BPO: Now it's Personal
Insurers' need for cost savings and business transformation is driving many to look for specialized, long-term relationships in a maturing BPO space.
Insurance Networking News, 03/01/2011
For a variety of economic, competitive, operational and technical reasons, business process outsourcing (BPO) is booming in insurance.
In a recent survey of 165 insurance personnel, Boston-based Celent found that 49% of respondents expected their company's use of BPO to remain level in 2011, while 36% expected it to increase.
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For many years, insurers have turned to BPO providers to manage the operational aspects of their businesses that while necessary, were not necessarily competitive differentiators. Yet, it is only recently that insurers are availing themselves of a widening array of insurance-specific outsourcing services, some of which are customer-facing.
"The market place has not changed dramatically; the big players are still the big players," says Don Desiderato, a principal in Novarica's insurance practice. "What is changing is what these firms are doing."
Indeed, the arc traced by BPO providers is a familiar one. Much as, say, a manufacturer might initially offer a single commoditized component before eventually entering the consumer market with a fully realized product, BPO providers are making a similar, vertical move. In the broadest of narratives, BPO became popular in the 1970s and was largely synonymous with IT outsourcing. The most common instance was to utilize a skilled, and cheaper workforce located in developing countries to maintain legacy systems. To be sure, some insurers came to regard BPO merely as a handy way to dump problematic processes onto others.
As BPO providers gained more skills at the application level, many insurers utilized BPO as a staff augmentation strategy. This was especially the case in the 1990s, as insurers worked on re-writing code leading up to the perceived Y2K threat. By the 2000s this "human wave" theory of BPO had largely subsided, and BPO providers were eventually entrusted to perform more back-office functions such as billing, printing and scanning.
Now, a new era is at hand as BPO vendors offer specialized business capabilities and functioning as extensions of an insurer's operations. As trust has been built up between insurers and their BPO vendors, the vendors are now moving up into areas of moderate differentiation, such as call center operations. For example, a BPO provider might be tasked with recording FNOL or operating an entire call center during a CAT event, or managing customer service overflow for off-hours and weekends.
"Knowing technology is not enough, it's the ability to contribute from a business perspective that's more important," Desiderato says. "The most valuable technology people are the ones who know the most how the business operates."
To work, this type of relationship requires both parties to engage much more fully on technical, process and personal levels. These operations are sufficiently different from traditional BPO that Novarica has coined the term "virtualized insurance company operations" (VICO) in order to delineate the subset of providers offering true insurance-specific processing from the larger field of traditional BPO vendors.
"BPO vendors realize they will be rewarded for making improvements and bringing value to insurers," says Celent Senior Analyst Ben Moreland. "Likewise, insurers have to open up in order to create a tight partnership and make it a two-way street. The word partnership has been used and abused but you have to make [vendors] part of what you do because you are reliant on them."
PARTNERSHIPS IN PRACTICE
It is precisely these types of relationships that Mike Lancashire VP, claims and integrated customer solutions at Jacksonville, Fla.-based The Main Street America Group, has been cultivating since 2006. Lancashire says the company initially identified non-core adjuster duties to implement under a BPO agreement with Rolling Meadows, Ill.-based Innovation Group. "When we started outsourcing some of our non-core services, the biggest piece was subrogation but we moved from there to other areas such as auto physical damage," he says.
According to Lancashire, this evolution from dealing with a vendor to dealing with a strategic partner was only possible after the company committed to building an interface to link the two companies. "I guess you could call business process outsourcing the engagement, but once you build the system interface there's much more commitment and it is similar to a marriage."
The benefits of such a union are many, says Bill Langley, CEO North America BPO for Innovation Group. "With a strategic partnership in place, insurers can use BPO as a strategic building block to ensure operational efficiencies, and as a vehicle to position strategic and competitive options," he says. "When an insurer goes this route, they will also likely have access to variable process options, affording them more flexibility in their business model."
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