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European Insurers See BPO as Vital
January 2007It's the same old adage: a penny saved is a penny earned. For many insurers, that means a boost in 2007 outsourced services. But for an up-and-coming group of carriers, that penny translates to a one-pence, kroner, deutsche mark or Euro.
Across the globe, interest in business process outsourcing (BPO) services continues to increase, chiefly because insurers must continue to seek ways to achieve operational efficiencies and take advantage of growth opportunities.
But nowhere is that more apparent than in Europe, where the insurance BPO landscape stands in stark contrast with its U.S. counterpart. While roughly the same size market as the one in the United States, its complex and varied language, political climate and labor and tax laws have contributed to a slower BPO adoption rate by insurers in Europe.
"Increased cost pressure in most European markets is putting BPO ever more on the map," says Matthew Whittall, chief operating officer based in Germany at United Kingdom-based Innovation Group, a provider of specialized outsourcing services to the UK and Germany.
"But the language problem means that for many European markets it is not easy to offshore simple processes-how many Indians speak German, for example?"
That's expected to change. Currently, 64% of the offshore business in India is generated from U.S. carriers, and of the remainder, 28% comes from the UK and other parts of Europe, according to ValueNotes, a Pune, India, business intelligence and research provider. ValueNotes predicts that by 2010, the share of U.S. business will drop to 54%, while that of the UK and the rest of Europe will increase to 36%.
EXPANSION COMING
As the U.S. reduces its outsource services activities in the next five years, the core European insurance BPO market is predicted to expand at a CAGR of 14% over the same period, according to Boston-based research firm Celent LLC.
The core insurance BPO market in Europe is already sizable. Celent estimates the market at U.S. $2.73 billion for 2006 and anticipates growth to U.S. $5.46 billion in 2011, according to the report, "BPO in the European Insurance Market."
Europe's new interest in BPO has more to do with carriers meeting a diverse set of objectives rather than cost savings alone, reports Celent.
Europe's widely held slow adoption can be explained not only by its complexity of cultures and laws. Another contributor is its overall receptiveness to outsourcing.
Karim Benrais, head of Bermuda-based Accenture Insurance Services (AIS) in Paris, reports that sensitivity about BPO varies a lot among European countries. Accenture provides BPO services overseas to France, Italy, the Netherlands, Spain, Eastern Europe, India and the Philippines.
"In some countries (such as France, the UK) [BPO] is perceived and openly evaluated as a valuable alternative," says Benrais. "Consequently, buyers have a clear perception of benefits and potential issues, and know very well how to prepare an RFP and to evaluate responses. In these countries the market is more mature and the competition is greater."
In other countries, such as Italy and Netherlands, BPO is still seen as a niche alternative, limited to specific needs, such as reducing time-to-market for a single product or filling in for the lack of competence for an old IT system, claims Benrais.
"As a result, the market is less mature and it's more difficult to compare competitors, offers and prices, and the client is less experienced, with lower perception of benefits and difficulty in managing BPO providers," Benrais says.
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