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.
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 reductions, 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 lockdowns, permanently changed 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 18% (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. The reduced need for relocation removes a barrier, adding to the list of reasons for job switching.
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 talent as the workforce ages. This talent drain is affecting claims across the board and has had a disproportionate impact on more complex claims, such as injury and attorney-represented cases. Insurers are prioritizing meaningful loss cost containment to offset these major headwinds.
See also: 5 Key Trends at ITC
Outsourcing 2.0 to the Rescue
Property & casualty insurers are reassessing 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 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:
- The 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
- A shift from protect-and-pay insurance to avoid, detect and resolve models, which are increasing demand for outsourced services
- The overall recognition of a need to make simpler, minor claims as easy as possible and a conscious choice to trade indemnity spending to curtail loss-adjustment expenses
Furthermore, insurance organizations that possess specific expertise in specific operational areas and that have learned the “secret” of attracting and retaining highly skilled talent in the face of the workforce transformation 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 and report)
- Investigation; External SIU, records and clinical management, forensic data providers
- Evaluation; Virtual inspection tools, photo analysis, medical management, geospatial data and imagery, managed repair providers
- Negotiation; Litigation support services, vendor partner granted authority
- Finalization; 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.
See also: What Drives Claims Outsourcing
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 road maps. 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 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 a carrier’s attendant geographic claim footprint. Procurement experts are focused on partnering with firms that match these priorities.
With advances in technology come 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 compliance, cyber risk protection and business recovery requirements to compete. With new vendors, this stage of compliance can take months 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.
