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Insurance Outsourcing – Ensuring a Brighter Future - September 2011
 

Insurance Outsourcing – Ensuring a Brighter Future - September 2011

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Everest Group will highlight the findings of its reports on the insurance IT Application Outsourcing (AO) and insurance Business Process Outsourcing (BPO) market covering the following aspects:

Everest Group will highlight the findings of its reports on the insurance IT Application Outsourcing (AO) and insurance Business Process Outsourcing (BPO) market covering the following aspects:
1) Insurance outsourcing – Market size and growth: Define insurance outsourcing industry size, review growth trends, understand the key factors driving the growth of insurance outsourcing, and discuss the specific AO and BPO value propositions in light of these drivers
2) Key transaction and adoption trends in Insurance AO & Insurance BPO: Analyze the current IT-BP activity in the insurance sector covering ‘large, multi-year AO relationships’ within IT, and ‘insurance industry specific and non-voice BPO’
3) Emerging priorities and future outlook: Highlight themes that are influencing the sourcing priorities of global insurance majors; and discuss how these changes will impact the AO and BPO outsourcing landscape evolution in the future

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    Insurance Outsourcing – Ensuring a Brighter Future - September 2011 Insurance Outsourcing – Ensuring a Brighter Future - September 2011 Presentation Transcript

    • Today’s Webinar is brought to you by Everest GroupToday’s WebinarInsurance Outsourcing – Ensuring a Brighter FutureSynopsis:Everest Group will highlight the findings of its reports on the insurance IT Application Outsourcing (AO) and insurance BusinessProcess Outsourcing (BPO) market covering the following aspects: Insurance outsourcing – Market size and growth: Define insurance outsourcing industry size, review growth trends, understand the key factors driving the growth of insurance outsourcing and discuss the specific AO and BPO value outsourcing, propositions in light of these drivers Key transaction and adoption trends in Insurance AO & Insurance BPO: Analyze the current IT-BP activity in the insurance sector covering ‘large, multi-year AO relationships’ within IT, and ‘insurance industry specific and non-voice BPO’ Emerging priorities and future outlook: Highlight themes that are influencing the sourcing priorities of global insurance majors; and discuss how these changes will impact the AO and BPO outsourcing landscape evolution in the future j ; g p g pAbout Everest GroupEverest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation forhelping Global 1000 firms dramatically improve their performance by optimizing their back and middle office business services back- middle-office services.With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to theuse and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practicalconsulting, original research and industry resource services, Everest Group helps clients maximize value from deliverystrategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group servesusers of global services, providers of services, country organizations and private equity firms, in six continents across all g ,p , y g p q y ,industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.For more information, contact Mark Williamson at mark.williamson@everestgrp.com Proprietary & Confidential. © 2011, Everest Global, Inc. 1
    • Q&ATo ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen. This will open the Q&A Panel Be sure to keep the defa lt set to “send to a Panelist” s re default Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit Proprietary & Confidential. © 2011, Everest Global, Inc. 2
    • Webinar: Insurance Outsourcing –Ensuring a Brighter FutureSeptember 2011
    • Introductions Rajesh Ranjan Research Director Everest Group rajesh.ranjan@everestgrp.com Rajat Juneja Senior Research Analyst Everest Group rajat.juneja@everestgrp.com j tj j @ t Proprietary & Confidential. © 2011, Everest Global, Inc. 4
    • Agenda Background and context Insurance outsourcing – Market size and growth Key transaction and adoption trends in Insurance AO & Insurance BPO Emerging priorities and future outlook Q&A Proprietary & Confidential. © 2011, Everest Global, Inc. 5
    • This webinar presents results of Everest Group’s recentlyreleased reports on the Insurance BPO and InsuranceApplications Outsourcing (AO) market NOT EXHAUSTIVE BFSI Focus of webinarBanking Capital markets Insurance Retail financial services (B2C1)  Investment banking  Life and pensions – Retail banking  Asset management  Property and casualty – Lending  Custody – Cards  Fund administration Commercial banking (B2B2) Services industryIT Infrastructure Outsourcing IT Applications Outsourcing Business Process(IO) (AO) Outsourcing (BPO) Consulting Traditional IO  Application development  BFSI-specific BPO  IT strategy/operations Remote Infrastructure  Applications maintenance consulting Management (RIM)  Independent testing  HRO  Business consulting Infrastructure Management  Package implementation  FAO  Infrastructure consulting Services (IMS)  ERP services  PO  Infrastructure roll-outs Cloud  Business intelligence / Data  Contact center warehousing  Knowledge servicesEverest Group’s research analyzes business process (BPO) and IT applications outsourcing (AO) market in the Insurance sub-vertical with a focus on i d t ti l ith f industry-specific-BPO and large AO transactions ifi BPO d l t ti1 Business-to-consumer relationships2 Business-to-business relationships Proprietary & Confidential. © 2011, Everest Global, Inc. 6
