By Michael Mitterer. The new regulation of Section 203 of the German Criminal Code (Strafgesetzbuch, StGB) for the transfer of private data to third parties also opens up new perspectives to insurers in the outsourcing of administrative processes. This paragraph ensures the protection of private confidential information against unauthorised disclosure by members of certain professional groups who are entrusted with it as part of their activities.
In addition to doctors, lawyers and tax consultants, insurance company employees often have access to such information. In this context, medical data is particularly sensitive and any dissemination of this data requires the explicit consent of both the insured party and the applicant. This has certainly, in the past, deterred insurers from outsourcing their administration processes to external providers, particularly in the case of closed books, where the administration costs are generally too high.
In June, however, the Bundestag (the German parliament) decided on a new regulation of this section which will make it significantly easier for insurers to use third parties such as external service providers in the future. The draft government bill states: "In recent decades, digitalisation in particular has made it both possible and necessary to make greater allowance for support activities to be carried out not only by a company’s own staff, but by other specialised companies or self-employed persons as well." It is anticipated that the law will come into effect in September.
According to the new regulation, external service providers may receive sensitive data if this is necessary for providing their services. They will then be regarded as so-called ”contributing persons” and will, consequently, be liable to criminal prosecution if they pass on, without authorisation, personal data entrusted to them. It is likely that this will give a significant boost to outsourcing and to the consolidation of services in the German insurance industry, and could help resolve the issue of constantly increasing pressures regarding transparency, pricing and costs. The Insurance Reform Bill (das Versicherungsreformgesetz), Solvency II, along with persistently low interest rates and the requisite investments being made in digital tenders are recognised to be key influencing factors in this. External specialists can help to significantly reduce costs and to considerably increase the quality of administrative activities.
Great advantages through outsourcing specialists
The use of outsourcing specialists can bring many advantages, perhaps most notably to costs, but also to process quality and to customers’ perception of the insurer. Costs can be significantly and sustainably reduced, and savings of more than 30 per cent are not uncommon. This is primarily due to the bundling of activities, the streamlining of the organisation, the optimisation of processes and, increasingly, the use of new technologies and robotics.
One example here is the shift towards digital self-service and the resulting optimisation of customer channels, such as moving away from expensive phone calls towards emails and web chats, provided that these are intelligently designed and presented in a user-friendly way. As in other industries, it is expected that these two channels will be at least partially automated in the future.
A further advantage of using external service providers is the possibility of transforming a high proportion of fixed costs into variable costs, because invoicing these days is based on volumes (such as the number of managed policies) rather than on charging fixed FTE rates. This means that an insurer with lower business volumes has lower administrative costs, which reduces the negative P&L effect.
On the quality side, outsourcing partners can also add significant value, by increasing customer satisfaction (usually measured by the Net Promoter Score), by reducing processing times or by increasing the First Time Right rate when handling customer calls. Obviously, there are risks that need to be managed when making the decision to work with outsourcing partners. The outsourcing of business processes is, of course, associated with operational risks and it is therefore important that companies make clear strategic decisions about what should be outsourced and why.
A typical strategic question in this context is whether it is preferable to outsource only closed books or to include open books (i.e. the transfer of new business to third parties). Of course, there are also risks on the operational side, particularly in the transition phase, especially if the management and employees of the insurer that outsources are not sufficiently involved.
The approach of ”mini pilots” should be also treated with caution; most of the existing suppliers on the market have sufficient experience and the feasibility of using them has been confirmed numerous times.
Clear strategic objectives and selecting the right partner are much more critical than the scope of the activities to be outsourced and the number of employees associated with them.
Considering the long duration of these contracts (ten years is not uncommon), an important factor is to ensure that the selected outsourcing partner does not merely meet the Service Level Agreements (which often can be achieved within the first few years), but rather that the service provider seriously commits to the continuous optimisation and further development of its services over the entire duration of the contract. This is why selecting the right partner is essential for the success of outsourcing initiatives.
Image: Michael Mitterer is Managing Director of European Life Insurance at Capita, a transformation and outsourcing partner of the insurance industry (Source: private)