Abstract
Outsourcing is a popular management strategy aimed at optimizing the operation of various organizations, including insurance companies all over the world. However, the involvement of an intermediary between insurance parties does not only serve to improve the efficiency of the insurer's business operations, but also poses extra risks. This article proposes a risk optimization model regarding the insurer’s risks when outsourcing certain operations. The model was analyzed on the example of car insurance using the Russian insurance market data (the Ingosstrakh Insurance Company). To our opinion, the presented optimization model is capable of bridging the gap in the insurance theory and lay a foundation for further economic studies of insurance intermediaries. The model was tested with the data of Russian insurers and showed that outsourcing in the current insurance market of comprehensive car insurance cover is unprofitable due to a high concentration of fraud. We calculated the optimal threshold for fraudulent payouts in car insurance, which should be as low as 0.64%. The proposed hypothesis for further research consists in the following: In terms of the ratio of profitability and risk, selling insurance policies through intermediaries can be profitable for insurance companies with respect to inexpensive insurance products only.
Highlights
The effective management of the insurance company is creating an effective insurance organization and adjusting it in accordance with the changing tasks and circumstances of the insurance market
We proposed a tool for insurers to calculate the benefits of outsourcing certain operations based on the ratio of profitability of the operation and the risk posed by the intermediary involvement
Our analysis based on the data on the development of the Russian insurance market, as well as insurance-related fraud data on the example of the Ingosstrakh Insurance Company showed that outsourcing insurance policies is currently unprofitable in terms of revenues and risks
Summary
The effective management of the insurance company is creating an effective insurance organization and adjusting it in accordance with the changing tasks and circumstances of the insurance market. Outsourcing enables the insurance companies to perform their daily functions by forming a solid basis of profitability and growth (MOS Team 2019). It means that the outsourcing of various functions that are not directly related to the formation of the insurance product is used as an important factor in reducing the costs of the insurance company. In order to increase the return on capital employed, managerial accounting prefers to increase inventory turns and reduce working capital This may, be achieved at a higher total direct cost where the labor is the most significant cost differentiator between the local manufacture and outsourcing to low-labor-cost regions (Newlands, AL-Husan 2019)
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