    • From a scope perspective, the BPO section of this webinarprovides coverage of non-voice and industry specific BPO ininsuranceTypical value chain for insurance business processes nctions Product development Policy servicing New business Claims processing and business acquisition and reporting Fun Actuarial data Initial policy creation Policy servicing – Initial claims processing processing financial Underwriting esses Actuarial analysis and Policy records Claims management This report covers review Premium collection and management g try-specific proce Claims review and industry specific accounting Proposals and Eligibility requirement investigation Insurance BPO illustrations Policy issuance and verification (adjudication) Agent and broker Member enrollment and Claims adjustment and management management disbursements This report also covers insurance-specific p Indust Regulatory and Fraud detection and knowledge services compliance management (such as, analytics) and management F&A work like closing of Claims litigation, books but does not cover Product testing recovery/ subrogation horizontal F&A processes like accounts payable or accounts bl t Knowledge services receivableprocessesHorizontal Finance & accounting This report is not aimed Customer interaction and support at coverage of voice- Human resource management based BPO and other horizontal BPO areas like Procurement services HR or procurementSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 7
    • These reports are a part of Everest Group’s seriesof 15 reports focused on BFSI Outsourcing in 2011 PublishedGlobal Lending BPO Service Providers’ Capital Markets BPOacross Credit Cards, (Profiles Compendium) Market Overview Focus of the webinarConsumer Loans and Loans, for IT Application Services UpcomingCommercial loans in BankingFS BPO Service Provider Insurance BPO Market Market Trends for ITProfile Compendium Overview Application Services in Capital MarketsGlobal sourcing in Market Trends for IT Service ProviderFS BPO – Significant Application Services in Landscape for ITTraction Yet TremendousTraction, Insurance Application Services inPotential Capital MarketsMarket Trends for IT Service Provider Service providers’ ProfilesApplication Services in Landscape for IT Compendium for ITBanking Application Services in Application Services in Insurance Capital MarketsService Provider Service Providers’ Trade ReconciliationsLandscape for IT Profiles Compendium for BPO Market OverviewApplication Services in IT Application Services inBanking Insurance Proprietary & Confidential. © 2011, Everest Global, Inc. 8
    • Everest Group’s BFSI research is based on two keysources of proprietary information1  Proprietary Everest Group database of ~345 large, multi-year AO contracts within BFSI (updated annually), and 820+ publicly announced BFSI BPO contracts signed as of Q1 2011  g g The database tracks the following elements of each BPO / large AO relationship: – Buyer details including industry, size, and signing region – Contract details including TCV, ACV, term, start date, service provider FTEs, and pricing structure – Activity broken down separately for banking, capital markets, and insurance, and by Lines of Business (e.g., retail banking, credit cards, loans and mortgages) – Scope includes coverage of buyer geography as well as functional activities – Global sourcing, including delivery locations and level of offshoring G oba sou c g, c ud g de e y ocat o s a d e e o o s o g2  Proprietary Everest Group database of operational capability of 20+ BFSI AO and 15+ BFSI BPO service providers (updated annually)  The database tracks the following capability elements for each service provider: – Key leaders – Major BFSI BPO + BFSI AO clients and recent wins M j li t d t i – Overall revenues, total employees, and BFSI employees – Recent BFSI-related developments – BFSI BPO + AO delivery locations – BFSI BPO + AO service suite – Domain capabilities, proprietary solutions, and intellectual property investmentsIn addition to these databases: Everest Group conducts executive-level interviews with leading insurance BPO / insurance AO service providers and insurance BPO/AO clients Everest Group leverages its experience and IP in the Insurance BPO, Insurance AO market Note: We continuously monitor market developments and track additional service providers beyond those included in the analysisConfidentiality: Everest Group takes its confidentiality pledge very seriously. Any information we collect, that is contract specific, will be presented back to the industry only in an aggregated fashion Proprietary & Confidential. © 2011, Everest Global, Inc. 9
