The spreadsheet on a carrier COO's desk tells a story unthinkable five years ago. His company's business process outsourcing (BPO) partner processes claims support tasks for about $525K a month. Last quarter, a pilot
The math is simple. The harder question is: What happens to a 20-year partnership when the economics flip overnight?
But before exploring the BPO dimensions, consider the COO's broader strategic options:
· Do nothing – not viable in a competitive market
· Give BPOs time to embed AI into hybrid workflows with adjusted economics
· Leverage core systems vendors' AI offerings to reduce BPO dependency
· Partner with AI-native agentic companies for specific processes
· Develop home-grown AI-human operations
The decision criteria matter as much as the options: economics, vendor lock-in risks, and operational implications, notably talent development when entry and mid-level roles face disruption.
Selective disruption
Across the P&C insurance industry, executives face similar dilemmas, but not uniformly. While some workflows show dramatic AI transformation potential, the broader BPO disruption is playing out more gradually.
"We built our entire operational strategy around what humans could do efficiently," says a VP of operations at a specialty lines MGA. "Now we're asking whether we need humans for these processes at all, but only for certain types of work."
Simple, high-volume processes like FNOL, policy endorsements and routine underwriting tasks are already moving to AI. Complex negotiations, regulatory compliance and relationship-sensitive work remain human-centered.
What executives really want (And why it's complicated)
Through conversations with insurance leaders, a clear picture emerges of what they expect from BPOs, and why the shift isn't simple.
"I don't need cheaper labor anymore for routine processing," explains an operations director at a mid-market property carrier. "I need partners who can design
Traditional BPOs built on labor arbitrage now face a painful transition: embrace AI and cannibalize revenue, or risk obsolescence.
"The conversation has shifted," adds the specialty MGA executive. "Instead of asking, 'How many FTEs?' we're asking, 'What's your AI strategy?' Most partners don't have good answers."
Resistance and reality
Forward-thinking insurance executives aren't abandoning BPOs, but they're discovering that transformation is harder than expected.
A coastal carrier COO recalls: "Half the BPOs in our recent RFP were still pitching the labor model from five years ago."
BPO providers face structural barriers to transformation: multi-year contracts tied to legacy SLAs, offshore infrastructure optimized for people, and limited AI talent. Beyond these challenges, building scalable AI solutions across clients with varying procedures and systems remains difficult even when the technology exists. Some "AI investments" turn out to be little more than chatbots, not true workflow reinvention using agentic AI capabilities.
Insurance leaders describe the shift as uneven across market segments. Larger carriers with budgets are experimenting aggressively; smaller players often lack AI investment and BPO oversight capacity.
"We gave our partners six months to show us their AI roadmap and prove they could deliver hybrid services," says one carrier executive. "Some rose to the challenge. Others clearly hadn't thought past their current business model. The gap between winners and losers is widening fast."
Strategic moves: Betting on AI-native players
A few BPOs are investing directly in AI-native companies. It's a bold and smart move.
· Early access to innovation: BPOs can integrate next-gen workflows before competitors.
· Stronger value proposition: Partnerships with AI specialists allow BPOs to offer hybrid models rather than incremental improvements.
· Clear signaling: Shows carriers the BPO is reinventing, not clinging to labor models.
For insurers weighing long-term partnerships, that signal matters. It shifts the conversation from cost containment to future readiness.
The new value proposition
Where partnerships are evolving, they focus on what AI can't yet deliver:
· Exception handling: Humans step in on edge cases
· Quality assurance: Audits detect drift, ensuring compliance
· Strategic oversight: People interpret trends and advise on adjustments
"We're not trying to eliminate our BPOs," says a coastal specialty insurer exec. "We're trying to make them more valuable. But that requires partners who understand the new game."
Looking ahead
Transformation is inevitable but uneven. "In five years, successful BPOs will be AI-first companies with specialized human expertise," predicts one operations director. "But not everyone will survive the transition."
The regional COO is blunter: "My spreadsheet isn't just about cost savings. It's about choosing partners who understand efficiency isn't cheaper labor anymore. It's reinventing how work gets done."
The great unbundling is here. Winners will be those who combine human judgment with AI and help partners navigate the same transformation. For an industry built on managing risk, the biggest risk may be moving too slowly while competitors figure out the new economics first.
