The concept of business disruption caused by outsourcing is hardly new. Until recently workers in the insurance sector may have believed that they were relatively immune. But the truth is that insurance seems to lend itself rather well to more flexible business arrangements.
The pandemic-induced work-from-home culture has caused many businesses to reassess which functions can successfully be performed remotely – and it is only a short step from ‘remotely’ to ‘outsourced’.
Readers of Asia Insurance Review will not be entirely surprised to read of further moves towards the entry of the gig economy into insurance. Back in the middle of 2019 we covered the emergence of Singapore start-up Actuaries On Tap, which is a textbook case of the gig economy moving in on the insurance sector. The business does precisely what its name suggests – offers high quality actuarial support when it is needed on a bespoke basis.
Of course it is not just the insurance sector that will see such a shift – all sectors of finance seem ripe for change. A recently published report from PwC seems to confirm the gig economy trend. The consultancy estimates that while gig-economy talent makes up around 5% of the current financial services businesses workforce, in the next five years such workers will perform between 15% and 20% of the work of a typical institution.
According to the report the main drivers of this change are “continuous cost pressure and the need to access digitally skilled talent”.
The first of these drivers is particularly relevant for the insurance sector where compliance and capital adequacy requirements present enormous cost pressures – especially for the very large multinational groups - whilst simultaneously restricting their use of capital. As insurers raise their prices to offset the rise in their costs, the opportunities for competition increase.
It is just such pressure that has led to the increase in popularity of coverholders – or ‘managing general agents’, in the jargon - that may provide full underwriting and claims management services at a lower cost than traditional insurers. Third party administrators would fall into the same category, covering jobs that could be outsourced when insurers are under pressure to keep their headcount low – much like plain-vanilla claims administrators.
The harder we look the more we see that the insurance business seems like it was made for the gig economy. It would probably be hard to name an insurer with significant assets under management that did not outsource at least part of its investment management to a specialist in fixed income, or international equities, or emerging markets, or alternative investments.
The job of the insurance asset manager has been made immeasurably harder by the Fed’s lower-for-longer strategy – forcing these asset managers to use increasingly daring measures in their search for yield. Inevitably this means engaging specialist asset managers for certain classes of investment.
If we include the realm of corporate communications and marketing – which insurers, reinsurers, brokers and others have been outsourcing in part or in whole for many years – and add it to the cabal of commission-only sales agents then the focus might realistically shift onto which parts of the insurance chain cannot be outsourced rather than which ones can.
It would be interesting to take a snapshot of the industry today and compare it to the way it looks in three years’ time because all the signs are that we are in for a period of significant turmoil – and not all of it will be driven by technology.
Asia Insurance Review