Insurers that use offshore operations to cut costs do so at the expense of continued customer dissatisfaction, according to research.

Mike Havard, of offshoring consultancy CM Insight, warned a conference on offshore customer management in Prague of the "time-bomb" that companies faced if they did not address service levels.

"Service quality levels dip by 75% with offshore operations. It seems there is an accepted trade-off as long as the business keeps growing the dip in quality customer service is worth the compromise.

"But this is a time-bomb for companies. And the clock is already ticking."

He noted that almost 60% of customers said they were willing to pay more to deal with UK-based staff.

"With these offshoring operations there is no focus on customer behaviour. Service quality fails compared to onshore operations, but this is often ignored."

He also said that offshoring start-up costs were high. "Costs have generally been a third higher than anticipated, which has a knock-on effect often stifling the whole operation.

"And the realism of the business case for offshoring is often questionable in the first place."

CM Insight's research covered all financial services and all types of offshoring and outsourcing operations.

It found that the negative customer service response was the same in all cases.