OUTSOURCING MORE COMMON

Property/casualty and life/ health insurers consider nearly every one of their core and non-core operations-from loss control to employee fitness facilities-a candidate for outsourcing, according to Ward Financial Group.

Over the past six years, insurers gradually have been increasing the number of functions they outsource, said John L. Ward, chairman of Ward Financial, a Cincinnati-based insurer management consulting firm.

Outsourcing, though, is not always the best practice for insurers, he advised.

A benchmarking study involving a total of 100 property/casualty and life/health insurers shows that insurers are "outsourcing everything," Mr. Ward said.

"The traditional functions that companies considered outsourcing tended to be data processing oriented," he said.

"This study points out the full breadth of that trend" in recent years, he said. "Virtually every function in a company today can be outsourced."

But, the degree to which insurers farm out their various operations to vendors varies substantially from one function to another.

For example, nearly all study participants-97%-outsource their disaster recovery programs, while only 2% entrust their internal auditing function to outside vendors.

Among the insurers' core operations, loss control is outsourced by slightly less than half-47%-of property/casualty insurers participating in the benchmarking study.

Just over one-fourth of the property/casualty insurers outsource their claims adjusting operations.

A substantially larger percentage of the life/health insurers-46%-outsource their actuarial functions than do property/casualty insurers-13%.

Only 3% of the study's participants outsource their entire information systems function.

The study showed that the level of outsourcing of some non-core business functions varies considerably as well.

For example, between two-thirds and three-fourths of the study's participants outsource their security, janitorial and cafeteria functions.

But, only one-fifth of the participants outsource their print shops, one-third outsource their building maintenance and just under half outsource their employee fitness facility operations.

Ward Financial has not completed its analysis of which functions are most suitable for outsourcing, but it has determined that some insurers are making wiser outsourcing decisions than others.

For example, 86% of the study's participants outsource their employee benefits administration function. Ward Financial considers that move a best practice because the function is not part of many insurers' core business.

However, Mr. Ward said that outsourcing the loss control function is not a best practice.

Farming out that function may minimize its cost, he acknowledged. But, insurers that outsource likely will find that giving up control over that function will hurt its effectiveness.

The benchmarking study involved a total of 75 property/casualty insurers, including 20 from the Ward's 50 group, and 25 life/health insurers, including six from the Ward's 50 group.