Expert View: Three key steps in hiring outsourcers

This month the Broker 50 again welcomed FCA director of general insurance and protection Simon Green, who talked about the use of outsourcers by insurers, MGAs and brokers following the FCA’s recent TR15/7 paper.

It’s well established that outsourcing by insurers, whether to managing general agents (MGAs), claims specialists or product developers, sets up its own special set of challenges in terms of service, risk and responsibilities. The FCA’s view of ‘what good looks like’ obviously plays an important part in this. So it’s useful to have the results of the FCA’s recent thematic review of delegated authority arrangements in the general insurance market.

The review looked at 12 insurers and the associated activities of 19 intermediaries and third-party administrators. It reveals that some firms are suffering from significant wood/tree perception problems in this area and failing to treat delegated authority arrangements as outsourcing. This clearly has serious implications for the ultimate customer.

While the FCA puts the onus on insurers in the need for greater due diligence in managing outsourcing, it is also a vital issue for MGAs and claims handlers, particularly in terms of treating customers fairly and all parties being clear on who is in control of communication and ensuring a great customer experience.

The FCA rightly expects regulated firms to undertake proper due diligence when appointing partners who will operate under delegated authority. Issues are likely to be avoided by choosing established specialist partners with significant experience and track record. Indeed, although the onus is on insurers to make sure that the products and services they outsource are safe, a clear conduct-focused approach to regulatory obligations and governance should always be part of the outsourcer’s pitch to its clients.

At Davies, we have a deep understanding of how successful partnerships are built, including the sorts of steps and controls that our clients need to put in place when working with us. An essential part in the service offered by the best outsourced specialists lies in having dedicated teams and bespoke systems, backed up by robust fail-safe controls to ensure service is maintained and delivered when things go wrong. Equally important is to be able to design custom solutions to the needs and specifications of the client.

So the watch-words for regulated firms seeking to appoint outsource partners are: i) a strong conduct-focused framework that exceeds the due diligence test; ii) the ability to build customised solutions, specific to the philosophy and needs of the principal; and iii) a robustness and fail-safe business plan that comes from experience and scale.

In my view, these are the things that ensure value, service and performance for principals and their policyholder and broker clients.