Building partnerships that transform insurance operations

The strategic partnership landscape in insurance is undergoing a fundamental shift. What once was primarily a cost arbitrage play has evolved into something far more strategic. Today’s insurers are seeking partners who can help them innovate faster, manage complexity more effectively, and build capabilities that would be difficult or impossible to develop in-house.

A recent KPMG LLP survey of insurance industry executives affirms this shift. While 83% said they’ve maintained steady outsourcing levels over the past 12 months, 64% plan to somewhat increase outsourcing within the next year. This measured approach reflects a maturation in how insurers think about partnerships—moving beyond tactical cost reduction toward strategic capability building.

The question of where to partner has become more nuanced than simply choosing nearshore versus offshore. In the KPMG survey, 79% of insurance leaders said they now balance both approaches based on specific project needs—a pragmatic recognition that different initiatives require different solutions.

What drives location decisions? The top factors reveal how partnerships have evolved beyond cost considerations. Regulatory compliance ranks first at 72%, followed by risk management (62%) and cost optimization (54%). This hierarchy suggests that partnerships that save money but create regulatory exposure or operational risk ultimately destroy value rather than create it.

The emphasis on long-term strategic alignment marks a departure from previous approaches. Insurers understand that changing partners frequently creates its own costs and risks. Consequently, they’re willing to invest more deeply in fewer, more strategic relationships that can evolve as their needs change.

The evolution from tactical outsourcing to strategic partnerships has accelerated with recent technological advances—particularly in AI and automation. Partners who bring not just cost efficiency but also innovation capability are increasingly valued.

This shift is evident in which functions insurers are willing to entrust to partners. Finance-as-a-service concepts are gaining traction, with partners managing everything from reconciliations to reporting and tax. These aren’t peripheral activities. 

Rather, they’re mission-critical functions that historically stayed in-house. Insurers’ willingness to partner in these areas reflects both confidence in partnership models and recognition that specialized partners can often execute more effectively.

Yet even as outsourcing expands into strategic areas, insurers remain concerned about retaining intellectual property. When partnerships help build something new, insurers want to ensure that IP remains within their organization. This creates a balancing act: outsource enough to gain speed and expertise while structuring relationships to retain ownership of what’s created.

Geographic patterns in this evolution are revealing. While most insurers plan steady partnerships in North America (64%), Latin America (53%), and Europe (66%), 44% are increasing partnerships in Asia—reflecting both talent availability and the importance of serving the world’s fastest-growing insurance markets.

What’s the key to successful partnerships? Based on extensive work with insurers, several factors emerge consistently.

Before selecting partners, successful insurers define what they’re trying to achieve. Are they seeking to reduce costs in non-core activities? Are they trying to access capabilities they lack? Are they looking to accelerate innovation? Different objectives require different partnership structures and partner profiles.

Once established, successful partnerships require ongoing governance and performance measurement. Service level agreements matter, but so do regular strategic reviews that assess whether the partnership is delivering on its objectives and whether those objectives remain relevant. The ability to evolve the partnership as needs change separates long-term success from short-term gains followed by disappointment.

The successful implementation of generative AI in the insurance industry requires a shift in organizational culture towards learning and adaptation. Building a learning culture that supports employee upskilling and adaptation is crucial. Organizations should foster an environment that encourages continuous learning and provides employees with the necessary training to work alongside AI technologies effectively. This includes not only technical skills but also soft skills such as critical thinking, problem-solving, and emotional intelligence.

As insurance organizations grapple with the adoption of generative AI, they face the dual challenges of assessing its business value and managing its impact on the workforce. Determining where to apply these expensive tools requires a methodical approach, with a focus on high-value use cases and clear customer demand. Some companies are forming AI client councils to generate ideas, prioritize focus areas, and ensure proper governance in a regulated industry.

Early adopters have seen challenges in testing and effectively using generative AI tools, but as they progress along the learning curve, pockets of success are emerging. However, enterprise-scale adoption and value realization remain rare. Most insurers continue taking a cautious, targeted approach rather than a broad "spray and pray" deployment. By striking the right balance between business value and human impact, insurance organizations can harness the power of generative AI to enhance productivity and free up workers for higher-value contributions.