Insurance business process outsourcing is expected to increase 67 percent by 2013 on a global basis, primarily from growth outside of North America and the United Kingdom, according to a Celent, a Boston-based financial research and consulting firm.
In a recent report, "Insurance Business Process Outsourcing: A Global View," both North America and Europe will continue to make up a large part of the global business process outsourcing (BPO) revenue stream. However, there are signs of growing interest in other regions, according to the report.
Celent said it estimates the global insurance BPO market for core insurance processes at $5.2 billion in 2008. The market is expected to grow over the next five years to reach $8.7 billion in 2013. Driven by a variety of factors, growth will vary in each region, but the overall compound annual growth rate is estimated at less than 11 percent.
As the global economic turmoil continues, the impact on the insurance BPO market appears mixed, Celent continued. The current climate puts further cost pressures on insurers. Those with existing BPO relationships are likely to seek ways of extending the deals.
Insurers that are succeeding with BPO will leverage their supplier management skills as a competitive organizational capability and continue to use them to build an advantage over competitors. With that said, providers report considerable delays in the decision process to outsource from both new and established buyers.
Beginning BPO initiatives from a "standing start" will decrease in frequency in 2009 and 2010. In the short term, immediate cost saving projects will be selected by insurers over BPO projects that have not yet begun, said Celent. In cases where long-term projects are competing for the same resources, market-facing, less politically sensitive initiatives will be chosen.
The news of the spectacular fraud at Satyam will fuel arguments of buyers inherently resistant to outsourcing. Buyers with experience in the sector are likely only to increase effort and time in a due diligence process for existing and new contracts.
The United States and United Kingdom are, for the most part, mature BPO-buyer markets. While cost savings is an important factor, variable cost structures and improved service levels are increasingly important criteria when choosing a provider. These two markets make up almost 90 percent of the current BPO deal activity. While Europe is a mature insurance market, legislation and cultural factors have prevented broad adoption of BPO.
Buyers in Latin America and Asia Pacific are motivated for reasons other than cost. For countries such as India and China, insurers are looking for scale in the manufacturing of insurance in markets that are growing exponentially. In countries that are seeing a high number of entrants, outsourcing core processing is seen as an efficient use of capital. Process focus in these regions is largely on noncore processing.
Celent estimates the insurance BPO market in the Asia-Pacific region to be $206 million in 2008. This market is expected to grow at a rate of 13 percent over the next five years to $379 million.
Celent estimates the insurance BPO market in Latin America to be $318 million in 2008. This market is expected to grow at a rate of 9 percent over the next five years to $484 million.
Celent estimates the insurance BPO market in South Africa to be $84 million in 2008. This market is expected to grow to $128 million over the next five years.
Access to the full report is available at www.celent.com.
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