Over the last four decades, outsourcing has morphed as businessmodels evolved, technology advanced and competition for resourcesand expertise expanded.

In its infancy, outsourcing gained market traction in the datacenter (information technology outsourcing or ITO) focusing on ITcost savings and staff augmentation. This was largely in responseto rapid IT infrastructure changes and staff shortages.Organizations were enabled to quickly adopt new technologies andexpand business automation and integration capabilities.

During the 1990s, through the Y2K and dot-com frenzies,outsourcing provided resources to meet aggressive organizationalplans. At the same time, expanding technology capabilities linkedonshore and offshore resources virtually and created networkedorganizations.

The first business process outsourcing (BPO) services focused onnon-core functions such as human resources, payroll and printing.This provided reduced operational costs and access to innovativetechnology options.

This has continued during the 21st century, expanding into corebusiness operations.

Another shift is underway, but one that will change the modelfor BPO and software and the value proposition beyond operationalcost savings and staff augmentation. This shift is about strategicbusiness value enablement–including new business models, products,or services options–achievable because of technology.

The result is expansion of BPO into core insurance businessoperations including policy management, customer service callcenters, claims management, supply chain management, and auto orproperty repair network management.

This “new BPO” offers innovative business options, agility,process optimization and brand enhancement. It enables reallocationof organizational resources–whether capital, time or people–tostrategic, competitive and market distinguishing initiatives.

This model embraces strategic technologies and istechnology-enabled.

The new BPO uses a common services-oriented architecture (SOA)one-to-many software platform that automates the end-to-endinsurance process delivered using the Internet.

It offers a robust system that can grow with the business and astandardized platform, while supporting unique business needs. Itprovides a richer, seamless stream of data between all insuranceprocess stakeholders, ripe for insurance analytics-drivenbusiness.

It also enables the creation of new, innovative and competitiveservices; offers “plug and play” between software and BPO, creatingorganizational agility; and provides access to “best practices” forservices and software.

Insurers no longer can know and do everything. There are notenough resources to do all business functions well because thebusiness is too complex and changing rapidly. Instead, insurersmust focus on core competitive competencies, such as product andrisk management, and seek strategic partners with knowledge,expertise and new BPO capabilities to support operational needswhile enabling strategic options previously unavailable.

The business value potential is significant. Look at similarshifts in other industries with new services likeinvestment/equities in the 1990s with DTCC (Depository Trust &Clearing Corporation) and banking with SWIFT (Society for WorldwideInterbank Financial Telecommunication). Those markets have seensignificant customer, financial and market growth.

In the insurance industry, there are many examples oforganizations beginning to leverage the new BPO as well. Consideran insurance bureau/marketplace established 40 years ago in SouthAfrica to support brokers/agents. It expanded and transformed byleveraging new technologies and software solutions. Today, thebureau provides seamless integration of policy, claims andaccounting via a transaction model, “freeing” capital for businessgrowth.

The bottom line: The bureau makes it simpler and easier forbrokers to do business. It creates the opportunity for insurers toreach new distribution points and supports full policy managementfrom quote, issue, billing and collection of premium for more than400 brokers, with the option of providing BPO policyadministration.

Forty years of continuous innovation has expanded the model byadding Web-based comparative quoting for brokers, aggregatorcapabilities and now, full claims management.

Another example takes the bureau concept further, using a modernSOA software platform for policy, claims and analytics in a BPOSoftware as a Service (SaaS)-based delivery providing flexibility,agility and scalability for any part of the insurance process.Rather than outsourcing the solution/process to run more cheaply,this model is about cost-effective and sustainable insuranceprocesses, underpinned by technology.

This more traditional BPO operation is standardizing on a modernSOA insurance solution across all of the organization's geographicoperations via a BPO/SaaS delivery model. Within two regions, thisoperation is providing claims and analytics BPO services on acommon software platform for 104 insurers. Some of these insurersare in the global top 20 and all have unique requirements.

This model is based on investment in modern software solutionsthat provide a one-to-many platform, which is highly automated andincludes extensive business analytics/insight.

As this “new BPO” model continues to evolve, it creates newoptions for insurers including “plug and play” between the softwareplatform via license and services via the BPO/SaaS delivery model.Consider the business value during a catastrophic claims event,rollout of new products, entry to new markets, or M&Aconsolidation. In other words, this is not your traditionalBPO.

While the global economic turmoil continues to drive costpressures, forward-thinking insurers are looking for more fromtheir software and outsourcing partners. Customer expectations,market agility, product and service innovation require new levelsof organizational agility to remain competitive.

Business solutions with a unique software platform, BPO servicesand SaaS delivery offer an alternative that is operational andstrategic, helping to channel disruption into competitiveadvantage.

Leading insurance companies that are willing to explore “newBPO” services via a SaaS delivery model will redefine long-heldindustry assumptions and unleash a wave of innovation not seen indecades.

Is your organization just looking to replace legacy systems, oris it looking to redefine your competitive position? It is not aquestion of either/or, but rather the unique combination on acommon software platform. The new BPO is real, powerful andtransformative, and it will significantly shift the competitivelandscape.

Denise Garth is Vice President of GlobalIndustry Affairs for Innovation Group. She may be reached [email protected].