    • Everest Group has collated information on BFSI BPO, andlarge-sized BFSI AO transactions and used this robust data-set to analyze various aspects of the BFSI outsourcing marketResearch scope  Industry: Insurance (life, annuities and pensions; property and casualty insurance); excludes banking, capital markets, and healthcare payers p y  Services: Large (TCV >US$25 million), multi-year (> three years), annuity-based application outsourcing, and insurance industry specific business process outsourcing  Geography: Global  Sourcing model: Third-party AO transactions; excludes shared services or captivesEverest Group’s Transaction ~350 active large-sized BFSI AO transactions1Intelligence Database Banking ~18,000 transactions listed Focus of Over 95% transactions post- Insurance (110 large-sized transactions) this webinar 2000 ~4,300 BFSI transactions Capital Markets ~820 active BFSI BPO transactionsEverest Group’s RFIs to BFSI BankingBPO, and BFSI AO service Focus ofproviders Insurance (250+ industry-specific transactions) this webinar Participation by over 20 leading Capital Markets service providers 1 Transactions with TCV >US$25 million, which are active as of Dec 2010Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 10
    • Agenda Background and context Insurance outsourcing – Market size and growth Key transaction and adoption trends in Insurance AO & Insurance BPO Emerging priorities and future outlook Q&A Proprietary & Confidential. © 2011, Everest Global, Inc. 11
    • Insurance vertical represents significant third-party spendacross IT and business processes within BFSI, the largestbuyer segment in the outsourcing and offshoring industryBFSI IT services: BFSI BPO Services:BFSI % contribution to global IT outsourcing and off-shoring, 2010 BFSI % contribution to global BPO transactions, and off-shoring market, 2010 BFSI IT spending remained BFSI remains the largest BPO segment strong in 2010 across different globally, but is still poised to grow more than towers including AO, IO, SI etc. other less mature segments ~ 35% ~40% ~30%1 ~16% Contribution to number of BP offshoring contribution IT outsourcing contribution IT offshoring contribution BPO transactions2010 BFSI third-party IT services spend 2010 BFSI third-party business Market share of third-partyUS$ billion process services spend Insurance spend 100% = US$72-80 billion US$ billion Percentage 100% = US$25-34 billion 100% = US$9-12 billion Capital markets 12-14 BPO Banking 40-50% 40 50% 12-16 12 16 33-37 Banking 9-12 Insurance 3.5-4.5 50-60% 4.5-5.5 27-30 TPAs Insurance 4-6 Capital C it l markets k t 1 Based on Everest Group’s proprietary Transactions Intelligence (TI) databaseSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 12
    • The number of contracts signed in Insurance BPO andInsurance AO dipped in 2008-2009 but are starting to witnessa revivalNumber of large, active insurance AO contracts1Number of transactions 17 19 14 8 2007 2008 2009 2010Global third-party Insurance BPO contract signings over time2Number of new contracts signed (publicly announced) 31 28 21 12 2007 2008 2009 2010 1 New transactions with TCV >US$25 million, which started in the given period and are active as of December 2010 2 101 publicly announced Insurance BPO contracts signed between January 2007 and April 2011Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 13
    • Growth and cost pressures, business pain-points, changingconsumer behavior, and technology issues are the four majordrivers for outsourcing within Insurance verticalInsuranceOutsourcing drivers Underlying insurance industry challengesGrowth and cost  Falling insurance premiumspressures post  Increased cost of re-insurancerecession  Mounting claims, expenses, and outgo  Managing cost of supporting booked policies in complex market capital conditions  New markets and customer segmentsChanging  More demanding customersconsumer behavior  Diminished customer loyalty and trustBusiness issues  Increased fraudulent claimsand operational  Changing regulatory frameworks and increasing cost of compliancepain-points  Increased operational complexity driven by M&A p p y y  Aging workforce and limited availability of skilled resources for high-end work  Inability of legacy systems to scale-up to new volumes and new type of productsTechnology gy  Achieving better returns on IT investments gupgrades Proprietary & Confidential. © 2011, Everest Global, Inc. 14
    • Growing operational pressures are forcing insurance majorsto invest in IT-BPO legacy modernization, innovation andadministrative improvement initiativesInsuranceOutsourcing drivers Insurance AO value proposition Insurance BPO value proposition  Optimize administration costs, and accurately  Build a low-cost and scalable operatingGrowth and cost evaluate risks modelpressures post  Improve business performance by  Improve the ability to acquire new businessrecession strengthening customer relationships  Support growth through modernization  Improve time-to-market for new products,  Improve current customer service levelsChanging consumer geographies  Process excellence and self-servicebehavior  Support product innovation capabilities are key focus areas to improve  Better address information demands of customer stickiness customers  Reduce complexity of operating environment  Align operations and reporting to regulatoryBusiness issues andoperational pain-  Risk and compliance management support and compliance requirements  Consolidate operations to unify disparate  Improve the quality and speed of transactionspoints business units  Increase speed-to-competency for the sales and marketing functions g  Access hard-to-find skilled professionals such as actuaries  Simplifying administrative processes (through  Access better technology with limited upfrontTechnology gy use of IT-enabled rules-based administration) ) cost through a p g platform-based BPO option pupgrades  Fostering innovation in product and process management Proprietary & Confidential. © 2011, Everest Global, Inc. 15
