The redoubtable Mark Twain is said to have written, “Figuresoften beguile me, particularly when I have the arranging of themmyself; in which case the remark attributed to Disraeli would oftenapply with justice and force: 'There are three kinds of lies: lies,damned lies and statistics.'” That certainly applies to talk ofoffshore outsourcing in the insurance tech community.

Having taken statistics courses on both the undergraduate andgraduate levels, I can fully attest that statistics do oftenfrustrate, befuddle and even infuriate people, but how does ithappen that we say the numbers lie?

Reports on insurer outsourcing provide a prime example.

A new book on the subject of offshore outsourcing suggests that“the insurance industry, which has lagged behind others inoutsourcing business and technology processes abroad, is now thefastest-growing offshore service sector with a compound annualgrowth rate (CAGR) of 33 percent.”

In the 2008 edition of “The Black Book of Outsourcing,” itsauthors note that “overall, global insurance outsourcing is growingat a CAGR of 8 percent, expected to become a $24 billion industrynext year. Onshore sourcing relationships are the favoreddestination of 91 percent of insurance firms, while 9 percent electto have suppliers from abroad.

“However, that mix is shifting offshore at a breaking pace,” theauthors state in a news release.

“Black Book” findings for the insurance industry include thefollowing stats:

o Nearly three-quarters of global insurers currently use atleast one information technology outsourcer and one businessprocess outsourcer.

o U.S. outsourcing vendors are preferred by nine of 10 U.S.insurance users/clients.

o Offshore data security, the complexities of managing risks,cultural barriers, compliance requirements and reliability arestill viewed as offshoring drawbacks by 95 percent of insuranceusers.

o 96.6 percent of onshore clients state they would consideroffshore vendors if these issues manifested improvements.

o System modernization, process transformation and innovationdominate sourcing agendas as the key drivers for vendorselections–more than the cost-based benefits of recent years, asrisks from service interruption, customer data, informationsecurity and privacy exposures far outweigh any benefits from costreduction to insurers.

How very interesting this all is. The CAGR of offshore insuranceoutsourcing is projected to be 33 percent, yet only 9 percent ofinsurers seem to favor offshore outsourcing, citing a number ofvery practical concerns, some of which have previously been voicedin this column.

If you think about it, however, a 33 percent growth among the 9percent who favor offshore outsourcing is not terribly large,because the numbers favoring it are not terribly large.

Assuming the statistical projection of the book to be correct, aone-third growth in the 9 percent who favor offshore outsourcingwould mean that 12 percent will favor it next year, and 16 percentthe next.

That still leaves 84 percent of insurance companies favoringonshore outsourcing over the offshore variety in 2010–in otherwords, the vast majority.

So, did the numbers lie? Well, not exactly. The interpretationof the numbers, however, is another kettle of (stinking) fish.

Having looked at the figures, it is easy to see that theinterpretive statement, “that mix is shifting offshore at abreaking [breakneck?] pace,” is hardly justified by the reportednumbers. There is no doubt that 33 percent seems like a largeannual growth number when taken out of context, but as we haveseen, it is actually not terribly significant when the originalfigures are relatively small numbers.

It may be true that offshore outsourcing is growing in theinsurance industry, but to suggest, based on these projections,that it is a runaway trend, is–to be kind–a gross exaggeration.

One also has to wonder how the onshore outsourcers have greetedthe news in this book. If they did the math, perhaps a yawn was thebest response.