January 24 2012

In 2005, outsourcing meant only one thing to insurance agencies – augmenting staff with onshore or overseas personnel. In the years since, outsourcing options have evolved to serve a much broader range of agency needs, from scalability and cost to addressing entire business functions that were previously unprofitable.

The Infancy of Agency Outsourcing

In ’05, innovative insurance agencies saw the value of outsourcing within the industry, but the applications weren’t immediately clear. Overseas call centers were gaining popularity as companies from a variety of industries began to find offshore staff to replicate the activities of domestic staff, albeit at a lower cost. The earliest model adopted by agencies was staff augmentation (also called remote staffing), which mirrored other industries. Large agencies began building overseas facilities of their own, but for smaller agencies, independent vendors began offering solutions. It didn’t take long before “early-adopter” agencies began seeing outsourcing success.

But agencies soon outgrew that model. Their specialized needs were pushing the limits of what was possible in the initial wave of outsourcing solutions. An evolution of outsourcing options began, driven by the unique needs of the agency business.

Agencies recognized the need for scalable capacity to meet the seasonal cycles of their business and soon saw that the staff outsourcing model is challenged in that regard. That model is based on the “resource” rather than results, and one person, onshore or offshore, has a limited capacity. So if an agency had one remote staff person, and only needed 80% of that person’s capacity, everything was fine. But if 110% was needed, the agency needed to buy another “unit” and be faced with 90% idle time. Another challenge was “squeezing the balloon.” During a renewal season, a remote staffer may be asked to spend more time on working directly with clients, abruptly limiting the time available to produce certs, endorsements or any other work that still needed to be completed.

Cue the Shift to Paying for Results Rather than Resources

For many agencies, remote staffing eventually led to the same challenges of managing people and resources they had before outsourcing. Enter process outsourcing. Rather than asking a vendor, “Can I have three offshore, back-office staff persons to work on my business?,” the agency could make a much more specific request.  By choosing from a menu of services (“I need cert issuance, endorsement processing and policy checking”), the agency was now able to purchase outsource services in terms of output, not resources.

This changed the game by putting the onus of hiring, training and managing staff on the vendor who was now responsible for delivering a specific set of workflow outcomes to the agency. Process outsourcing excelled in its efficiency, account managers and CSRs could send work requests to the vendor and get the output they need, all within an agreed-upon time frame.  As the spectrum of processes moved from basic data entry to work that required U.S. insurance experience, vendors began to provide both domestic and offshore options. Best of all, these processes were billed “by the piece” or hourly “on-demand.” No more paying for unused capacity.

The unforeseen, and perhaps most valuable, benefit of process outsourcing was that it made outsourcing much more palatable to agency leaders. Rather than “replacing staff,” they found they were augmenting existing staff; reducing the burden of unwanted tasks and allowing the account team to focus on higher value activities.

Today, Tomorrow and Beyond

Successful agencies have been realizing the benefits of both staff and process outsourcing for years. Today, the most innovative agencies are stretching the boundaries once again; building Managed Service solutions in which they outsource entire business objectives to a vendor. Imagine taking a time-consuming or unprofitable piece of the agency and hiring a vendor to manage it to an agreed upon result. Managed services can create new revenue streams for agencies, build new practice areas or organically grow accounts. It’s a new frontier for agency outsourcing, driven by those agencies that recognize the need to stay a few steps ahead.

So what’s next? Innovative agencies will continue to push what’s possible, develop new ways to manage resources, and evolve the industry.