Business Process Outsourcing:
A survival tool for the life insurance and
annuities industry after the economic tsunami
Business Process Outsourcing:
                                     A survival tool for the life insurance and annuities in...
An area that can provide immediate business            Clearing the decks for success -
benefits and cost efficiency is po...
Business Process Outsourcing:
                                 A survival tool for the life insurance and annuities indust...
closed book of business, open book business            implementation of a roadmap, including scope,
    running on older ...
Business Process Outsourcing:
                                    A survival tool for the life insurance and annuities ind...
n   Commercialized approach to operations                plummeting. Leveraging outsourced research
    Most companies can...
Business Process Outsourcing:
                                   A survival tool for the life insurance and annuities indu...
Copyright © 2009 WNS Global Services

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Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami


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Business process outsourcing (BPO) represents a strategic and efficient option for companies looking to thrive in these tumultuous times. If implemented properly, BPO can be a fast and simple solution to rapidly reduce costs, help organizations survive the economic downturn and set the stage for future growth. Experience suggests that it costs insurance companies $200 - $350 per year to service a U.S. life policy. A BPO provider with deep domain and customer support expertise can service the same policy for approximately $100 per year, representing annual savings of at least 50 percent! In this article, through various examples, the author demonstrates how BPO can help the insurance industry survive this economic downturn. It also offers eight simple rules to ensure success of your outsourcing program. Finally the author also suggests the various insurance processes that companies can outsource.

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Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami

  1. 1. Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami
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  3. 3. Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami While economic indicators are starting to signal BPO to the rescue for life insurance a slight recovery, the treacherous waters in which and annuities companies the life insurance and annuities industry has been treading have far from receded. Recent third-party Business process outsourcing (BPO) represents expert statements paint a sober picture a strategic and efficient option for companies looking to thrive in these tumultuous times. Ernst n & Young’s 2009 Insurance Outlook for the If implemented properly, BPO can be a fast and U.S. Life Insurance market – posted to the Insurance Law Center on April 21, 2009 – simple solution to rapidly reduce costs, help noted that U.S. life insurers will be dealing with organizations survive the economic downturn and the multiple lingering side-effects of the global set the stage for future growth and expansion after financial crisis and deepening recession for the economic tidal wave subsides. some time to come. The implications of the current economic crisis may take months or Rapid cost reduction is mandatory for companies perhaps years, to fully evaluate. Once the trying to survive in the most challenging economic immediate crisis passes, insurers will have to climate in over 60 years. But BPO delivers adjust to an environment that has benefits which extend far beyond cost savings. fundamentally changed – both for them and for the consumer. While insurance companies already outsource According n to Laura Bazer, vice president, highly transactional processes such as claims and Moody’s, “Rising investment losses, falling payments, new business processing and equity markets, and weakening economic underwriting support, they can gain significant conditions will pressure the profitability, additional value by leveraging BPO for other financial flexibility and capital adequacy of processes. For example, outsourcing research and [life] insurers over the next 12 to 18 months.” analytics for actuarial support can optimize (Source: Resource magazine, February 2009.) pricing and more accurate premium calculations A February n 27, 2009 article on helping the company target additional consumers said, “After the close, based on demographics, groups and risk profiles. Standard & Poor's lowered its counterparty A BPO provider with deep domain experience can credit and financial strength ratings on 10 support customer retention, cross sell and up sell groups of U.S. life insurers and its counterparty initiatives and exploit new sales channels and credit ratings on 7 U.S. life insurance holding entry into new geographies. companies.” Standard & Poor cited higher loss assumptions. The firm said, "Today's rating actions primarily reflect the incorporation of these incremental asset stress factors into our capital adequacy analysis as well as the effects of severe equity market declines and volatility on earnings and capital adequacy. We expect that the effect of these factors will challenge life companies' competitive strengths and ability to generate profitable business. Over the past few weeks, we also took rating actions on several other life companies because of related issues." These statements reflect a wider view that there is clear and present danger for the industry. But there is a life raft available for this highly risk- averse sector. | 2
