Martin Cantor Director Cantor Atkin
Martin Cantor
Dan Stoneman Associate Director Cantor Atkin Broker Services
Dan Stoneman

A Lloyd’s Broker FD’s View of the “Back-Office”: In-House or Outsourced? – By Martin Cantor

by martin-cantor | | Insurance Broker Support

In my previous article, I expressed the view that the roles of the processing teams in broking firms are often not accorded the importance that they deserve. Getting the paperwork right first time is what we all aspire to but it is easier said than done. Insurance businesses need knowledgeable professional staff but they are often difficult to find and keep. They also need these human resources to be commensurate with workload.

Having established a business with the aim of providing high quality, low cost back office services to smaller broking firms, it should be no surprise that I am a keen advocate of the outsourced model. Increasingly I believe that it is relevant for smaller firms who may not need full time resources to do such tasks and who may not wish, either, to take part time staff onto their directly employed staff.

Whether it is to provide full time support or to deal with peak times or staff absences, outsourcing certainly provides a solution. Not only can an outsourcing service provider offer the right expertise at the right time, it can also offer potential cost savings as well. And it is not just the largest enterprises that can benefit from this type of service. For smaller firms outsourcing can offer real cost and operational advantages, allowing business owners and managers to concentrate on growing the top line whilst also seeing costs reduce. A double benefit!

The key aspects to evaluate when considering an outsourced arrangement are:

  • Cost
  • Competence
  • Service Standards, and
  • Control and Integration with existing processes


Cost is usually the prime driver for considering outsourcing. Using third party specialists to deal with routine and semi-repetitive tasks is a sensible way to keep a firm’s cost base down without compromising the quality of service being delivered. But it has to make commercial sense without affecting the quality of service being provided.

This makes particular sense in a high cost location like London.

Consider the following for an insurance technician:

Salary – £30,000 – a reasonable mid estimate for an individual with, say three years experience

Employers National Insurance – £3,300

Employers pension contribution (1%) – £300

Recruitment fee (20%) – £6,000

150 sq ft of office space (£90 per sq ft all – in) – £13,500

25% overhead (a conservative estimate) – £3,000

Total – £56,100

In addition to those costs which I have listed are the hidden costs of management time, holiday and sick leave and other Employee benefits in kind which could be added (e.g., Private medical insurance) . Self-evidently, employing even quite junior staff is an expensive business.


Cost may or may not be the prime driver for looking to outsource functions but it is by no means the only one. Difficulty in finding and retaining competent processing staff may well be another key issue, particularly if the nature of the work is more specialised (e.g., Lloyd’s of London processing work). Sub-contracting the work to a third party provider also means not having to do the recruitment and training oneself.

Service Standards

Quite clearly any agreement to contract out key processes must contain a clear set of service standards against which performance can be measured. These standards will usually focus on timescales for the performance of tasks and the accuracy with which they are accomplished.

Failure to meet those standards usually carries a financial penalty.

Control and Integration with Existing Processes

With an outsourced business model, the business owner only needs to “manage the relationship”. There is no requirement to manage staff, workload or resourcing more generally. No need to fret over staff illnesses or cover for holidays or parental leave. Those are concerns for the service provider. That is not to say that there are no knock-on effects if the service provider does not manage these issues effectively. And that is why the nature of the relationship and the way it is managed on an on-going basis, are so important to ensure smooth on-going service delivery.

And when it comes to the matter of “process” the more an outsourced provider is seen as part of the organisation structure of the client firm, the easier it is to ensure that complete integration with management processes is achieved.

Weighing up the Alternative Approaches

In order to justify directly employing individuals to fulfil any role there has to be a sufficient volume of income to the firm, a minimum critical mass if you like, for this to be an economic proposition. And if the volume of work exists there are obvious advantages in retaining such processes in-house.

  • Maintaining the status quo
  • All the work carried out in client premises
  • Avoidance of potentially big internal process changes
  • Maintenance of internal “team” structures and ethos

Set against these factors we have the advantages of contracting out support functions to firms whose whole raison d’être is to specialise in providing such services efficiently and at low cost. The advantages of doing so can be summarised as follows:

  • Processes handled by individuals who specialise in the work to be done
  • No lead–in time. Services can be provided immediately
  • 100% Reduction in management time spent supervising and overseeing internal staff
  • No down time costs incurred: No costs associated with staff sickness, annual leave or parental leave
  • Resources needed for the job are matched to the requirement more precisely, and therefore cost-effectively
  • Lower processing costs/higher profitability

And at the operational level we need to see the following factors to ensure that such an arrangement works well for both parties:

  • A clear cost structure
  • A simple operational process which enables complete integration with client systems
  • Clear reporting requirements and operational lines of command
  • Strong management advocacy for the outsourced business model in order to overcome staff reservations

Outsourcing services to distant locations is big business. Many people think that it is only relevant to “big business”. I happen to believe that it is relevant to all business; all the more so when economic times are tough.

The cost of taking staff onto the payroll is significant and will continue to grow. In the UK the most notable recent trend in employment is the increase in the self-employed and the use of agency staff to carry out tasks previously performed by directly employed personnel. The outsourcing model which I am advocating is merely an extension of the specialist agency approach into the performance of key back-office functions.

All businesses need their business developers to be in-house and to be sufficiently incentivised to stay and prosper. Those functions which are necessary to complete the service delivery but which can be done elsewhere at other times of day or night – as long as service delivery timescales are met – should be identified and costed out and should be placed wherever the optimum cost/quality outcome is located.

Notwithstanding the above it is still a big decision to move to an outsourcing business model. It changes the nature of a business. It may conflict with a business owner’s idea of what building a business entails. It may not always offer the economic advantages that I have suggested are available. But for many entrepreneurs and business owners it will free them up to concentrate on what they do best and liberate them from many of the day-to-day issues which get in the way of creating added value for their enterprises. 

If you would like to find out how you can have a highly competent low cost back-office then please give me a call now on 01737 845586, or email