Outsourcing: not as we know it

Why insurers and pension funds are rethinking outsourcing 

This year at the SimCorp Global Summit we held a panel discussion to get the latest insights on the age-old debate of insourcing vs outsourcing. We hand-picked experts from across the industry to share their views on the benefits and challenges of each and discuss the latest developments available for firms who want to explore new ways of handling commoditized tasks, such as investment accounting and reporting.  

In the InvestOps 2024 survey of 200 global operations leaders, 60 percent of respondents recognized the imperative to outsource standardized tasks to fuel growth. But as the panelists point out, the decision to outsource involves a serious look at the interaction between a firm’s technology, people, and processes to secure long-term success.

Perspectives on outsourcing 

The discussion with the panelists made it evident that the outsourcing journey is no longer a tactical decision. It requires a careful evaluation of the entire investment value chain and identifying the areas that are and are not suitable for outsourcing. 

Panelist Ruchir Verma stressed that outsourcing is a strategic, long-term decision that needs to go together with an operating model change and with a transformation program in place. 

Mats Enebrink, COO of Första AP-fonden (AP1), observed that some companies are reverting from inefficient outsourcing models due to unmet expectations. Marieke van Eenennaam, Partner at Deloitte, echoed this sentiment. She emphasized the need for a thorough evaluation of the entire investment value chain.  

They both pointed out that an outsourcing decision requires a transformation within the organization, due to the need for new ways of working and the impact on employees.

Outsourcing managed services is not just about reducing cost. It’s also about increasing value. And that’s where the whole transformation comes in. So if you are just doing a lift and shift, you are not really transforming anything. You are just moving from one place to another. But if you are really transforming, then you are adding value.

Ruchir Verma
Head of Business Development, Investment Administration & Accounting,
Investment Management, Zurich Insurance Group

Types of outsourcing  

Today there are multiple areas where outsourcing can have an impact. The moderator, Alexander Schnitzler, outlined them and then went on to discuss the pros and cons of each with the panel. 

1. Back-office outsourcing
   Outsourcing back-office tasks such as standardized investment accounting and fund accounting is very common particularly in light of cost pressures.
2. Mid-office outsourcing
   While newer, mid-office outsourcing is gaining traction, with firms turning to global service providers or SaaS solutions. However, outsourcing mid-office tasks can be more complex and requires more customization.
3. Data platform outsourcing
   An emerging option particularly for smaller asset owners that struggle to keep up with technological advancements.

Exploring the pros and cons 

The panelists began with discussing back office outsourcing, which is considered the most traditional method. Mats Enebrink observed that this traditional outsourcing model is akin to a black box with no visibility on how the work is done yet gives a very straightforward outcome. He pointed out that in the services world, you have a white box model where you can follow all the data within the service, you know what’s happening, but the outcome is a bit less controlled as updates to the system can happen overnight. Overall he emphasizes that you need a shift in mindset to adapt to the services’ domain. 

When it comes to mid-office outsourcing Marieke van Eenennaam stressed the need to carefully evaluate the impacts on data architecture as there is more customization required. 

While customization of data architecture creates complexity, it also provides optionality of operating model.  

Ruchir Verma was in favor of leaning into the optionality that mid-office managed services models, such as SaaS and BPaaS, provide. He pointed out that organizations are no longer stuck with rigid models. They now have the flexibility to choose what to outsource and what to keep in-house based on their capabilities and shifting business needs. To him the impact of BPaaS has a positive influence on efficiency as an alternative to the traditional outsourcing model, particularly for non-differentiating but critical data tasks.  

Some of the panelists expressed concerns with data platform outsourcing. Mats Enebrink pointed out the need for full transparency in this “data era,” while Marieke van Eenennaam and Ruchir Verma cautioned about the oversight that remains when implementing managed services. Ruchir Verma goes on to explain that accountability can’t be outsourced and therefore you have to ensure you build a governance process with the provider.  

Marieke van Eenennaam also highlighted the added complexities especially for international players operating in multiple jurisdictions. “There are quite different regulations and rules in every country that you will be operating in. This is an element that we quite often see that's overlooked,” she added. 

Investment accounting & reporting – key considerations for outsourcing

Before outsourcing investment accounting and reporting, insurance and pension firms must evaluate several key factors.  

According to the panelists, there are three areas of focus: 

1. The importance of defining core competencies, especially as technology evolves. This also involves focusing on the profile of people who will need to develop and upskill in order to manage such technology. 
2. The loss of internal competencies that happens once a company outsources a function, making it difficult to revert the decision. Some firms are insourcing previously outsourced tasks considered non-core so the outsourcing decision cannot be taken too lightly. 
3. The need for flexibility and innovation within the company to adapt to new technologies, insights and products, and attract talent. 

The future of outsourcing: co-sourcing?

What is clear from the panel discussion is that many organizations are still relying on the traditional outsourcing model for cost savings—through labor arbitrage to low-cost centers. This entails shifting an existing task to an external provider, thus losing some control in the process and requiring long change cycles hindering scalability. 

SaaS models simplify maintenance outsourcing, with the vendor managing software upgrades and updates. What if you could have the best of all worlds with business services on top of your core investment platform, offering complete transparency, control over your technology and data, and scalability to evolve with your business and market needs? This is what we call co-sourcing. This requires a strategic, long-term view on the firm’s core competencies, desired operating model, and the transformational impact on its people, processes, and technology. 

As Ruchir Verma pointed out, traditional outsourcing may have failed a lot in the past, but it has changed forms, and especially managed services have become better as firms take a more strategic view when looking for the right partners and decision makers become more mature on how to co-source with the latest technology at its core.  

Marieke van Eenennaam concludes: “In an era of digital and AI, you will need more and more partners in the ecosystem to keep up with the latest technological advancements and build scale—a key differentiator in the future.”  

Want to explore co-sourcing for investment accounting and operations?  

Learn more about our co-sourcing solutions, Investment Operations Services and Investment Accounting Services, as part of SimCorp One.