  4. 4. An area that can provide immediate business Clearing the decks for success - benefits and cost efficiency is policy servicing. Eight simple rules for life insurance For example, experience suggests that it costs insurance companies between $200 - $350 per and annuities companies year to service a U.S. life policy. A BPO provider 1. Ensure BPO is a CEO priority with deep domain and customer support expertise In uncertain times, sponsorship for critical can service the same policy for approximately initiatives such as BPO must come from the $100 per year, representing annual savings of at very top of the organization. Only the CEO can least 50 percent. Let’s look at several case studies deliver the message that there are no other which demonstrate BPO’s value to insurance options for the business. If the commitment is companies today. not there, then the junior management sees implementation as optional, easily finding ways to opt out with spurious arguments. Annuities administration for a global The prevarication of junior staff and their insurance company desire to protect their jobs can delay the delivery of savings, and jeopardize the success As a result of its partial offshoring of of the business. simple annuities administration-related tasks, one of the world’s largest insurance When the CEO takes a positive decision and groups was experiencing significant error makes outsourcing a priority, significant rates and longer response times which led success can be attained. For example, the CEO to end-customer dissatisfaction. As a of a re-insurance company that was acquiring a result, the company chartered WNS with closed books business mandated the delivering all activities related to its outsourcing of all its operations. By doing so, annuities administration, ranging from the company was able to complete six simple tasks such as change of bank conversions of policies to its new, single details and issuing tax certificates to highly system within six months, and increase its complex processes including reissuing policies under management by $6 billion in retained payments to customers and five years. performing audit work on the guaranteed minimum pension quotes built for the 2. Approach outsourcing with an open mind customer at the start of the annuity. Merely thinking policy renewals or rules-based transactions limits the extent to which BPO Leveraging its deep knowledge of the can be used as a “survive and thrive” tool for insurance industry and its experienced insurance companies. Smart insurance team, WNS was able to achieve: organizations have been outsourcing these Increase n in customer satisfaction from types of processes for years. But the BPO 76 percent to 88 percent industry has moved well beyond volume-based voice and data work into highly complex Consistent n turn around time of more than industry and insight processes – think research 98 percent and analytics for actuarial pricing support, identifying customers’ proclivity to pay 8 percent n improvement in accuracy and 50 percent reduction in errors reported premiums or buy new policies in different by customers geographies and socio-economic categories, sales support for customer retention, cross sell Zero n customer complaints for more than and up sell, or assisting financial advisors a year prepare portfolio analysis. Smart insurance companies collaborate with providers to 3
  5. 5. Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami determine ‘the art of the possible.’ They begin 24 processes for a U.S. top 10 financial planning, asset management and by determining what is core and non-core to insurance company their business. In the insurance industry, core processes A premier financial planning, asset include product development, sales/agency management and insurance company with administration and regulatory compliance. more than $450 billion in assets under But beyond these, most SG&A and highly management had just completed one of the complex processes can be seamlessly largest spin-offs in U.S. history and needed transitioned and successfully outsourced to to focus on its core product development a provider with a proven track record and and marketing. The company decided to substantial insurance industry expertise. turn to a BPO provider to deliver its servicing functions, requiring 3. Keep it simple 1) the ability to transition the work of Speed to cost reduction with no diminution of approximately 350 FTEs in six months quality should be the first and foremost 2) to maintain and significantly improve objective of BPO as a survival tool. This is not operational performance to bolster the the time to radically transform business confidence of the sales force distressed processes, implement new enterprise about the loss of the iconic brand name of technology, or put in the latest bells and the parent organization whistles. It’s time to get the cost out, and fast. 3) to design an efficient program capable For example, in the insurance industry, instead of handling 24 fragmented processes with of trying to integrate multiple policy significant variability and cyclical volumes administration or claims systems overnight, 4) to develop a pricing structure with companies should outsource the operations of optimum client benefit which also some of these systems – both IT and business incentivized the provider to drive processes – to a service provider and move to a continuous improvement; single system over a period of time. There may even be opportunity to monetize some of these 5) to provide a robust security environment assets by entering into a right contract and 6) to provide business continuity planning. financial model with a BPO service provider. Keeping it simple also means avoiding a In its three year partnership, WNS has wholesale overhaul of the business model at delivered once. This does not mean that changes in 50 percent n cost savings across all workflow, or standardization of processes which operations outsourced to WNS can be accomplished during transition or shortly thereafter should be off the table. Effective n management of volume Keeping it simple means being realistic about variability with enhanced service the aspirations for the program in times of outcomes, enabling the company to economic uncertainty, focusing only on eliminate overhead cost during lean obtaining the benefits that truly matter. times Accuracy n improvements of 78 percent 4. Move fast across all processes Companies can move fast on their outsourcing program by mandating aggressive timelines A FINRA-licensed n team to ensure across the board. Truth is, there is no change compliance with U.S. securities without urgency. This is the time for insurance regulations companies to quickly take a look at their | 4
