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Insurance companies are reassessing their outsourcing contracts as artificial intelligence changes the cost of processing policies, underwriting submissions and claims, according to research from Information Services Group (ISG) commissioned by mea Platform.
The study found that 86% of buyers of outsourced insurance operations would renegotiate or substantially restructure their agreements if they were renewed today.
- 64% would seek revised pricing to reflect AI-driven efficiency, while 23% would reconsider contract terms and service levels more extensively.
- 86% of insurance BPO buyers would renegotiate or restructure contracts if they renewed today, including 64% seeking AI efficiency gains and 23% favoring changes to contract terms and service levels.
- AI-led innovation fell below expectations for 49% of insurance outsourcing users, while 39% reported insufficient strategic value.
- For high-consequence underwriting and claims decisions, 75% of respondents preferred insurance-specific AI models or governed hybrid systems, compared with 6% willing to rely on general-purpose models alone.
The research surveyed 150 insurance decision-makers, covering 20 operational activities across primary insurers, brokers, managing general agents (MGAs) and reinsurers in North America, Europe and Asia.
Respondents identified AI-led innovation as the largest performance gap among nine dimensions assessed. Nearly half, or 49%, said their outsourcing providers had fallen short of expectations in this area, while 39% reported disappointing strategic value.
Buyers are increasingly examining pricing, operational scope and accountability together rather than negotiating each element separately.
Insurance outsourcing contracts face AI pricing pressure
Insurance business process outsourcing (BPO) covers activities across underwriting, policy administration, claims and financial reporting.
Providers manage new business submissions, underwriting support, agent licensing and appointments. Policy administration services include endorsements, renewals, billing, collections and customer servicing.
Claims outsourcing extends from first notice of loss to adjudication support, investigations, medical and disability management, subrogation and recoveries.
Other outsourced functions include underwriting analysis, pricing, actuarial work, reinsurance treaty administration, bordereaux processing, accounting, reconciliation, premium accounting, statutory reporting and sanctions screening.
In life insurance, annuities and retirement services, third-party administrators may operate entire blocks of business, including closed blocks, using their own technology systems.
Much of this work is priced per transaction or according to full-time equivalent staffing levels. Under those arrangements, processing costs generally increase as transaction volumes rise.
AI execution platforms introduce a different cost structure by automating activities traditionally performed by employees.
Systems designed for insurance can process policy wording, submissions, bordereaux and claims documentation, potentially reducing the incremental cost of handling additional transactions. That difference is prompting insurers to question whether existing labor-based pricing adequately reflects automation gains.
Insurance BPO market estimates range from $8.4 bn to $68.4 bn
Estimates of the global insurance outsourcing market vary substantially depending on which services are included.
Global Market Insights valued the core insurance BPO market at $7.5 bn in 2025, while The Business Research Company estimated it at $8.4 bn.
Both forecast that the market will reach approximately $12 bn within the decade.
Mordor Intelligence provides a considerably larger estimate of $68.4 bn for 2026, reflecting a broader definition that includes technology-enabled outsourcing services.
The difference in market scope is relevant as traditional outsourcing providers compete with specialized AI platforms and insurers consider developing automation capabilities internally.
ISG recommends evaluating external service providers, technology platforms and internal development using comparable evidence of performance across the same insurance workflows.
Insurers favor industry-specific AI for underwriting and claims
The study found limited support for using general-purpose AI independently in high-consequence insurance decisions. When asked which systems they would trust for underwriting and claims decisions, 75% of respondents selected insurance-specific AI models or governed hybrid arrangements.
Only 6% said they would accept a general-purpose model operating independently, while 20% would not trust AI systems with limited human oversight.
ISG concluded that solutions designed around insurance operations are preferable to generalized models for these applications.
The distinction concerns how automated systems interpret contractual obligations, assess risks and operate within an insurer’s authority limits.
For underwriting and claims, decisions depend on policy wording, endorsements, underwriting appetite, claims guidelines and institution-specific requirements.
Automated processing must therefore distinguish between accessing information, making recommendations and taking actions that carry contractual or financial consequences.
Four requirements for AI execution
Analysts identify four operational conditions for deploying AI in insurance workflows.
- The first is controlled evidence. Automated systems must use relevant policy wording, endorsements, underwriting appetite and claims guidance when processing information or making decisions.
- The second is permission management, separating the information a system is authorized to access from the decisions it is permitted to make.
- Third, a named individual must have the authority to intervene, override a decision or stop an automated process.
- The fourth requirement is configured authority, ensuring that the system operates within the rules and decision limits established by the insurer using it.
These requirements apply whether an insurer uses an outsourcing provider, purchases an AI execution platform or develops technology internally.
The findings place measurable workflow performance, pricing transparency and control over automated decisions at the center of insurance outsourcing negotiations.
For contracts approaching renewal, ISG recommends comparing the actual capabilities and operating economics of competing delivery models before deciding whether to renegotiate, replace or retain existing arrangements.
