Insurance is mainly seen as a healthcare benefit as it provides coverage to insureds. But from a business point of view, insurance as a part of the significant finance sector plays a crucial role in any country’s economic system and contributes a substantial portion to its economy. Due to this, there comes the need to keep the insurance industry highly regulated, especially when it comes to financial management and reporting.
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Consequently, arises the need for accurate financial accounting. Accounting for insurance agencies is essential, and there is no surprise in that because a well-managed financial situation is also critical for the development of any agency. In fact, in the current times when software accounting is at its peak, agencies’ in-house staff (apart from doing their jobs) needs to learn how to use them, keep up with financial market trends and changes, and be updated about fraud prevention.
As insurance agency owners and their employees usually don’t have enough time for accounting, they have to spare time, paying less attention to crucial business areas, which is a big problem in itself. Due to this and many other reasons, many agencies often outsource insurance accounting services to reliable providers.
Where does the real problem lie?
Majorly due to the pandemic, many insurance agencies realize a rapid increase in claims, primarily related to health, life, travel, trade credit, supplemental income, workers’ compensation, and certain commercial & specialty lines. The more the claims, the more the workload, the higher the settlement costs, and the higher need for resources. In addition, economic uncertainties, low-interest rates, and capital markets decline to have a negative impact on insurers’ investment income.
Besides, to meet customers’ growing and changing demands, stay in the game, and improve all aspects of the insurance service chain, insurers need to hire skilled insurance specialists and underwriters and provide them training from time to time. Moreover, recruitment (which is already costly) has become another big challenge in the post-pandemic situations as many candidates want to work remotely, which can be trust-risky for agencies initially. To fight these challenges, insurance agencies need to optimize costs, which is next to impossible without an effective financial accounting system.
For agencies, insurance outsourcing services have emerged as a solid solution that can help them resolve all major problems. As an insurance agency owner, acquiring insurance accounting services can be your smartest investment that can help you effectively survive and thrive in the post-pandemic world. All you should do is choose a trusted partner. Let’s take a look at a statistic for more.
The Everest Group observed 9-11% growth in the life and pension insurance bpo industry in 2020 since end-to-end third-party administration increased. Additionally, the industry has already been experiencing a 9-10% year-over-year growth since 2014.
Why outsource insurance accounting?
To gain expertise
Insurance agency accounting is not a regular task that can be handled by a member of your clerical team. It is a system for organizing and maintaining financial records that include a high level of complexities and require accounting knowledge and experience. Many insurance agents are generalists by nature. But even the most knowledgeable all-around agent can’t be expected to know all the ins and outs of insurance accounting and tax law.
One big reason insurance agencies outsource insurance accounting is that it brings valuable expertise. Your bookkeeper or accountant may not have as much experience as someone who has been in the industry for years. As a result, the right accountants will be able to provide valuable knowledge that can help improve the way you manage your financials, providing helpful information for your growth strategies.
To reduce TATs
The turnaround time in financial activities affects the growth of your insurance business in two ways. First, it affects the speed of other related activities. For example, it won’t be easy to get the customers back promptly during renewals if it takes a long time to process the claims. Second, the turnaround time affects the speed of the growth. If the turnaround time is extended, the business will not grow as quickly as otherwise.
Turnaround time also affects insurance businesses’ growth when it comes to quality. The lesser the turnaround time, the more the satisfied customer will be. Outsourcing insurance agency accounting is the new smart way to faster TATs. When you outsource accounting, it will be managed by experts who can handle loads of accounting work time while keeping the quality intact. When the accounting work is done on time, it helps streamline all related functions, such as budgeting, payment processing, investment planning, etc.
To save time
Time-saving is one of the significant benefits of outsourcing agency accounting. With your outsourcing partner handling accounting, you get plenty of time to focus on core business operations running your agency more effectively. All these are very important in terms of insurance agencies, for example, improving service quality and customer experiences to improve customer satisfaction and retention rates – unlocking growth opportunities.
In addition to this, you can also use a variety of software in order to do the insurance agency accounting with the help of third-party firms. You need not purchase new insurance software; most outsourcing service providers are familiar with using all standard accounting software used across the insurance industry. Using technology with the help of your partner can save additional time for your in-house staff.
To save costs
You probably know a thing or two about managing risks. But have you ever considered the risks inherent in doing the accounting on your own? You might not have thought of it as a “risk” to manage your books yourself (or rely on an employee who isn’t a trained bookkeeper to do so). But if accounting isn’t your specialty, you could be opening yourself up to liability if records are incomplete or inaccurate. Outsourcing your insurance agency’s accounting may provide relief from these and other risks.
While outsourcing cannot be the best option always as you may find it wouldn’t be beneficial for your particular insurance business, there are many insurances where you may consider outsourcing accounting. For example;
If you run a small agency with no in-house bookkeeper, outsourcing bookkeeping and accounting will make the best sense.
You may compare the expenses of having a full-time accountant with the cost of accounting outsourcing services; you would be surprised to realize the difference.
If your agency is getting an increased flow of business and needs to hire more accounting staff, you may want to hire accounting outsourcing services to save recruitments costs.
Suppose you do not want to increase employee expenditure. In that case, outsourcing accounting is the best option for you as you need not pay for IT infrastructure, systems, employee health benefits, perks, etc.
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Insurance is an ever-changing industry, so growth is not always predictable. One way to be prepared for these changes is to get an accountant to monitor your transactions and ensure that you are in line with your business projections.
Outsourcing your accounting for your insurance agency is sometimes better than getting an in-house accountant. They are always up-to-date with trends and approaches to maintaining your books and maximizing your profit via tax planning. With all things considered, it would be fair to say that outsourcing insurance accounting services to a trusted and reliable firm can help your insurance agency strive to thrive.