  6. 6. closed book of business, open book business implementation of a roadmap, including scope, running on older legacy systems, and claims provider selection and transition will mobilize and payments associated with older policies the organization. and systems that do not have cross sell or up sell opportunities and outsource these 5. Empower an internal outsourcing champion, operations to a BPO service provider to reduce and put top talent on the case costs. But fast is the key word here. If moving Survival programs are always led from the top quickly to implement BPO is not seen as vital and center. As evidence of executive to the basic survival of the company, it will not commitment, the appointment of an produce the desired results. Imposing outsourcing Champion / program management deadlines for the development and leader with the right level of responsibility and authority is critical to success. This must be Protection, changes, premiums and payments someone who is fully accountable for and services for a global insurance company committed to the success of the program, has organizational respect, knows how to exercise The client was experiencing challenges authority, is not distracted by other with its legacy systems and had no responsibilities, is a good politician and has a flexibility in how it serviced its protection personal incentive to succeed. For example, policy holders. It also had unequal amount when a large insurance company decided to of work allocated to its payments team due make its first foray into outsourcing its to surrenders and switches, which led to underwriting and claims processes, it assigned quality, team performance and service level its CIO the role of ‘outsourcing czar’ as the issues. organization had already successfully outsourced IT processes under the guidance In the protection policies process, WNS has and leadership of this executive who well achieved for the client understood the challenges and complexities of outsourcing. It also appointed highly A versatility n increase from 80 percent to 320 percent against the number of staff knowledgeable business owners to oversee the required per work type processes, and these business owners report into the CIO who holds ultimate responsibility An overall n versatility improvement from for the success of the underwriting and claims eight percent to 30.5 percent against processing outsourcing initiative. maximum possible versatility Significantly n increased accuracy and 6. Develop a realistic deployment plan reduced errors reported by customers Even when outsourcing is being implemented for cost, a measured, tightly sequenced but In changes, premiums and payments – rational program that meets milestones and is which are managed across three teams – not disruptive to the business has a much WNS has: greater chance of success than an all hands- on, sprint-to-the-finish program. In their haste Maintained n versatility at 130 percent to cut out more cost, companies at times push across the three teams; significantly for or buy into an unrealistic transition increased accuracy levels in premiums and payments; roadmap. When the first failure occurs because processes cannot be documented thoroughly, Continuously n met all critical and key the network is not ready or work shadowing is SLAs insufficient, the naysayers come out in force. A deployment strategy that builds up steam Maintained n end-to-end WNS-controlled over time after the success of initial phases is turn around time at 99 percent far more likely to meet objectives. 5
  7. 7. Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami For example, when choosing to outsource expertise knows the types of cost savings policy changes processes, it is best to begin which can be attained per outsourced process, with simple products like term life insurance to and can work with the client to craft a contract enable the provider to quickly ramp-up in specifically designed to attain them. For terms of both offered products and the client’s example, an experienced service provider may internal working style and culture. After that well commit upfront to savings of 50 percent program is successful, other more complex or more in policy servicing, and 20 percent processes, such as actuarial, underwriting and year on year productivity gains in underwriting policy transactions, can be transitioned to the support. provider. Advantages life and annuities insurance 7. Insist on alignment Outsourcing can mean a massive dislocation of companies gain by moving to a BPO culture, resulting in a tug of war between model today client and provider. When new people and In general processes are introduced into the equation, Standardized n business processes dissonance naturally occurs. In the insurance industry, there are four key alignment points. First and foremost, the provider must understand what values are important to the client and adjust its working style accordingly. Second, the provider must design its deliverables to support the client’s needs. Third, the provider must have solid and proven insurance domain expertise – such as a requirement that all team members are LOMA- or other industry body-certified – in order to effectively design and deliver the program. And fourth, all operations, processes and expectations must be documented to ensure the provider has full understanding of, and Consolidating business processes offshore in an insights into, the various state, federal and effort to reduce cost has a positive by-product – compliance regulations to which the client levels of standardization that are difficult to must adhere to. achieve through incremental efforts such as process reengineering when times are easier. 8. Debit budgets in advance With standardization, the organization is well- This little trick obtains commitment where it positioned to take the next step to transform counts - in the budget process. Building BPO processes through technology and quality, savings into the current year's budget in taking them to the next level of efficiency. advance ensures managers have no excuse but Rationalized n delivery model to be committed to the implementation of the The greatest challenge in moving to a shared BPO program or find some other way to get the service, or horizontal structure, is overcoming cost out fast. Truth be told, short of cutting misconceptions and fears about diminution of staff to the bone, there is rarely another way. service levels, risk and performance. This is particularly true in cost center By ‘wrenching’ processes out of the business functions such as underwriting support, policy lines in the name of corporate survival, the changes, claims and finance and accounting. objections which delay or derail consolidation A BPO provider with insurance domain and centralization are, in effect, overcome. | 6
