Outsourcing often receives a bad rap, with large corporations using it to reduce staff count, bureaucracy and overhead. However, for small- and medium-sized insurance agencies, outsourcing can be a valuable, even critical, tool to facilitate cost-effective growth and stimulate productivity. That is particularly true when experienced staff are difficult to find or expensive to hire.

Imagine insurance underwriters and producers spending time on routine data entry, rating, invoicing, ordering and reviewing inspections and motor vehicle records, generating loss runs, and issuing policies. An agency's knowledge workers are overqualified and overpaid for many of those tasks. Experience shows that it is far more profitable to deploy staff on new business development and renewals -- activities that require high-level interpersonal skills and risk control judgment.

The question is how to outsource the routine, repetitive components of an agency's back office while preserving the integrity and security of the agency, boosting competitive advantage in areas such as service quality, promoting staff morale, lowering costs and facilitating growth with minimum disruption to agency operations.

The following seven lessons address those critical issues and represent steps that all agencies should go through when conducting due diligence on insurance process outsourcing.

1. Outsourcing equals growth, not downsizing
The New York Times Columnist Thomas Friedman said it best in his recent best selling book, The World is Flat: "The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists -- not to save money by firing people."

In agencies where people are valued and experienced, the goal is not to downsize and cut costs, but to make the best use of their time. By outsourcing routine tasks, agency costs can be reduced, liberating resources that can be deployed more productively.

2. Keep control of systems and security
In traditional business process outsourcing, companies offer cost savings by shifting the customer onto its agency management system, which can operate faster, quicker and cheaper than if the company did the work itself. The problem is that if the relationship falters due to price increases or a decline in the quality of service, the agency is stuck, lacking both the systems and the people to run critical back office functions.

A new approach is to have the outsourcing company connect remotely to the company's system, learning the processes, following its procedures and becoming an add-on to the primary agency. The same way you connect to your server from home, outsourcing companies can from their offices. All the information stays on the primary company's server and can be monitored daily by managers. Should the primary company decide to end the relationship, it can change its password to maintain exclusive control and access to the system. Outsourcing can be a powerful tool for improving efficiencies and costs, but the insurer should always keep control of the keys to the information and system security.

3. Communications are critical
There are key elements to assure effective communications between the service provider and the home office. Go with an industry specialist rather than a generalist. Choose a service provider that understands the operational challenges and objectives specific to the type of insurance agency.

Make sure the service provider has its corporate head office or at least a fully functional branch office in the United States. If the main company ever needs to troubleshoot issues, or quickly implement new tasks and procedures, it'll need local support that understands its needs and can act with the speed, efficiency and responsiveness it requires.

Check the quality of the service provider's staff. The staff needs to work with the employees of the service provider daily. It is important that those employees approach their tasks with diligence and intelligence, and can communicate responsively and professionally with the home office staff. Always check the education level of the provider's staff, as well as their professional and English proficiency. Reducing errors and omissions from levels current in the organization is definitely possible, but depends on the quality, education and training of the service provider's employees.

4. Ease of implementation
Some outsourcing solutions can involve substantial investment in new information technology systems, processes and training. It often depends on how the service provider connects to the main office and whether the solution requires it to migrate to another system or continue to use its own system. Often, the most painless and effective outsourcing solutions do not require changing systems or processes, meaning that the learning curve takes place within the service provider, not among the main company staff. Find out the typical length of time to implement outsourcing solutions, compare costs between solution providers and ask for references to learn about other client experiences.

5. Winning internal support
The support and buy-in of the company's existing staff is critical to outsourcing. Employees need to understand the objectives behind the outsourcing project: that it is designed to enhance their positions, make their work more interesting by stripping out the routine, monotonous and low-value tasks, and consequently raise their productivity and impact within the organization.

Management needs to provide clear direction, be responsive to questions and concerns and reassure staff that outsourcing is designed for their benefit as well as for the agency.

6. Due diligence for proof of concept
Outsourcing can provide powerful operational and cost efficiencies, but what is the track record of the service provider? The first place to start is with its existing client base to find out the concerns, challenges and solutions they went through. Find out whether there has been a net improvement to top and bottom lines since the service was provided.

Trial periods are an excellent way to develop comfort with the way the service provider operates, the quality and professionalism of its staff, its efficiency, processing turnaround times, error rates and customer service levels.

7. Economics
The economics have to make sense. Offshore solutions offer the best returns on investment -- as long as quality control can be maintained. Examine current fully loaded costs of doing the work in-house, including salary, benefits, hiring, training, management supervision and attrition. Compare the costs to the service provider's solution.

Besides purely financial gains, there may be intangible yet significant benefits to outsourcing, such as the greater ease of adding capacity to an operation by documenting workflows, and by placing the burden for hiring, management and quality control on the service provider. By following those seven principles, agency owners and managers can generate substantially greater confidence about pursuing outsourcing as a means of making their agencies more efficient, more competitive and more profitable.