The last few years saw the deconstruction of the mighty ‘Banking, Financial Services and Insurance’ (BFSI) segment, for the outsourcing industry. With significantly dissimilar business environments, processes and outsourcing needs, the distinct differences in the banking and insurance sectors have become apparent. They are now treated as exclusive customer segments, and the addressable market for each of them have proved extremely lucrative for outsourcing providers. Due to this reason, providers are striving to gain critical industry experience and evolve their ‘banking’, ‘financial services’ and ‘insurance’ practices independently, with a keen eye on high-end services for the near future.

The insurance segment, worth US$4066 billion in global premiums (Swiss Re Sigma Study, 2009), is no stranger to outsourcing. Insurance, reinsurance and intermediary companies have relied on outsourcing application development and infrastructure management outsourcing for many years, like the aggressively outsourced banking segment. With confidence established in the ‘outsourcing’ concept, in the last decade UK based insurers moved ahead to set up offshore captive centres and Third Party Administrator agreements for various low-end business processes as well. Simultaneously, insurance companies in the US engaged with BPO providers instead, and it is due to their efforts that the intensity of insurance BPO outsourcing has grown to today’s volumes. Collectively, the North American insurance BPO market was valued at US$2 billion in 2009 by Celent, a consulting firm. By 2013, this figure is estimated to double, despite the sizing relating to only core low-end BPO processes.

Moving up the Enterprise Value Chain Through Insurance Analytics

Processes outsourced today by insurers in the US/Europe include a wide variety of volume-led transactions, in the fields of policy administration and servicing, claims administration, various marketing/ sales/new business outbound voice processes, and customer support. These back-office/voice processes have been easier for insurers to outsource, as they are relatively less critical, offer greater savings potential, and are easier to migrate due to their high process maturity.

As the industry matures, several major BPO providers are now transitioning to position themselves as high-value business partners, and are offering a range of knowledge intensive services, to move up the value chain. Of these KPO services, insurance analytics looks to be the strongest contender in the coming years, due to the influence of several competitive forces in the insurance segment, elaborated below. 

1.  Legislative and regulatory compliance requirements: The US healthcare reform will bring in over 30 million new insured over the course of the next four years, introducing complete new segments for US insurers to service. While this is a great opportunity for insurers, they will need strong risk and price remodelling to aid their product development. European insurers, meanwhile, are subject to compliance requirements from the Solvency II regime, which will bring about a more effective risk management framework for the EU. As a result, insurers have to set up extensive risk modelling to comply with the Solvency II requirements, including quantitative requirements (Pillar I), governance, supervision and risk assessment (Pillar II), and disclosure of insurance operations (Pillar III).
2. Strong competitive pressures encouraging ‘core’ outsourcing: Insurers face a market with falling premiums and profitability, compared to the pre-recession years. There is severe competition, coupled with newer customer and distribution channel dynamics. To be able to compete, insurers must achieve the highest degree of efficiency and leanness. Once ‘unoutsourceable’ core processes are no longer viewed as such. Risk modelling, actuarial services and new product development were traditionally the most core insurance activities, directly linked with company performance and competitive differentiation. The entire gamut of these services was then retained in-house. However, with the paradigm shift, even high level research and analytics work is being considered for outsourcing. This includes services such as:
   Predictive analytics
   Claims and profitability analysis
   Persistency modelling and analysis
   Mortality/morbidity modelling and analysis
   Product profitability analysis
   New product development – pricing, valuation
   Commissions analysis
   Actuarial / statutory reporting
   Actuarial data
   Information management
   While initially more reporting and information management services were outsourced within analytics, providers are now seeing a surge in actuarial and profitability/pricing analytics as well. Based on the industry redefinitions taking place, in the coming years only work that is heavily governed by regulations and/or is incapable of being delivered through technology will remain as ‘core’, to be retained in-house.
3. Provider base gaining KPO domain expertise: The majority of high-value insurance processes are complex, being knowledge and judgment intensive. Hence, these ‘KPO’ services will only be entrusted to established ‘niche’ providers who have demonstrated domain expertise in insurance. Towards this, BPO providers are rapidly verticalizing in order to enhance insurance expertise. Existing outsourcing relationships with IT/BPO insurance clients are being leveraged to cross-sell analytics services. The top insurance BPO providers have a significant presence in India, and are benefiting from the country’s strong talent pool, with strong analytical/mathematical skills and English language capabilities. With robust business delivery models, domain expertise and a large talent pool, providers are positioned well to move up the insurance value chain.