Outsourcing vs. Ownership: Should Leaders Take Charge of The Tech?
For years, outsourcing has been sold as the ultimate efficiency hack. An easy way to cut costs, access external resources, thus freeing up internal teams. But is that really the case? Or have we been chasing a short-term fix at the expense of long-term stability?
In reinsurance, where processes must remain on top form, it’s perhaps become apparent that the outsourcing model is not quite as magic as was once thought. Leaders who once turned to outsourcing to simplify their tech operations may now be questioning whether it has actually had the opposite effect..
So, what’s the alternative? And why are more firms shifting their focus from delegation to ownership?
The Rise and Fall of the Outsourcing Model
For decades, outsourcing has been positioned as a cost-saving strategy, allowing companies to shift work from internal teams to external providers, often offshore, to take advantage of lower labour costs. This approach, which gained significant traction in the late 1980s (Accelerance, 2024), was built on the idea of labour arbitrage - the assumption that the same work could be done for less money elsewhere. But guess what…
Labour arbitrage is a myth!
At first glance, outsourcing appears to reduce costs by shifting work to lower-wage markets. However, this model overlooks the hidden overheads that arise over time. One common issue is the need for increased staffing levels to maintain the same output. From my experience, you find that offshore outsourcing requires at least 1.5 workers for every 1 onshore employee. This dilutes those supposed cost savings almost instantly.
Moreover, outsourcing is rarely as seamless as expected. While businesses assume they will free up internal teams to focus on high-value work, the reality is that handover periods are long and resource-intensive. Leaders spend months, or even years, establishing processes, training external teams, and managing vendor relationships. Thus, rather than redeploying internal staff to strategic initiatives, companies often find them entangled in managing the outsourcing process itself.
The Pros, Cons, and Hidden Costs of Outsourcing Tech Implementation
When it comes to implementing new technology in reinsurance, leaders must decide between outsourcing IT processes or developing in-house expertise. Now, don’t get me wrong, there are benefits to outsourcing to a certain degree. In some cases, such as for start-ups, it may even be a necessity. Built In argues: “Startups are usually forced to rely on outsourcing to manage functional areas of the company when the complexity of those functions outgrows their expertise.”
As far as I’m concerned, both approaches come with advantages and risks. What’s important is that both options are weighed up appropriately.
Advantages of outsourcing IT
Outsourcing IT can seem like an attractive solution, perhaps in some cases offering access to highly skilled professionals without the commitment of a full-time hire. Other advantages I’ve come across are:
Broader experience - Adams Brown makes a strong case for this, highlighting that by outsourcing certain tasks, you’re giving the work to people who already know how to do it, broadly speaking. Thus, saving time you’d otherwise spend training your own workforce.
Lower upfront costs - Instead of investing in full-time salaries and training, with outsourcing companies only pay for what is needed.
Scalability - As mentioned above, it can be a life saver for start-ups, allowing for on-demand support without permanent hires as the reinsurance firm grows or implements new platforms.
However…
It may be of no surprise to you that I am of the opposing view to the above. This is because, in our industry, the need and use cases of technology has gone well beyond the simple need for cost-cutting. Reinsurance leaders constantly have their eye on risk management, compliance, market competitiveness, efficiency… The list goes on. And as reinsurers strive for greater automation and efficiency to fulfill this growing list of needs, outsourcing creates even more fragmented workflows that hinder efforts. Instead of enabling seamless implementation and growth, outsourcing often results in a patchwork of temporary fixes, making long-term goals far more complex and expensive.
Reinsurance leaders must therefore consider whether outsourcing is truly a cost-saving strategy or if it’s merely shifting inefficiencies elsewhere, at the expense of their business’s stability and growth.
The Alternative - Ownership and Streamlining
In contrast to outsourcing, there is the idea of building an in-house technology team. It sounds daunting. It sounds expensive. But is it really? And perhaps it’s worth it. Having your tech team in-house ensures long-term stability, deeper business integration, and stronger alignment with corporate goals.
Let’s look at the how and why:
Better cost control - Now, while I said above that outsourcing was cost-effective, what I didn’t mention was that this kind of cost saving is surface level and often theoretical. In reality, outsourcing can lead to unpredictable expenses. Especially, as Business Advice states, when external services are needed only sporadically. Investing in an in-house team provides greater budget predictability, allowing leaders to allocate resources efficiently without unexpected service fees.
Stronger alignment with business goals - Unlike external vendors who work across multiple industries, an internal IT team is fully immersed in the company’s vision, strategy, and objectives. This ensures that any tech implementation and maintenance efforts are aligned with long-term business goals rather than being driven by short-term, outsourced priorities.
Seamless communication and collaboration - As Alter Square state: “Clear communication and well-defined goals lay the groundwork for effective collaboration.” And yet external vendors often struggle to fully integrate with a company’s workflows and internal teams, which is problematic for communication. In-house IT teams can work closely with key departments, ensuring that technology decisions are made with direct input from claims teams, underwriters, compliance officers - you name it. And this really is a critical factor in reinsurance, where precision and regulatory adherence are essential.
Why Leaders Must Take Charge
So, the question remains: Should leaders take charge of the tech? I’m imagining you know what answer I will give, given the heading of this section. But it’s true: real value in this instance lies in ownership, not delegation. While outsourcing has its place in specific scenarios, building internal capabilities remains the best long-term strategy for firms looking to future-proof operations.
For reinsurance leaders, technology goes beyond being an operational tool. It must be seen and treated like the core enabler of business strategy that it is. Leaving its development and implementation in the hands of external providers creates unnecessary dependency and risks misalignment with company objectives. Implementation is most effective when it’s happening from within, ensuring that solutions are designed to serve the business, rather than forcing the business to adapt to external constraints.
Thus, reinsurance leaders who take ownership of the business’s tech initiatives retain the flexibility to standardise, streamline, and optimise processes before digitising them, rather than outsourcing inefficiencies and hoping that’ll be the end of that. Because now you know that it won’t be!
With 27 years of experience in reinsurance and a proven track record in successful digital change, I can help guide your Senior Leadership and IT teams to create sustainable, high-performing operations.
📧 Email me at sven@buondrius.com OR contact me here
Sources:
https://www.google.com/amp/s/www.accelerance.com/blog/a-brief-history-of-outsourcing-software-and-otherwise%3fhs_amp=true
https://www.linkedin.com/pulse/advantages-outsourcing-your-tech-innovation-leadership-revglobal?trk=article-ssr-frontend-pulse_more-articles_related-content-card
https://businessadvice.co.uk/business-advice/the-growing-trend-in-outsourcing-c-suite-positions-and-the-pros-and-cons-for-your-business/
https://www.adamsbrowncpa.com/blog/the-right-it-leadership-in-house-or-outsourced/
https://altersquare.medium.com/key-considerations-for-tech-founders-when-outsourcing-product-development-d2ca6ff93dfb
https://builtin.com/articles/when-why-hire-outsourced-tech-talent