BPO Gathers Steam Around the World
Insurance Networking News, May 1, 2008
In February, India experienced a major Internet outage caused by two severed undersea cables, while a heavy snowstorm left large areas of China without power. Additional concerns—related to setting up of contracts, quality of work and delivery efficiency — also have emerged in recent months, as insurance firms opted for third-party vendors to manage their onshore and offshore processes. Despite these challenges, the sector continues to grow, helped along by diversification strategies and the increasing value and complexity of the outsourced functions.
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“The latest trends include movement of some of the mid-office functions such as underwriting support, claims support, accounting functions, claims analytics, statutory reporting, regulatory compliance work, issuance of policy or endorsement documents from property/casualty companies,” says B.C. Sheshadri, SBU head of the insurance, healthcare and life-sciences business unit at Bangalore, India-based Infosys Technologies Ltd., which has developed electronic commerce applications for New York-based healthcare insurer Aetna Inc.
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Insurance firms also are looking for vendors that can provide IT as well as BPO support, as many of them have inefficient legacy systems, according to Sheshadri. “Large IT investments, [coupled with] the lack of skilled manpower, has made companies ask for BPO providers to support IT implementation,” he says
One such example is of a Chicago-based property/casualty insurance provider, Unitrin Inc., which wanted to replace its legacy systems as the company’s agents couldn’t look up even basic policy information over the Web with the old system. So Unitrin Business Insurance opted for El Segundo, Calif.-based CSC’s BPO services to help launch an Internet-based commercial package policy (CPP) called TRIN-PAC.
“UBI’s success demonstrates how BPO can result in true business transformation,” says Ray August, president of CSC’s Property/Casualty Insurance Division. “With BPO, we’re committed to the same goal, achieving positive business results for UBI day in and day out.”
Erie, Pa.-based Erie Family Life Insurance Co. also opted to stay onshore when it chose Plano, Texas-based Perot Systems Corp. for a multi-year deal last year.
Under the deal, Perot Systems consolidated Erie’s insurance services into a single policy administration system, and provided a large range of policy issue and management services for both active and closed policies. However, Erie, which provides life insurance and annuity products in 11 states, decided to retain sales service and support, claims adjudication, underwriting and actuarial responsibilities.
RISING CONCERNS
While the BPO market expands, the insurance industry is still tackling new challenges in the forms of natural calamities. The current size of the global BPO market is estimated to be around $29 billion, an increase of 35% since 2003, and is expected to reach $230 billion by 2012, according to the 2008 Nasscom-Everest Group study.
Kalpana Ramakrishnan
Capital insurance and banking verticals will constitute between 60% to 70% (approximately $160 billion) of the total growth, the study projected.
“One concern that an insurance company raised is that they were not defining what value they wanted to get out of these contracts upfront and, hence, they were not measuring the value that they are deriving,” says Kalpana Ramakrishnan, head of sourcing advisory services at Netherlands-based consultancy KPMG International.
Today, most of the measurements in place are from a service-level agreement point of view, including the tactical, day-to-day monitoring system. However, from a strategic standpoint, companies recognize that there are areas of improvement from the vendors’ side, according to Ramakrishnan.
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