No Slump for BPO

Interest in business process outsourcing (BPO) among North American insurers, like most business investments these days, is declining, but a new report from Celent anticipates a BPO rebound once the economy comes out of its funk, according to Mike Fitzgerald, author of the report.

"Historically, this space has been growing around 16 percent to 17 percent," says Fitzgerald. "We actually see just about 10 percent growth in the next two years."

After 2010, though, Fitzgerald expects a return to a higher growth stage with BPO spending increasing from $1.9 billion in 2008 to $4.1 billion by 2013. "It's back-end loaded," says Fitzgerald of the projection.

There will be a general economic recovery over the next two years, predicts Celent, but Fitzgerald contends there are other factors, particularly involving technology, that will hasten growth in the BPO market. "A continuing evolution of service-based architecture will make [BPO] less risky," he says.

Fitzgerald sees more movement into BPO among smaller insurance carriers, a market segment that has both resisted the urge to join in and been largely ignored by BPO vendors. "I think the vendors are getting better about telling their story [to potential customers]," he says. "And the vendors have to climb down the deal chain and actually accept smaller deals in order to spread their fixed costs. [Vendors] are able to deliver things at a lower cost basis as they gain scale."

As both sides improve their technology in ways such as document imaging and electronic file exchange, Fitzgerald maintains even smaller insurance carriers will begin to see some benefit and redo their workflows from simple scanning to overall document management.

In his report, Fitzgerald parceled insurers into three groups in relation to their work in the BPO market: laggards, current adopters, and leaders. "It depends on where companies are at and what they are doing [in the BPO space]," he says. "If you are a laggard, you are going to choose something back office." These types of insurers might look at an area such as accounts receivable to break into the market, he explains.

Current adopters are looking to BPO to add processes such as gathering missing information to assist in claims and underwriting. "The outsource partner will be helping with some part of that process, making it more efficient," says Fitzgerald.

Leaders in the field among insurers are applying what Fitzgerald calls a mixed model where, for example, an outsource partner can deal with agents, while insurers have internal staff calling into the outsource partner for coverage-confirmation-type activities.

Many people will be surprised the U.S. is behind only India in the number of BPO operation centers around the globe, Fitzgerald believes, adding this has come about as the BPO model is becoming more finely tuned.

More companies are looking to stay near-shore for customer-facing BPO applications such as front-end customer service. Consumers have tired of the difficulties of dealing with customer-service reps with unfamiliar accents and voice patterns, notes Fitzgerald.

"Moving that piece of the outsource from offshore to near-shore and then moving the real back-office stuff further away to an even lower cost point is going to be a model that will continue to be adopted," he says. "Most of the vendors we talked to have near-shore. Some of them have adopted it, and some already are there because they are U.S. based. That's going to continue to evolve."

One fly in that ointment involves what the federal government will do about tax incentives for businesses to keep jobs in America. "I don't think [the incentives are] going to be a stick," he says. "I think it's going to be a carrot to the extent you create U.S. jobs."