Why smart insurance companies outsource identity management

By Rishi Bhargava

Insurance companies are under an incredible amount of pressure to deliver a seamless experience to customers and other stakeholders. But one critical factor is holding them back: many are making the mistake of managing their customers’ and brokers’ identities in-house. This erodes developer bandwidth, limiting the ability to build impactful features that provide a better user experience and a stronger competitive edge.

According to a recent survey, 82% of organizations report some degree of negative business outcomes from managing customer identity themselves. This includes higher costs due to more authentication support tickets (52%), product launch delays when identity-related development tasks take precedence (37%), and an uptick in user drop-offs as a result of complex onboarding (30%) — all of which hurt the user experience.

But more than just UX suffers; security is also impacted. The cost of a data breach is particularly extreme in the financial services industry, at around $6.08 million USD (22% higher than other industries). This risk will continue to grow if developers and information technology teams that aren’t security experts continue to be responsible for building and maintaining critical identity stacks. The likelihood of authority and access control mistakes will also increase when insurers deploy artificial intelligence agents that must access sensitive data to perform actions on behalf of users.

Accordingly, insurers are subject to strict and constantly evolving regulatory requirements that mandate robust identity security. For example, the Digital Operational Resilience Act requires insurance and financial entities implement information and computer technology risk management and operational resilience measures, and the New York State Department of Financial Services recently mandated the use of phishing-resistant multi-factor authentication.

Expecting developers to oversee identity, keep up with constantly changing user needs and carry out their primary functions is a recipe for burnout. Purpose-built authentication platforms are crucial for freeing devs up, staying compliant and maintaining competitive momentum. Despite this, many insurance companies have yet to adopt them.

Outsourcing identity management: What’s the holdup?

Most insurance companies operate on code-heavy, legacy identity systems. Over the years (or decades), they rack up a large amount of technical debt as they build and accumulate apps with varying levels of customization. For instance, a long-standing insurer might maintain separate login systems for its customer portal, broker portal, and internal underwriting tools. Replacing its authentication infrastructure can seem like a monumental lift. Or, they may worry that changing their existing systems could harm their core product, interrupt broker access or delay policy processing.

Companies with these concerns can opt to take a phased approach to outsourcing identity management. For example, they can augment their systems with MFA only instead of ripping and replacing their entire authentication flow. From there, they can evaluate its impact and consider additional augmentations in the future.

It’s important to mention that not all authentication providers are a good fit for insurance companies, given the number of stakeholders they serve. Everyone, from customers to brokers, sub-brokers, underwriters, independent contractors, reinsurance companies and other partners must interface with insurers in an easy and frictionless manner.

AI agents are quickly becoming a part of this pool of stakeholders. They'll also need to be authenticated before carrying out actions such as comparing rates or filing claims. Not every authentication solution can accommodate the different security and UX needs of these various stakeholders (especially those of the AI variety). Only platforms with a highly responsive, multi-tenant architecture and dedicated agentic identity capabilities fit the bill.

The perks of outsourcing identity management

Turning to an external authentication provider lets developers focus on improving their core product so insurers can better serve their stakeholders. One important piece of this is creating a better experience for brokers. The insurance market is incredibly competitive, and if brokers encounter UX friction, or have security concerns about an insurer’s platform, they’ll simply go with a different provider — and take their business with them.

Outsourcing identity management helps insurance companies build a seamless omnichannel authentication experience for all its users across various platforms. For example, customers may want to request quotes, file claims and manage policies from their mobile device across different web portals, native apps and partner platforms. A unified authentication layer ensures customers are met with a consistent, secure login experience across each touchpoint — even when those properties operate under different brands or organizational umbrellas.

Finally, adopting an external authentication provider relieves insurance companies of the burden of keeping up with new and changing regulations by ensuring ongoing compliance. Insurers can quickly and easily implement passwordless authentication methods (e.g., magic links) and phishing-resistant MFA (e.g., passkeys) to stay in line with regulatory expectations such as those outlined by the NYDFS. These modern authentication methods have the added benefit of streamlining UX, making login as simple as clicking a link or providing a biometric.

For example, Branch, a cloud-native home and auto insurance company, moved to passkey authentication to improve user experience, stay compliant with NYDFS and reduce auth-related support tickets by 50%.

The companies that will lead the next decade of insurance won’t be the ones that built the most - they’ll be the ones that knew what not to build. Identity is infrastructure. Outsource it, secure it and get back to the work that differentiates your business.