s commercial agribusiness and non-standard claims. Other noteworthy roles include: field vice president, regional claims officer and national catastrophe director, quality assurance director.

Alan began his career with Aetna as a claim adjuster and advanced to a corporate claim consultant, prior to joining Nationwide in 1995.