Annie Norman explains the benefits of using contractors and consultants
The insurance market has always relied on external support of one type or another since its inception. Loss adjusters, claims handlers and other insurance specialists provide key services to the market.
In addition, many other types of advisory professionals now work in the industry, such as management consultants, PR consultants and risk consultants.
External support can provide skills not available or affordable in-house, and their use can be used to mitigate financial and other commitments when flexible resourcing is needed.
Buying in external support shouldn't be viewed with fear by insurers and brokers. It's how to get the right support for what is needed that can be tricky.
For this reason, before we look at consulting and contracting in the market, it's important to outline the distinction between consultants and contractors.
In short, consultants are employed to help solve a specific problem. In contrast, contractors are effectively hired helpers, which have to be managed.
Companies working in the insurance market need to understand the pros and cons of using external support before electing to engage either consultants or contractors.
Generally speaking, consultants are used when there is a shortage of resources internally, if there is a lack of the right skills internally or if there is a need for an external perspective on a specific issue or challenge facing your business.
Consultants tend to be more expensive than contractors, but good ones will normally view skills sharing with your in-house team as a natural part of their remit. The benefit of this is that when they leave, your in-house team is more skilled .
But if developing your company's knowledge base is not immediately important and a role needs to be filled quickly, it's worth considering a contractor.
As with any new team member, insurers and brokers also need to consider the effect that bringing in external staff will have on the existing team. Contractors or consultants
on-site can upset the status quo of the permanent members of staff. In many cases, this is due to the difference in remuneration.
Hired help normally costs more than a member of staff, and this factor needs to be properly budgeted for.
However, there are some very recognisable benefits to using external support. The most commonly-quoted benefit is flexibility. This applies to a broad range of issues, notably timescales, cost and headcount issues.
There is also a strong cost argument to insurers and brokers using outside help. Using this floating workforce means companies are effectively buying in the required skills only when needed, as well as reducing their tax and national insurance liabilities.
This 'virtual' business model also generates some significant positive side-effects for those firms which choose to implement it, not least the unbiased nature of buying in external skills. External workers have less emotional commitment to the organisation than their full-time counterparts, so they may be able to bring an independent and unemotional perspective to problems and evaluate a variety of potential solutions.
Business heads should be looking for this kind of independence from their contractors and consultants, and should view it as one of the most important benefits of using these types of supplier.
Looking at the contracting market specifically, rather than the broader category of 'external support', contractors are most often used by the insurance companies whose employees lack the ability or time to do the job at hand.
These types of roles are usually project or knowledge-specific, with a defined beginning, middle and end. The company buys in the required skills and/or expertise for a limited period of time.
As the insurance industry goes through unprecedented change, it is more important than ever that insurers adapt and change to meet the new challenges ahead.
While client retention and acquisition remain priorities for many of the larger insurers and brokers, pressures are further brought to bear through greater regulation and the changing methods of conducting business.
Some of the skills required by these factors are considered to be niche qualities and only required periodically, for example skills relating to regulatory issues, compliance, outsourcing or offshoring.
The broker market - especially the UK regionals - has not been affected by these factors to the same degree as the major insurers. There have been few major announcements regarding brokers moving call centres offshore, for instance.
Still, brokers would be advised to plan for change, and to expect that the broader macroeconomic picture will affect the way they do business themselves.
In time, smaller players will face the same cost pressures that the bigger organisations are currently trying to come to terms with. An example of this is the new London market broker, Oxygen, in which outsourced support services are central to its model.
Using contractors to fill gaps gives brokers a great deal of flexibility in their HR requirements. Their services can be terminated at short notice with a limited financial penalty if the market or company situation changes quickly.
For insurers, the salaries for UK commercial underwriters have seen above average rises as a result of the lack of a large enough candidate pool. With the increased competition for these skills sets insurers will turn to external support - possibly to former underwriters - to fill the skills gap. Job cuts in the broker market could also lead to more contractors working in that market.
In any event, we should expect a broader use of a more flexible skills market across the insurance industry, as the new entrants operating 'virtual' business models exacerbate the cost pressures on the incumbents. IT
' Annie Norman is managing director of ResourceCo, a Troika company