Outsourcing eases talent shortages in insurance industry
ILLINOIS, UNITED STATES — Grant Thornton Risk Advisory Director Jim Grundy believes that outsourcing and co-sourcing can solve talent shortages and rising costs in the evolving insurance market.
In a recent webinar, Grundy explained that these strategies help insurance companies leverage external expertise to achieve growth, optimize costs, and gain diversified experience.
Expected growth in the insurance industry
According to the Allianz Global Insurance Report, the insurance industry is set for significant growth, with an anticipated annual expansion rate of 5.5% over the next decade.
However, this growth brings substantial challenges, including talent shortages, rising costs, and evolving market dynamics.
To navigate these hurdles, many insurance companies are turning to outsourcing and co-sourcing as strategic solutions.
Key benefits of third-party partnerships
Grundy outlined several advantages of partnering with third-party administrators (TPAs) and managing general agents (MGAs):
- Cost savings: “Outsourcing can lead to significant cost reductions by minimizing reliance on in-house staff and infrastructure,” Grundy said. This model allows companies to access shared resources and economies of scale.
- Efficiency: Specialized third-party partners can handle specific areas, such as claims processing or underwriting, leading to improved efficiency and streamlined workflows.
- Scalability: “You can scale up and do more, and you can supplement the current expertise that you have on your team,” added Grant Thornton Risk Advisory Principal Anders Land. This flexibility enables businesses to focus on growth and strategic planning.
- Compliance: Third-party partners often stay abreast of the latest regulations and compliance requirements, reducing the regulatory burden on insurers.
Mitigating risks and ensuring data security
While the benefits are clear, Grundy also cautioned about the risks associated with outsourcing. These include potential loss of control, conflicts of interest, and data quality issues.
“Will the MGA be prudent in its selection of risks? If not, you run the risk of adverse selection and moral hazards,” Grundy explained.
To mitigate these risks, Grundy recommended thorough due diligence in selecting partners, including reviewing financial strength and regulatory compliance history and obtaining client testimonials. Contracts should also include clauses guaranteeing a right to audit, clear service-level agreements, and robust data security provisions.
Data security remains a top priority. Grant Thornton Risk Advisory Senior Associate Veronica Oswald said that insurers should “identify their own data security standards and ensure the MGA/TPA is aligned by reviewing their security protocols, including data encryption, access controls, and incident response plans.”
Outsourcing and co-sourcing offer insurance companies a pathway to navigate market challenges and capitalize on growth opportunities.
By carefully selecting partners and implementing strong oversight and data security measures, insurers can position themselves for a decade of robust expansion.
