More Actuarial Services May Head Offshore, Survey Finds

A survey of offshore firms that perform property-casualty insurance company functions finds they are expecting U.S. firms to send them more work providing first contact with claimants, as well as additional actuarial support.

The findings by Conning Research & Consulting Co. also identified a potential for overlooked risks by U.S. firms that ship out jobs overseas. The study was based on survey results from 25 offshore providers.

According to the survey, providers said there was an average 32 percent savings over on-shore alternatives. The providers said that besides expense savings, U.S. insurers chose to send functions offshore to focus on core business operations and improve quality of service.

Sixty percent of offshore provider respondents provide coverage verification as the most common claims service, while 28 percent of claims providers offer actuarial services.

The offshore firms' largest expected expansions, the survey found, are for "first contact with claimant," from 47 percent to 71 percent of providers, and for actuarial services, growing from 28 percent to 54 percent.

Conning noted that actuarial services are among the highest-level insurance services, while about two-thirds of the provider survey respondents offer underwriting services.

The firm found that lower-evel template underwriting is the most common underwriting service, with 58 percent of total respondents offering this service.

Offshore providers' largest expected growth, the Conning report said, is for "other than template underwriting" services.

Providers indicated that high-level underwriting service is expected to increase from 33 percent of total providers to 58 percent. "As with actuarial services, this expansion is a serious move up the intellectual ladder," Conning noted.

The study identified systemic, inherent and strategic risks to reputation, security and results failure as critical offshoring risks.

It said offshoring could result in "weakened ability to innovate and develop new talent and sustain high-quality services for the long term. Processes that are lifted out can freeze in terms of process improvement and development of expertise for individuals. Strategic risks are when the offshoring objectives do not support the company's strategic goals."

Property-casualty insurers have been exporting work nearly 20 years, and in 2008, "estimated Indian revenues alone for total insurance industry processing, including life insurers, were likely near $1.3 billion," Conning reported.

"Offshore providers now offer a full range of property-casualty insurance business processing services, from policy management to claims and underwriting services," said Stephan Christiansen, director of research at Conning. "Current demand for expense savings in the near term may accelerate interest in the cost savings offered with these services."

However, he added, "there are significant risks associated with offshoring, including systemic risks that go well beyond security and quality failure. Performance controls need to measure offshoring processes within the context of the full process supply chain and be sensitive to cultural barriers."

The 113-page research study--"Expense Management for Property-Casualty Processes: Evaluating the Offshore Bargain"--sells for $1,750, and can be purchased by contacting 888-707-1177, or via the Conning Web site at www.conningresearch.com.