By John Nagle, Chief Executive
Simplification, standardisation and scalability are some of the key benefits being lauded to shareholders. And while questions around local job losses and service quality have gained some airtime, little attention has been paid to what these significant structural changes will mean for the industry overall.
Like most financial services companies, Lumley isn’t adverse to the concept of offshoring.
Late last year, we set up a dedicated claims support team in South Africa to assist Lumley with natural catastrophes. While more normal weather conditions have meant the team has only been working to smooth-out peak load fluctuations for our Claims teams to date, they’re on call for when the need arises.
The cost savings of offshoring roles can be pretty compelling. While a Philippines-based credit risk officer is paid the equivalent of AU$6000 per annum, their Australian counterparts earn up to 10 times that amount. So in theory, any moves to offshore a sizable chunk of an insurance business should translate to more competitive pricing for brokers and their clients.
But at what cost? And where do you draw the line with which roles to offshore? The cause and effect of offshoring different roles can vary widely and has yet to be fully understood.
Which begs the question, how much do brokers really value local service and risk advice? And are you and your clients prepared to pay for a more flexible, personalised service. The answer is generically ‘Yes’ but the actual behaviours we have seen to date indicate ‘No’.
The move to offshore underwriting is concerning because the repercussions for the insurance industry could be irreversible – and not for the better.
Attracting talent is already an issue for our industry and many core skills, like underwriting, are only developed through experience in the roles. People don’t come out of school or university with basic underwriting skills or with a burning desire to work in the insurance business.
Typically, people fall into insurance roles ‘by accident’ and progress to more senior roles after developing the necessary experience or skills, much like a cadetship or apprenticeship.
If you offshore formative underwriting roles, where will tomorrow’s senior underwriters – with the necessary skills to assess more complex risks – come from?
Will Australian insurers have to recruit people for these roles from overseas? Or given the wage inflation that’s likely to occur due to the limited numbers of local staff, maybe it will be easier and more cost-effective to offshore the senior roles, too.
Given brokers have traditionally recruited some of their staff from insurer ranks, this is also likely to create a talent shortage for intermediary businesses and put further cost pressures on their business model.
In addition, the key differential and challenge for brokers is to show they add value through the ‘Advice’ model – not only the cost model –or face more business being placed on direct platforms. How will they achieve this if the experienced staff members are not available?
So while offshoring key functions will no doubt deliver operational efficiencies for individual companies and perhaps more shareholder value, the long-term benefits for brokers, clients and the Australian insurance industry aren’t so evident.
If the trend to offshore key insurance functions continues, more insurers will be compelled to follow suit to stay competitive.
But will our industry be the better for it? That’s debatable.
Is having access to local underwriters important to you? Please share your thoughts below.