Core No More!
Implementing Sourcing to Fuel Growth
in the Insurance Industry
Sumer Shankardass, Insurance Practice Leader
WNS Global Services
A fundamental shift in outsourcing is just now discernable in the insurance industry,
triggered by a new definition as to what is the core business.
In most industries, outsourcing of business processes has encompass first notice of loss, calling to capture missing
been used primarily as a tool to reduce cost. Identifying data, and policy servicing calls. The interaction does not
the so-called non-core functions, typically from the back require depth of problem solving skill. Transaction
office, for consolidation to and delivery by third party processing services, on the other hand, generally involve
providers has been the rule rather than the exception. But no direct interaction with customers, and include the
outsourcing activity in the insurance industry has begun to delivery of services that are data-intensive and involve
veer dramatically from this approach. There is now a rules-based processing. Any contact is within the
noticeable trend toward expanding outsourcing scope enterprise—between the insurer and their outsourcer, and
beyond non-core processes into what has historically been does not involve the customer
considered core business functionality, using outsourcing
in innovative ways to drive revenue growth while cutting Over the last few years, there has been a movement to
operating costs more complexity when outsourcing insurance processes,
resulting in the delivery of 'blended' processes. For
In the insurance industry, the traditional thought process example, within the insurance industry's traditional
goes something like this: “We must cut our costs in order sourcing framework, the processing of a typical auto claim
to remain competitive in maturing markets. At the same involves a “blended process,” combining elements of both
time, our outsourcing strategy should focus solely on those voice-based and transaction processing services. Simply,
functions or processes, which we believe contain the the process begins when a policyholder calls to inform the
lowest risk and imply least loss of control. Naturally, the insurance company of a loss. This call is received offshore
less impact upon customer, the better; the more rules- when an agent captures and records all the details of the
based transaction processes we outsource the fewer loss, arranging assistance from a towing service and
problems with governance and with customers will be possibly a replacement car.
incurred.” Sound very familiar?
As a result, this “traditional” approach to sourcing looks to
There has been a movement to more complexity
offshore services that can be split into two broad when outsourcing insurance processes, resulting
categories: voice-based services and transaction in the delivery of 'blended' processes.
processing services. In the insurance industry, traditional
voice-based services are informational in nature, and An agent then sets the claim up within the system,
consist largely of calls initiated by the insurer, and assesses the claim and follows up for all information
customer inquiries for information such as quotes and required to settle the claim. This involves searching a
coverage rates. Voice processes from the insurer
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Core No More!
Implementing Sourcing to Fuel
Growth in the Insurance Industry
database for insurance contracts, gathering documents processes. Broadly speaking, these outsourced activities
such as police reports, and making outbound calls to can include actuarial support, risk modeling and fraud
collect missing information, as well as potentially arranging analytics, unthought-of as part of an outsourcing scope just
for a garage to repair the car. The adjudication process is a short period ago.
handled onshore, but the reporting and accounting for a
claim could likely be sourced offshore. Certain trends in the marketplace are driving this shift. For
example, ripple effects from the credit crunch are affecting
The industry's conservative approach contributes to a life and property and casualty insurers. Even as the fallout
severe short-sightedness in the industry. As a result, of the sub prime crisis reduces the number of potential
insurance companies have benefited only from incremental buyers for policies, the field is growing more crowded due
cost savings from outsourcing. to the incursion of nontraditional players, such as wealth
managers and retail banks, into the formerly lucrative and
35 to 45 percent off of administrative costs through stable insurance industry. And globalization is taking its
outsourcing sounds compelling. However, this represents toll; the cost of entering undeveloped markets is
only the tip of the iceberg since the average administrative substantial. So, in this increasingly competitive market,
costs of claims is a fraction of the total cost of a claim. insurers must seek to both reduce costs and find ways to
A fundamental shift in what is outsourced offers a differentiate themselves from their competitors. Effective
quantum leap in benefit. branding is becoming paramount; placement, marketing to
consumers is becoming more sophisticated; with a sharper
Incorporating Insurance analytics into outsourcing focus on maximizing the effectiveness of the many new
scope as a driver of growth channels that technology creates. And with technological
advances, customers can be more specifically targeted,
A fundamental shift in outsourcing approach is just now resulting in greater product segmentation according to
discernable in the insurance industry, triggered by a new demographics. As a result, insurers are compelled to
definition as to what is core to the business, and what is evaluate the benefits of outsourcing to meet their need to
defined as non-core. Broad categories of services formerly gather more information about their customers and to more
thought of as untouchable by an outsourcing provider are intelligently distribute their products to new and existing
moving into the lexicon of processes that can be markets
outsourced. First and foremost, scope is increasingly being
redefined as encompassing middle office, which includes In short, the role of outsourcing as part of the insurance
functions such as premium audit functions, claims industry's strategic toolkit is changing as smart companies
adjudication—requiring judgment-based decision making- increase their scope from back or traditional back office
in addition to back office, defined as rules-based processes processes to middle office processes on to front office
such as claims setup, claims indexing, and new business processes which inform decision making and impact
application processing. And, as the middle office is growth and profits. In the insurance industry, where
increasingly removed from the off-limits lists, scopes are product commoditization is rampant and operational cost
moving up the proverbial value chain to include such efficiencies have been largely realized through outsourcing
processes as market research supporting product and offshoring, superior distribution is quickly becoming a
development, market analytics analyzing marketing competitive advantage.