    • Agenda Background and context Insurance outsourcing – Market size and growth Key transaction and adoption trends in Insurance AO & Insurance BPO Emerging priorities and future outlook Q&A Proprietary & Confidential. © 2011, Everest Global, Inc. 16
    • While comparable in size, the two insurancesegments differs in terms of BPO adoption pattern Distribution of third-party BPO services by insurance segment US$ billion 100% = 3.5-4.5 40-45% Life and pension Property and casualty 55-60% p y y The two insurance segments differ in terms of BPO adoption P&C &C L&P & Penetration Overall higher penetration in terms of number Lower penetration in terms of number of deals of deals Size of contracts Smaller-sized deals (typically piecemeal Larger-sized deals (more comprehensive approach around administrative tasks) especially around closed-block businesses, greater businesses role of technology) Demand outlook Relatively stagnant Higher upturn in demand currently Buyer adoption Emerging opportunities from Tier-two/three Large Tier-1 insurers likely to drive market growth insurers in the near termSample size: 257 publicly announced Insurance BPO contracts signed up to April 2011 Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 17
    • While U.S. and the UK are comparable in market size, theformer represents significant untapped potential Geographical mix of insurance industry revenues and insurance outsourcing value US$ 100% = ~4.0 trillion 3.5-4.5 billion 11% Rest of World 32% 41% UK 8% U.S. 28% 42% Rest of Europe f 32% 6% Insurance industry Insurance BPO revenuesSample size: 161 industry-specific Insurance BPO contracts signed till April 2011 Sources: Everest Group (2011); OneSource data Proprietary & Confidential. © 2011, Everest Global, Inc. 18
    • Large insurers dominate the Insurance BPO market butadoption by small and medium buyers is increasing Share of Insurance BPO contracts by size of organization Number of contracts 100% = 20 68 32 Small and medium (Revenues less 40% 46% 50% than US$5 billion) Large (revenues 60% greater than 54% 50% US$5 billion) Upto 2002 2003-2007 2008-2010Sample size: Based on information from 12+ Insurance BPO service providers Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 19
    • Within AO, Application development and maintenanceservices, form the primary component in most insurancecontracts Sub-functions in large insurance AO transactions1 Frequency of inclusion2 ADM 96% Testing 74% Package implementation 50% ( ) (PI) ERP services 41%Includes other AOsubfunctions such as Others 57%systems integration,and application relatedconsulting 1 Transactions with TCV >US$25 million and which are active as of December 2010 2 Percentage of large insurance AO transactions (with known scope details) in which the given subfunction is in scopeSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 20
    • Scope of insurance AO contracts is balanced across life andP&C segments; ADM & testing are the dominant functionsacross both LoBsInsurance LoBs included in large AO transactions1 Sub-functional demand across different LoBsFrequency of inclusion2 Frequency of inclusion g High Medium Low Life, ADM Testing PI ERP Othersannuities, and 52% pensions Life, annuities, and pension Property and Property, and 58% casualty casualty Other Others 8% Includes other insurance services, such as re- insurance, speciality insurance etc. 1 Transactions with TCV >US$25 million and which are active as of December 2010 2 Percentage of large insurance AO transactions (with known scope details) in which the given subfunction is in scopeSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 21
    • While North America leads in the number of large insuranceAO transactions signed, transaction values remainsignificantly higher in Europe Transaction and TCV distribution by signing region1 Number of transactions2 and TCV in US$ billion 100% = 106 ~12 12 MEA 2% 3% 3% 3% Latin America Asia Pacific 8% 4% 34% North America 55% 56% Europe E 32% Number of transactions TCV 1 Transactions with TCV >US$25 million and which are active as of December 2010 2 Transactions for which details of signing region were knownSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 22
    • While India continues to be the largest offshore center forinsurance AO and BPO delivery, other locations are gainingincreasing popularity among insurance companiesInsurance AO and BPO capabilities placement in key offshore locations NOT EXHAUSTIVE Maturity1 level: High Medium Low Poland Hungary Bulgaria China Egypt India Mexico Philippines Malaysia Brazil Argentina 1 “Maturity” is based on ~20 leading service providers’ aggregate delivery workforce present in the countries for AO workSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 23
