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BPO Gathers Steam Around the World

Mayur Pahilajani May 1, 2008

Offshore business process outsourcing (BPO) in the insurance industry is facing new challenges, ranging from rising wages in the most popular outsourcing destinations to natural disasters.

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.

The insurance industry still considers the BPO market as an important cost-saving factor to meet their end-to-end needs. A 2008 report by KPMG International projected the knowledge process outsourcing industry to be worth $5 billion by 2010 in the financial sector alone. Additionally, firms are looking beyond cost arbitrage and moving toward more sophisticated and specialized areas of outsourcing of core insurance processes, as well as exploring further options in knowledge process outsourcing.

“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.

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