Shift in Demand to the Emerging Markets
The fact that 50% of the insurance providers are medium and small-sized means that they are constrained by capital expenditure, when seeking domain expertise and best-in-class technology.
Further, they see immense growth potential in emerging markets. Research indicates that both life and non-life premiums are growing rapidly in emerging markets such as Asia Pacific, while stagnating in major markets such as North America. The shift in demand has led insurers to seek partners to help set up green-field operations in these emerging markets.
Key Drivers for Outsourcing in the Insurance Sector
Growth, cost pressures, operational issues, changing consumer behavior and legacy technology issues are the five key drivers for outsourcing in the insurance vertical.
While the overall business challenges in the three segments are largely driven by the above-mentioned factors, there are individual nuances owing to the nature of business and the underwritten risks. These are briefly described below:
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Life: Increasing liabilities and the cost of operations from closed book business is a continuous challenge. The implementation of new regulatory changes will increase the burden on operational costs.
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Property & Casualty (P&C): Process excellence and self service capabilities are key focus areas to improve customer stickiness. Insurers show greater focus on increased customer experience especially in claims processing and renewal management.
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Annuities / Pension: The challenge of an ageing population leads to a huge burden on the pension system across developed countries.
Insurance Outsourcing Undergoing Drastic Changes
The insurance outsourcing landscape has changed drastically in the last five years. Insurance companies have been subject to a variety of changes in their business environment, of strategic significance to their outsourcing activity. Core business activities that were once unimaginable for off-shoring are now being seriously reconsidered. Cost containment, process optimization and effective tapping of domain expertise are key requirements.
With the growing convergence of IT and operations, we see greater traction in the outsourcing of high-end processes like underwriting claims processing, actuarial and analytics support enabled by platform-based and technology-led rule engine. In the next few years, we expect insurers to actively outsource core services like actuarial, product development support, claims and underwriting, among others.
As the markets continue to mature and providers strengthen their capabilities, the services outsourced by insurance companies will progress from pure-play transaction-intensive processes to judgment-based processes. We will see greater demand for full-service offerings in the areas of closed block administration and pension administrations.
The Changing Role of IT Vendors to that of True Partners
Insurance outsourcing is at a mature stage and has moved beyond transactional activities. Insurance clients echo that they now seek a more robust value proposition, wanting to work with a strategic business partner, rather than a transaction-based vendor.
Vendors are becoming true partners to insurance companies by sharing their operational risks and have moved beyond service risk like performance and service matrices. This shift has been enabled by deriving significant benefits from the integrated outsourcing deal involving IT operations convergence (e.g. Platform BPO).
Mature providers have a unique advantage of delivering solutions for some of the challenges that historically held back insurance process outsourcing. Today, insurers are actively leveraging mature expertise and maximizing returns in order to gain market leadership.
Domain Expertise: The Key to Being the Insurance Outsourcing Partner
Progressive outsourcing partners have built offerings based on industry business needs, flexible technology solutions and the right shoring mix that support operations and sustainability. They should also help insurers with the ability to achieve their priorities of customer-centricity, innovation and rapid product development.
In-depth domain expertise, vast experience servicing different insurers and a cross pollination of best practices provide insurers with benefits that go beyond cost reductions and quality improvements.
At TCS, we believe that the next phase of outsourcing in the insurance industry will be defined by the domain expertise proven by the outsourcing partners. We partner with insurance organizations globally and service the entire spectrum of insurance processes in life, P&C, annuity, and pensions and health. TCS’ platform delivery model also addresses the needs of both medium and small-sized insurers.
Insurance Sourcing Transformation: An Industry Perspective
As the industry undergoes a sea change with factors such as the recessionary economy, regulatory changes, demographic shifts, shrinking premiums and reduced profitability, its expectations have changed. The industry now seeks integrated views of current and prospective clients to facilitate new business acquisition.
We, at TCS, conducted a dipstick survey among buyers in the insurance industry to understand the market sentiments and revalidate TCS’ understanding of the insurance BPO market. The survey findings reinforced TCS’ belief of the increasing maturity and the need for business excellence and transformation in this space.
In this newsletter, we discuss the findings of this survey and present Gartner’s recommendation of a Quasi-Virtual Operating Model that embraces the use of external service providers and alternative delivery platforms to streamline the IT environment.
We also feature interviews with Cathy Mahone, SVP, Enterprise Operations, Allianz Life, and Kurt Neilson, Senior Relationship Manager, Phoenix Life, among others.
Read Newsletter: Certainty in Insurance through Transformational Sourcing (1.55 MB PDF)