With the actuarial function under constant pressure, outsourcing with offshoring offers life insurers a lifeline to solving multiple back-office issues and defining a vision for the future while improving employee satisfaction. Nearshoring is a variation of offshoring where the resources reside in a time zone that better aligns with that of the client.
Outsourcing is nothing new to the life insurance industry. For many years and with varied success, companies have been relinquishing control of lower-value, noncore functions.
However, when it comes to core actuarial functions, which are integral to reserving, pricing, underwriting, reinsurance, risk and capital, these same companies have been less willing to let go of higher-value functions. Perceptions around quality, communication, integration and cost have historically been considered roadblocks.
In addition to these perceptions, the industry has found itself grappling with ever-shifting regulatory requirements, changes to financial reporting standards, tighter deadlines and the need to keep pace with new technologies. Fundamental changes in the market structure, such as the growth of private capital-backed insurers, have further intensified cost pressures.
Alongside these challenges and cost demands, the need to scale actuarial teams, access deep expertise and increase efficiency is driving companies increasingly to look outward to stay ahead of new competitive threats and meet management expectations.
While outsourcing addresses many of the challenges listed above, insurers should use this opportunity to focus on a broader solution where an entire business unit is transformed instead of taking a piecemeal approach. Nearshoring provides a further opportunity by enabling the insurer to integrate external staff with those onsite.
While integral to key aspects of all insurers’ operations, the actuarial function is also expensive to operate. Yet not all actuarial work is truly actuarial. Actuaries are often overburdened with significant stewardship activities relating to the maintenance and production of data, processes, systems and reports. Certain tedious and repetitive tasks, such as data manipulation, should instead be automated, which can be a protracted and time-consuming exercise due to the interconnectivity of the data across the organization, or reassigned to other departments, which can get political. Outsourcing with nearshoring can be used during the automation phase to free up resources. It can also be used longer term with more automation.
By outsourcing entire actuarial functions or full business units, life insurers can free up critical actuarial resources and expand their roles to allow greater focus on core competencies and high-value work. Actuarial teams will also gain increased flexibility to scale their operations quickly and easily. This flexibility can be extremely beneficial for businesses that are growing rapidly or experiencing sudden changes in demand.
Outsourcing of the actuarial function also enables established insurers to update and streamline their internal procedures, bridging the gap caused by legacy systems and reducing the costs associated with maintaining them. The support of closed legacy blocks is a prime example of how insurers can take advantage of the specialist capabilities of an actuarial outsourcing provider to drive down servicing costs and free themselves from supporting these mature product lines. Instead, insurers can concentrate their valuable (and higher-cost) actuarial resources on pursuing new opportunities with higher returns. The term co-sourcing is used when an insurer retains its senior actuaries who review and approve results produced by the outsourcing team, resulting in the insurer retaining institutional knowledge.
In summary, an insurer should consider outsourcing (or co-sourcing) when transforming its financial reporting processes, building scale as a new entrant to the industry or freeing up its actuaries to focus on value-add activities rather than mundane tasks. This latter point is critical, as it can reduce staff turnover.
Choosing the right outsourcing partner is critical to the success of your outsourcing initiative. There’s no “off-the-shelf” outsourcing solution. Each situation is unique. A more tailored approach ensures the desired result. A successful outcome requires investment from both parties, working together to build the optimal outsourcing partnership. When assessing options, an insurer will want to consider a potential provider’s industry expertise, scalability, compatibility and proximity to offshore staff.
The right outsourcing partner should have extensive experience and a proven track record in developing successful outsourcing arrangements. It should provide guidance on efficiencies that can be gained. It should have the bench strength to surge when additional capacity is required and the expertise to execute effectively. It should have the actuarial and product expertise to redesign and build robust and efficient processes. Finally, it must consistently deliver a high-quality service that’s sustainable over the long term.
While there are major upsides, the opportunity to realize more for less from the actuarial function should be tempered by some common challenges that can arise from outsourcing. The insurer must view an outsourcing arrangement as a major operational change and a long-term commitment between two parties that can tackle the challenges together. Communication to retained staff is also critical to ensure turnover isn’t exacerbated. The right outsourcing partner is just that — your partner.
The outsourcing team will ideally consist of a mix of onshore local expertise — capitalizing on relevant market knowledge and geographical proximity for close collaboration on core business tasks that have a higher degree of complexity — with highly skilled offshore resources that offer cutting-edge technologies and improved customer service capabilities at lower operational costs. Nearshoring offers the further benefit of offshore staff also residing in close geographic proximity to the insurer, enabling collaboration and interaction with the insurer’s actuaries during normal office hours. This hybrid model allows companies to tap into a diverse pool of talent both locally and internationally, ensuring the right expertise is accessible for all aspects of their projects.
WTW supports many U.S. clients that outsource with nearshoring. These arrangements are staffed using the capabilities of WTW’s dedicated Actuarial & Analytics Center (AAC). The AAC is WTW’s Mexico City-based, insurance-focused group of more than 50 specialists, which has been in place for a decade and delivers scale in the same time zone for nearshoring arrangements.
A large life insurance company was devoting too many valuable resources to financial reporting and the challenge of keeping pace with shortening regulatory timescales. Its goal was to increase its operational efficiency for specific business units, allowing teams to scale at short notice and dedicate greater focus to other more strategic targets. It also wanted to improve its financial reporting processes and readiness for new financial reporting requirements.
The company selected WTW as its co-sourcing partner. WTW provided nearshore resources to perform BAU tasks associated with financial reporting for a line of business and to free up company resources to work on transformation. The company retained its senior actuaries to provide continuity and approve results. Since they no longer performed routine tasks, their job satisfaction increased greatly.
The co-sourcing support provided by WTW included:
U.S. subject matter expertise was provided as required by onshore staff, combined with the use of senior offshore resources at the start of the project, ensuring processes were effectively transferred. The use of junior offshore resources also provided a cost-effective solution to perform the work.
A deliberate transition plan that included training and parallel runs for one cycle before WTW took control of the processes, combined with clear and detailed scoping of the processes that were transferred to WTW resources, ensured WTW was able to partner seamlessly with the client.
With WTW’s dedicated AAC based in Mexico City, the client benefited from frequent, real-time communication and a faster response to address time-critical issues and resolve queries promptly.
The work undertaken by WTW was completed with such efficiency that fees were materially under budget every quarter. The client experienced a significantly reduced administrative burden and improved operational efficiency, with the client’s in-house staff able to focus efforts on the more complex objectives that added value and moved the insurer’s business forward.
As legacy insurers and start-ups compete for market dominance, outsourcing is fast becoming a game changer. In a world where speed, efficiency and expense management are essential — and business, regulatory and technological challenges are becoming more complex — outsourcing has become an increasingly attractive option for companies looking to address resourcing needs in response to the rising demand for actuarial skills.
While there are challenges to consider, outsourcing offers a powerful solution for insurers looking to retain margins through access to lower-cost talent pools, innovate quickly, and respond to rapidly changing market conditions and management expectations. Outsourcing also helps established companies to move beyond old infrastructure, achieve economies of scale and focus more on their business priorities to achieve the highest return possible from their actuarial talent. By leveraging the specialized resources of the right outsourcing partner, life insurers not only stay afloat in the sea of change by optimizing costs and minimizing risk but also ultimately drive business success in a competitive landscape.
