Functions Should Be Outsourced at Your Company

¶ … functions should be outsourced at your company (Insurance Company), how and why?

Which principles of elimination of waste and lean supply chain can you apply at your company (Insurance Company)? How and why?

Outsourcing and Lean Supply Chain Management for Insurance

The insurance industry provides an interesting test case for whether outsourcing and traditional supply-chain strategy can work for a product that is not a manufactured good at any stage. Even compared to the software or financial industries, insurance products are "virtual" and participate in few of the traditional supply-chain dynamics. However, certain patterns that obtain in manufacturing also apply to insurance, such as the "bullwhip effect" and the usefulness of outsourcing segments of the decision tree (Chase, Jacobs, & Aquilano, 2005). In particular, claims processing outsourcing has been a tremendous cost saver for medical and personal insurance. I will discuss this development, and strategic capacity management as it impacts lean supply chain in the insurance industry, below.

Outsourcing Claims Management

Recently, the insurance industry has been facing challenging times, in which intense competition, regulatory oversight, and growing payouts have threatened many firms' bottom lines. Outsourcing business processes has allowed some firms to save 30 to 40% in costs; outsourcing IT to competent offshore facilities, particularly those in India and the former Soviet republics, has proved to be equally effective in generating cost savings. Some of the functions that can be outsourced in an insurance claims supply chain are: claim setup, account settlement, validation, eligibility research, and compliance verification (ValueNotes Database, 2006). Policy management, new policy acquisition, accounting, and support can also be performed off-site. Firms that outsource these low-level tasks can refocus on high-value services like underwriting support and analytics. Since these services require certified and highly trained actuarial staff, it is important to shelter these functions from outsourcing until core competencies have been built up in offshore partners.

Strategic Capacity Management for Insurers

Capacity management in the insurance industry is regulated both by the market for insurables (in the case of title insurance) and by predictable and unpredictable world events that may result in losses (Mayer, John, & Carafano, 2009). The capacity of an insurer to apply lean supply chain principles, while at the same time maintaining readiness for natural disasters like Hurricane Katrina, is the proverbial "holy grail" that insurance strategists seek. General output requirements for insurers should be focused around the seasons and regions of greatest claim activity. For example, a national property insurer should have the flexibility to move its agents and adjustors temporarily into high-loss regions at different times of the year - e.g. To the West and Southwest U.S. during wildfire season. Efficient capacity management during high-activity periods is the key to achieving a high consistent Best Operating Level.