Outsourcing to be treated with caution

Insurers have been warned to tread very carefully before turning to outsourcing.

Speaking at the Ins-sure Services seminar, outsourcing adviser and chairman of Orbys Consulting, Peter Nowottony, told delegates to evaluate the benefits and risks thoroughly before "opening Pandora's box".

During the event, marketing and sales director of Ins-sure Andrew Loach said that, although using a third party to control areas such as information technology had received bad publicity in the past, "if it is not on the agenda, it will be".

Nowottony added every year the outsourcing industry is growing by 30%, particularly in business processing sectors such as customer administration, human resources, accounting, claims and policy processes and back-office areas.

But he said although it could bring cost savings, help avoid the need for investments and often brought service improvements, he only advised half of his clients to pursue that route.

"The worst thing is to go out to the market and find it does not deliver savings, so you have to call off outsourcing processes," he said.

"The disruption that is caused to staff motivation and the costs and efforts involved is clearly ridiculous, so you have to do an objective evaluation of the benefits of risks to predict what is going to happen when you press that button."

Nowottony said insurers should be wary of particular suppliers that tied them into contracts where prices crept up and so should opt for termination or bench-marking target clauses.

"The real dangers are to do with suppliers' lock-ins," he said. "Sometimes you will then see complacency."

He said some of the key lessons he had learned in the outsourcing industry in the past ten years included managing communication tightly for all business managers, users and staff carefully.

Retaining a competitive element throughout was also important, but he said insurers should select a preferred supplier as soon as possible.