effectiveness, and business analytics, supporting business
decision-making by analyzing such impacts as that of fraud Analytics across the Insurance value chain -
on claims
taking it to the next level
The companies that will survive, and thrive, becoming
Broad categories of services formerly thought of future leaders of the insurance industry, are now thinking
as untouchable by an outsourcing provider are more creatively, moving from merely traditional business
moving into the lexicon of processes that can be outsourcing toward what can only be termed “What's Next
outsourced. Process Outsourcing,” or WNPO. These companies still
embrace outsourcing as a tool to reduce operating costs,
Outsourcing up the value chain may result in some cost but also use it as a lever to drive growth. Their outsourcing
reduction, but the benefit is ancillary to the consistency of strategies are becoming more encompassing, increasing
methodology and depth of skill outsourcing these scope to include not only traditional voice and transaction
knowledge processes brings to the insurer's decision processes, moving up to 'blended' processes to increase
support, product development and customer segmentation
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Core No More!
Implementing Sourcing to Fuel
Growth in the Insurance Industry
efficiency, and analytics supporting product development The beauty of WNPO is its potential for self funding
and sales and distribution to drive growth. What is next? through the traditional approach to outsourcing. The lower
cost base clients have become established by outsourcing
BPO through the ages non-core, highly transactional processes that can fund any
necessary investment in analytics to provide insights into
The provider community is developing answers to this
all aspects of the insurance company. These insights in
question. Select outsourcing leaders are now are able to
turn will help product development teams devise new
deliver highly specialized services beyond the current “top
products and services, help sales teams target and reward
end” of the insurance outsourcing industry to suggest
distribution channels in a smart and effective manner, and
'what's next.”
help identify fraudulent applications and mitigate risk
For instance, outsourcers are now developing and against fraudulent claims, among others.
delivering more precise reward and recognition models for
its distribution channels using KPO/Analytics and are Market conditions will surely drive “what's next process
building tools and services to support these channels outsourcing.” Insurers have always been focused on
using BPO growth, but the current economic scenario is driving them
to seek out new technologies, innovative products and
It is possible that forward-looking insurers will tap the services, and alternative channels of marketing to drive
strengths of providers with deep insurance domain growth, all at a lower cost base. This search is pushing the
expertise to deliver comprehensive education and advisory development of WNPO, perhaps leading one day to the
services. This could include 24/7 access to agents and creation of a “Virtual Insurer” (regulators permitting), the
their customers to respond to in-depth questions on Nike of the insurance world where product design and
insurance products — no appointments, no sales pitches, development, marketing and distribution, and adjusting
just plain assistance. At its most basic level, the service are held onshore, and the rest is supported by a range of
can consist of pure information delivered as a voice-based functions outsourced offshore, giving credence to
process, while at its most complex, the outsourced advisory core no more!
service could mean that trained and licensed advisors are
available 24/7—just a phone call away.
This article has appeared in the Jan’08 -May’08 edition of FSO Online
Magazine (http://www.fsoutsourcing.com)
WNPO also has the potential to support insurance industry
globalization. Outsourcers can provide global support to an
insurer's multinational clients, deploying services and
processes from a network of offshore locations to provide
continuous and consistent local support- in the languages
their customers can understand and speak.
To learn more, please write to us at info@wnsgs.com
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