  8. 8. n Commercialized approach to operations plummeting. Leveraging outsourced research Most companies cannot put a price on the cost and analytics can help insurance companies of paying a bill, collecting a receivable or attain the investment income required to stay interacting with a customer. Imposing the afloat. Outsourced research and analytics for discipline of a BPO contract replete with unit actuarial support can proactively optimize cost, turn around times, and customer pricing. And research and analytics experts can satisfaction levels makes the organization think successfully take insurance companies’ raw differently about consumption and service data and turn it into highly valuable information levels, making the actual cost to sell a product and insights which assist in all areas, especially or service, transparent. sales and marketing campaigns. n Support for rapid global market entry Customer retention and sales initiatives n One of the major differences between this With rampant job losses, reduced income and economic crisis and past recessions is the fear of non-essential expenditures, insurance extent to which financial markets and consumers have been reducing coverage economies are now integrated and globalized. enhancements and even abandoning paying Survivor companies will have to move rapidly to renewal premiums. Outsourcing customer serve global markets, focusing much of their retention and sales functions is a cost-effective resources to compete. This means having the strategy to aggressively reach out to customers, flexibility to quickly scale back, middle and offer alternate plans and cross sell or up sell additional life insurance and annuity products. And a service provider with deep insurance industry domain knowledge possesses the insights needed to sell appropriate products to individual consumers by doing an in-depth analysis on each customer and suggesting the most suitable alternate products, riders and policies. Further, an insurance industry savvy services provider can help insurance companies extend their sales efforts through alternate channels such as banks and supermarkets. Systems and technology optimization n As a result of growth by mergers and acquisitions, most insurance companies utilize front offices processes. BPO provides that scale, a wide array of disparate policy and claims expertise and flexibility. Providers can rapidly systems across their enterprise. This is tap into talent pools globally to deliver business inefficient, expensive and potentially fraught processes; with connectivity, savvy companies with error. Consolidating systems and will become agnostic as to delivery location, just technology platforms into one or two systems as easily consolidating general ledgers in Manila operated by a BPO provider can result in as in Milwaukee or Manchester. improved customer service, greater productivity and efficiency, and lower cost. Of particular and vital relevance to the insurance industry Reduced compliance costs n Fiduciary reporting and compliance is extremely Critical n data-based insights via research and costly and time consuming. An outsourcing analytics services provider who understands the Life insurance and annuity companies heavily intricacies and imperatives of compliance can depend on the returns they can generate by significantly reduce both the time and expense investing premiums collected. But given the associated with the strict regulations to which state of the economy, investment incomes are insurance companies must adhere. 7
  9. 9. Business Process Outsourcing: A survival tool for the life insurance and annuities industry after the economic tsunami Which life and annuities insurance processes are ripe for business process outsourcing? New business support Policy administration Premium administration Sales n Manual n remittance exception Fund n applications Conversion n processing Refunds n Quote n acceptance Policy n benefits Billing n Cross-selling n and up-selling Policy n reinstatements and Premium n mode changes quotes Bank information changes Customer n enquiries n Policy n changes Premium audits Actuarial n services n Inbound n customer service Exposure n assessment Endorsements n Claims New n business data entry Renewals n Claim setup Rules-based n underwriting n Policy n issuance Examination n Review n Settlement n Correspondence n Tax compliance n Policyholder n and broker claim enquiries Claim n assessment Settlement n WNS Global Services North America United Kingdom India 420 Lexington Avenue The Lodge Gate No. 4, Plant 10 Suite 2515 Harmondsworth Lane Godrej & Boyce Complex New York, NY 10170 West Drayton, Middlesex Pirojshanagar UB7 0AB Vikhroli (West) Mumbai 400 079 | 8
  10. 10. Copyright © 2009 WNS Global Services About WNS WNS is a leading global business process outsourcing company. Deep industry and business process knowledge, a partnership approach, comprehensive service offering and a proven track record enables WNS to deliver business value to some of the leading companies in the world. WNS is passionate about building a market-leading company valued by our clients, employees, business partners, investors and communities. To learn more, please write to us at or visit