Expansion Plans

Expansion Plans

BPO offers no quick fix, but adding lines of business is nevertheless a popular strategy.

Business process outsourcing continues to be a major focus of attention for insurance carriers, according to the analysts from Celent who prepared the report: “Insurance Business Process Outsourcing–A Global View.”

Celent is projecting single-digit growth in BPO this year and in 2010, but Mike Fitzgerald, a senior analyst in Celent's insurance practice, expects those numbers to ramp up after that.

“Some of that [slower growth] is the economy, but some also is adoption of the techniques that get to core insurance processing,” he says. “Once you get beyond standard HR, payroll, accounting, and accounts payable, it's been a slow drip of companies and vendors learning how to work with each other, but that's picking up over time.”

The major areas of utilization of BPO for insurers continue to be found in two functions: call centers and claims, with call centers leading the way. “Call center can mean a lot of things, but most often, it has to do with agent service–supporting agents when they have issues about licensing or training,” says Fitzgerald. Call centers also handle most of the first notice of loss for insurers–a standard outsourcing application for a long time, he adds.

But BPO in the claims area involves some greater complexity, making sure all the information is in the claims file for the adjuster to review. “There is more to the claims process than just adjusting,” points out Fitzgerald. “Claims management is not only the decision on how much you are going to pay, it's also getting all the documents imaged into a file. There's a lot within claims that can be done that doesn't specifically address the settlement issues.”

In the Celent report, Fitzgerald doesn't project growth rates for specific insurance areas using BPO, but he maintains call centers and claims will remain the two most popular areas of focus. “We think there will be a deeper penetration,” he says. “Companies that are doing BPO for one line might turn to it for additional lines of business.”

Claims BPO is being conducted offshore, particularly if the work involves coverage verification. Most BPO work is done in India, but Fitzgerald was surprised to learn the U.S. ranked number two and Eastern Europe number three as an outsourcing destination. “We're seeing an increasing adoption of near-shore outsourcing–the U.S. or Latin America–particularly for voice BPO,” he says. “The other work is handled overseas. That's a model most of the large outsourcers can offer.”

When dealing with an outsourcer, Fitzgerald notes the vendors are obligated contractually to deliver a certain service level for a certain price point. Downsizing is happening among BPO vendors as it has with many American businesses, but BPO vendors have not been hurt as deeply as the companies they are servicing.

“The outsourcing companies are projecting lower numbers, but they still are talking about 10 percent to 15 percent growth,” says Fitzgerald. “They are cutting back on their financial projections, but they still are talking about double-digit growth. It's not like they are tanking. It's a slowdown and will require some action from them to maintain their profitability, but they are not in a negative growth.”

Insurers shouldn't look to BPO for a quick fix, asserts Fitzgerald. The initial investment is not heavy, but the time line to set it up is lengthy. “We think this year and next year–and it's being confirmed in our discussions with vendors–if an insurance company already is doing outsourcing, it might expand it,” he says. “You have to put the fixed costs in place. Marginal costs of expanding are much lower than the cost of starting. New forays into BPO are going to be studied.”

Fitzgerald believes BPO is not for everyone. “There is no generally accepted level [where BPO would be considered a best option], but there is a level you would not want to look at [BPO] or where the vendor wouldn't want to deal with [an insurer],” says Fitzgerald.

There are other considerations a carrier has to make in deciding whether to outsource. With high unemployment in the U.S., is it worth the bad publicity to lay off U.S. workers and send the jobs to India?

“If an insurer has a 200-person call center and it is located in one of its primary states of operation, is it going to pull those jobs out and have any regulatory issues?” asks Fitzgerald. “Is it a strategic or nonstrategic function? [Outsourcing] will continue to be a political issue.”

Robert Regis Hyle