Outsourcing: The Smartest Cost-Saving Move Insurance MGAs and Carriers Can Make

Written By Josh DeRocco

In today’s hyper-competitive insurance landscape, MGAs and carriers know that achieving success isn’t just about cutting costs like switching coffee brands or creating monthly mailers for insureds to sign up for their going paperless initiative—it’s about making intelligent, strategic moves that boost both resilience and efficiency. Approximately 1,500 Insurtechs in the industry make up about 49+ Billion annually and are anticipated to grow to upwards of 66-70 billion within the next five years.

Source: TechMagic

While technology has brought incredible tools to our industry, from AI to machine learning, we still have a long way to go before human expertise and interaction become replaceable in day-to-day operations. I’m sure many of us appreciate it because the conference locations lately have been quite enjoyable, and I’ve yet to find a chat GPT bot that can mix a proper old-fashioned.

Indications point to the reliance on sweat equity and human discernment being a viable long-term asset for years to come. While each of the roughly 1,500 companies is offering a unique and innovative tool, methodology, or widget des jour, one of the proven smartest and simplest opportunities to maximize cost-efficient gains for insurance teams is often understated or not discussed altogether.

The solution is outsourcing.

Labor Cost Reduction: Immediate and Powerful Savings

Labor is often the most considerable cost for an insurance company, consuming around 50-60% of a budget, especially in roles like data processing, administrative support, and underwriting. While these functions are essential, they’re also repetitive and time-consuming—making them prime candidates for outsourcing.

Outsourcing allows companies to maintain quality and expertise at a fraction of the cost. For example, a data processing role that might cost $50,000 to $70,000 annually in the U.S. can be outsourced for up to 60% less by partnering with talented professionals in regions like Serbia, where English proficiency is high and industry skills are on point. Deloitte’s studies indicate that companies save an average of 20-30% by outsourcing labor, which can climb even higher for the insurance industry. Consider what a 60% savings on those functions could mean for your company’s bottom line.

While many immediately have a “knee-jerk” reaction to the notion of outsourcing as diverting jobs or American employees in favor of foreign workforces, it has been shown historically to be quite the opposite.

Overhead Reduction: Shrinking Operational Expenses

The overhead of office space, equipment, and utilities can weigh heavily on an organization’s budget. The recent shift to remote work has shown many companies that they don’t need as much physical office space to succeed. According to Global Workplace Analytics, remote work saves companies an average of $11,000 per employee, and adding outsourcing to this equation reduces the need for any physical expansion altogether.

By embracing a hybrid model where some tasks are outsourced, companies can achieve up to a 30% reduction in operational costs. For MGAs and carriers, these savings go directly to the bottom line without the need for drastic measures like reducing core staff. Instead, internal teams can be refocused on revenue-centric tasks that align directly with growth and client engagement.

Improved Efficiency and Productivity: An Underrated Advantage

Of course, cost-cutting is only one part of the outsourcing equation. Delegating time-intensive, low-value tasks to an outsourced team gives in-house talent the bandwidth to focus on higher-impact projects. Studies from the National Bureau of Economic Research back this up, showing a 10-14% productivity increase when companies shift lower-value tasks externally.

At SparrowHawk Group, we often see this benefit firsthand. When our clients reallocate tasks like data entry and administrative work, it frees their teams to drive meaningful progress in core areas like underwriting and relationship-building. And that’s not just better for the company’s bottom line—it boosts employee engagement and retention. Gallup’s research confirms that employees who focus on meaningful work are likelier to stay, which can save companies even more in turnover costs.

Flexibility for Seasonal Demand

Insurance is a seasonal industry, with surges in claims and new policies that demand agility. Bringing on new hires to meet a temporary spike is costly and cumbersome, while layoffs during slower periods are disruptive. Not to mention the onboarding, decreased efficiency in that initial hiring phase, and hidden 20-25% cost of benefits on top of salaried employee wages. We often accept the fate of seasonal ebbs and surges that come with renewals and other periods in insurance. We know the knee-jerk reaction of a hiring spree would inevitably cause more harm than good if not correctly forecasted. Outsourcing allows companies to adjust workforce size and attention to tasks quickly.

According to PwC’s 2023 study, this scalability is a crucial advantage for MGAs and carriers who face fluctuating demands. Outsourcing offers flexibility without the financial commitment of long-term hiring or the negative morale impact of layoffs. Instead, it provides a stable, cost-effective way to stay responsive to market needs.

Long-Term ROI and Sustainable Savings

Finally, there’s the ROI factor. Harvard Business Review reports that outsourcing can deliver a 30-50% return on investment in the first year alone. When companies reallocate resources toward revenue-generating and client-focused activities, the long-term growth benefits multiply.

At SparrowHawk Group, we are emphatic about being utilized as an ROI tool over a cost-cutting measure. Our goal is never to displace teams; envision our teams as a displacement but an extension to supplement your current workforce. Properly implementing a skilled outsource team specialized in insurance operations like SparrowHawk’s can maximize Revenue per employee metrics, delay expensive office builds significantly or even inevitably, and create a culture within your existing team that is focused on more intentional, relationship-centric business that leaves clients and employees alike more satisfied in their daily efforts. Free up internal teams, empower them to focus on high-impact work, and push profitability forward. For MGAs and carriers looking to save on labor, overhead, and operational expenses, outsourcing is more than a cost-cutting strategy—it’s a growth engine.

References:

Josh DeRocco
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