The Financial Case for Outsourcing: How MGAs, E&S, and Carriers Can Save Big
In today’s competitive insurance landscape—whether you’re an MGA, a carrier, a retail agent, or yet another acronym that often requires explaining—success depends on more than just cutting costs. It calls for thoughtful, calculated moves that boost both efficiency and resilience. While technology continues to shape the industry through automation, AI, and machine learning, the need for human expertise in daily operations remains essential. Despite the surge in technological advancements, one of the most impactful solutions for operating more effectively is right at our fingertips: outsourcing.
There are roughly 1,500 Insurtech companies sell intelligence. With a current US Market valuation of 49.2 billion and projected to trend up to approximately 67 billion by 2029 (Mordor Intelligence), they are all attempting to revolutionize the industry via automation, AI, and Machine learning technology. The stratospheric jumps are impressive, but we are far from replacing the human interactions needed for day-to-day business.
While technology will shape how we move forward as an industry and societally, one of the simplest and most understated solutions to doing business better is right in front of us: outsourcing.
Labor Cost Reduction: Your Bottom Line’s New Best Friend
Labor costs typically dominate the budget in insurance organizations, representing about 50-60% of operating expenses. For MGAs and carriers, roles such as administrative support, underwriting, and data processing take up a significant portion of this expenditure. By outsourcing these functions, organizations can unlock significant cost savings. Deloitte reports that outsourcing can reduce labor expenses by an average of 20-30%, and for insurance-specific roles, the savings can be even more impactful (Deloitte Global Outsourcing Survey 2022).
Consider a data processing role that might cost $50,000 to $70,000 annually in the U.S. Outsourcing this function to regions like Serbia—where professionals are highly skilled and fluent in English—can yield up to 60% savings while maintaining quality. This shift to outsourcing critical but time-consuming tasks directly impacts the bottom line without sacrificing operational integrity.
Overhead Reduction: Streamlining Operational Expenses
The recent shift to remote and hybrid work has shown that physical office space is not always essential to success. Research from Global Workplace Analytics reveals that companies save an average of $11,000 per employee by embracing remote work and reducing costs associated with office space, equipment, and utilities (Global Workplace Analytics). For insurance organizations, outsourcing offers a unique advantage in minimizing overhead by reducing the need for physical expansion and the associated costs.
By blending a work-from-home structure with an outsourced team, companies can better manage their physical and operational footprint, saving up to 30% in operational costs. Importantly, this approach does not suggest replacing existing employees but instead aims to optimize internal resources by redirecting team efforts to high-value, revenue-centric tasks. When used effectively, outsourcing can delay, if not eliminate, the need to expand costly infrastructure.
Boosting Efficiency and Productivity: The Underrated Advantage
While cost reduction is a significant benefit, outsourcing offers much more, especially regarding efficiency. By delegating repetitive, lower-value tasks to external teams, in-house teams can dedicate more time to strategic, high-impact work. Studies from the National Bureau of Economic Research show that outsourcing can improve productivity by 10-14%, an advantage that brings measurable value to insurance operations (The National Bureau of Economic Research).
Outsourcing’s impact on productivity doesn’t end there. It allows specialized expertise to be utilized where it’s needed most. Research from PwC highlights that 59% of companies outsource specifically to access this level of knowledge, empowering internal teams to refocus on core business activities like underwriting and client relationships (PwC Outsourcing Report). This realignment enhances overall productivity and improves employee satisfaction, as Gallup research has shown that engaged employees are more committed and less likely to seek other opportunities.
Focusing on Core Strengths and Retaining Talent
Outsourcing goes beyond operational adjustments—it’s about allowing your internal team to concentrate on what they do best. In the insurance industry, every hour spent on data entry or administrative work is an hour that could be better used in underwriting, product innovation, and relationship-building. By outsourcing, teams gain the time and focus needed to pursue growth initiatives that matter. PwC’s studies reinforce that 59% of companies rely on outsourcing to secure specialized expertise, enabling their teams to concentrate on the essential, high-value areas that drive growth. This also supports job satisfaction, as highlighted by Gallup's studies, where employees focusing on engaging work show a more substantial commitment and are less inclined to leave.
Flexibility and Agility: Scaling Without Stress
For MGAs and carriers that experience seasonal demand fluctuations, such as surges in claims or new policy enrollments, outsourcing offers invaluable flexibility. According to PwC’s 2023 study, outsourcing provides an adaptable workforce, allowing insurance organizations to scale operations quickly and efficiently (aPwC 2023 Insurance Outsourcing Study). This ability to adjust workforce size without the delays of traditional hiring or layoffs ensures that client needs and peak workloads are met seamlessly.
Sustainable Savings: Reducing Your Environmental Footprint
In addition to financial and operational advantages, outsourcing brings sustainability gains. Companies can significantly reduce their carbon footprint by decreasing the need for physical office spaces and on-site teams. The International Finance Corporation’s recent report shows that outsourcing to remote teams can reduce corporate emissions by as much as 20% annually in specific industries, a vital factor for firms committed to environmental, social, and governance (ESG) standards (International Finance Corporation Report 2022).
Long-Term Gains in Short Order: The ROI of Outsourcing
If done strategically and effectively, the ROI for outsourcing can be between 30-50% within the first year alone. Outsourcing means teams can redirect their efforts to strategic, revenue-generating activities for the insurance sector, pushing forward profitability and growth. Over time, outsourcing supports growth, boosts efficiency, and strengthens teams for long-term success.
SparrowHawk Group is committed to helping organizations assess the benefits of outsourced work and partnering with industry experts. Regardless of the scale, specialization, or department you’re interested in supporting, SparrowHawk has a solution that improves business.
References:
Deloitte Global Outsourcing Survey 2022.
Gallup Employee Engagement Study
Harvard Business Review. (n.d.).
The ROI of Outsourcing: Long-Term Gains in Short Order.International Finance Corporation. (2022).
Remote Outsourcing and Corporate Emissions Report.Mordor Intelligence.
United States Insurtech Market - Market SizeNational Bureau of Economic Research. (n.d.).
Outsourcing and Productivity StudyPwC. (2023).
PwC Insurance Outsourcing Study.Global Workplace Analytics.
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