    • Agenda Background and context Insurance outsourcing – Market size and growth Key transaction and adoption trends in Insurance AO & Insurance BPO Emerging priorities and future outlook Q&A Proprietary & Confidential. © 2011, Everest Global, Inc. 24
    • Emerging trends across the insurance industry value chainhave redefined the IT application priorities for insurancebuyersEmerging priorities  Re-engineer products to combat growing competition in the industry, and alignof insurance AO to changing customer preferencesbuyersb  Revamp distribution strategies (across agency and other emerging channels) to adapt to evolving buying behaviour  Increase focus on superior underwriting techniques to grow underwriting profits that have been elusive in recent years  Replace legacy policy management frameworks with adaptive, rules-based policy administration systems  Reduce fraudulent claims, improving claims’ service for subscribers, and controlling claims administration expensesImplications and  Transform orientation to position themselves as “partners” rather thanfuture outlook for “providers”: With buyers engaging service providers in early product design andproviders development activities, providers must evaluate “partnership-based” engagement models. These could be in the form of: Partner in creating “joint models joint Centers of Excellence (CoEs)” or pursuing a combined go-to-market strategy in emerging areas  Develop strong LoB-centric expertise, to support particular business units across the operating value chain  Expand global d li E d l b l delivery f t i t t meet b footprint to t buyers’ growth objectives ’ th bj ti Proprietary & Confidential. © 2011, Everest Global, Inc. 25
    • Growth, cost pressures, and technological needs are theemerging priorities for buyers in Insurance BPO, and serviceproviders need to adapt accordinglyEmerging priorities  Post-recession growth and cost pressures continue to play an important roleof insurance BPO  Changing regulatory frameworks and increasing cost of compliancebuyersb  Inability of legacy systems to scale up to new volumes and new types of products  Limited availability of skilled resources for high-end workImplications and  Beyond transaction activities, the ability to effectively support complexfuture outlook for insurance processes like underwriting and actuarial analysis as well as help runproviders analytics and risk modelling are increasingly becoming important to differentiate and succeed  Some of the regulatory requirements as well as an increasing consideration to keep voice-based services closer to the buyer market necessitates onshore/nearshore presence  The ability to offer platform-led solutions is becoming a key requirement to succeed in specific insurance segments (e.g., closed-block businesses in life closed block and pensions)  The ability to offer higher-end services (actuarial / fraud analytics / research) will be a key differentiator in the time to come Proprietary & Confidential. © 2011, Everest Global, Inc. 26
    • Agenda Background and context Insurance outsourcing – Market size and growth Key transaction and adoption trends in Insurance AO & Insurance BPO Emerging priorities and future outlook Q&A Proprietary & Confidential. © 2011, Everest Global, Inc. 27
    • Q&A Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version For advice or research on the BFSI outsourcing and offshoring market, please contact: – Rajesh Ranjan, rajesh.ranjan@everestgrp.com – Rajat Juneja, rajat.juneja@everestgrp.com For background information on Everest Group, please visit: – www.everestgrp.com – research.everestgrp.com Thank you for attending todayTo ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen screen. This will open the Q&A Panel Be sure to keep the default set to “send to a Panelist” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit Proprietary & Confidential. © 2011, Everest Global, Inc. 28
    • Related Content Insurance BPO – Rising Demand, Increasing Competition IT Application Outsourcing in Insurance – Trends and Future Outlook pp g Banking, Financial Services, and Insurance (BFSI): Trends for Q2 2011 Case Study: Optimizing a Global Insurance Company’s Procure-to-Pay Function BFSI Outsourcing Research Program Upcoming WebinarsOutsourced Portfolio Rationalization: Getting the Most out of OutsourcingO t d P tf li R ti li ti G tti th M t t f O t i Thursday, September 22, 9:00 a.m. CDT RegisterFuture-Proofing Your Organization via FP&A g g Thursday, October 13, 9:00 a.m. CDT Register Proprietary & Confidential. © 2011, Everest Global, Inc. 29
    • Everest Group leads clients from insight to actionContact us for more information about our consulting, research, and industry resources. Dallas (Corporate Headquarters) Canada info@everestgrp.com canada@everestgrp.com +1-214-451-3000 +1-416-865-2033 +1-214-451-3110 New York India/Middle East info@everestgrp.com info@everestgrp com india@everestgrp.com india@everestgrp com +1-646-805-4000 +91-124-496-1000 +91-124-496-1100 United Kingdom Netherlands & Continental Europe unitedkingdom@everestgrp.com benelux@everestgrp.com +44-870-770-0270 +31-20-301-2138 www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Proprietary & Confidential. © 2011, Everest Global, Inc. 30