Insurance Outsourcing – Ensuring a Brighter Future - September 2011

Today’s Webinar is brought to you by Everest Group

Today’s Webinar
Insurance Outsourcing – Ensuring a Brighter Future

Synopsis:
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:
 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
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About Everest Group
Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for
helping 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 the
use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical
consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery
strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves
users of global services, providers of services, country organizations and private equity firms, in six continents across all
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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&A

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Webinar: Insurance Outsourcing –
Ensuring a Brighter Future
September 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


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


This webinar presents results of Everest Group’s recently
released reports on the Insurance BPO and Insurance
Applications Outsourcing (AO) market
NOT EXHAUSTIVE
BFSI
Focus of webinar

Banking 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 industry

IT 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 services

Everest 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 ti
1 Business-to-consumer relationships
2 Business-to-business relationships


From a scope perspective, the BPO section of this webinar
provides coverage of non-voice and industry specific BPO in
insurance
Typical 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 receivable
processes
Horizontal

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 procurement

Source: Everest Group (2011)


These reports are a part of Everest Group’s series
of 15 reports focused on BFSI Outsourcing in 2011
Published
Global Lending BPO Service Providers’ Capital Markets BPO
across Credit Cards, (Profiles Compendium) Market Overview Focus of the webinar
Consumer Loans and
Loans, for IT Application Services
Upcoming
Commercial loans in Banking

FS BPO Service Provider Insurance BPO Market Market Trends for IT
Profile Compendium Overview Application Services in
Capital Markets

Global sourcing in Market Trends for IT Service Provider
FS BPO – Significant Application Services in Landscape for IT
Traction Yet Tremendous
Traction, Insurance Application Services in
Potential Capital Markets

Market Trends for IT Service Provider Service providers’ Profiles
Application Services in Landscape for IT Compendium for IT
Banking Application Services in Application Services in
Insurance Capital Markets

Service Provider Service Providers’ Trade Reconciliations
Landscape for IT Profiles Compendium for BPO Market Overview
Application Services in IT Application Services in
Banking Insurance


Everest Group’s BFSI research is based on two key
sources of proprietary information
1
 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 g

2
 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 investments

In 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 analysis
Confidentiality: 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


Everest Group has collated information on BFSI BPO, and
large-sized BFSI AO transactions and used this robust data-
set to analyze various aspects of the BFSI outsourcing market
Research 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 captives

Everest Group’s Transaction ~350 active large-sized BFSI AO transactions1
Intelligence 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 transactions
Everest Group’s RFIs to BFSI
Banking
BPO, and BFSI AO service
Focus of
providers 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 2010


Agenda





 Q&A


Insurance vertical represents significant third-party spend
across IT and business processes within BFSI, the largest
buyer segment in the outsourcing and offshoring industry
BFSI 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 transactions

2010 BFSI third-party IT services spend 2010 BFSI third-party business Market share of third-party
US$ 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) database


The number of contracts signed in Insurance BPO and
Insurance AO dipped in 2008-2009 but are starting to witness
a revival
Number of large, active insurance AO contracts1
Number of transactions

17 19
14
8

2007 2008 2009 2010

Global third-party Insurance BPO contract signings over time2
Number 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 2011


Growth and cost pressures, business pain-points, changing
consumer behavior, and technology issues are the four major
drivers for outsourcing within Insurance vertical

Insurance
Outsourcing drivers Underlying insurance industry challenges

Growth and cost  Falling insurance premiums
pressures post  Increased cost of re-insurance
recession  Mounting claims, expenses, and outgo
 Managing cost of supporting booked policies in complex market capital conditions

 New markets and customer segments
Changing  More demanding customers
consumer behavior  Diminished customer loyalty and trust

Business issues  Increased fraudulent claims
and operational  Changing regulatory frameworks and increasing cost of compliance
pain-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 products
Technology
gy  Achieving better returns on IT investments
g
upgrades


Growing operational pressures are forcing insurance majors
to invest in IT-BPO legacy modernization, innovation and
administrative improvement initiatives

Insurance
Outsourcing drivers Insurance AO value proposition Insurance BPO value proposition

 Optimize administration costs, and accurately  Build a low-cost and scalable operating
Growth and cost evaluate risks model
pressures post  Improve business performance by  Improve the ability to acquire new business
recession strengthening customer relationships
 Support growth through modernization
 Improve time-to-market for new products,  Improve current customer service levels
Changing consumer geographies  Process excellence and self-service
behavior  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 regulatory
Business issues and
operational pain-  Risk and compliance management support and compliance requirements
 Consolidate operations to unify disparate  Improve the quality and speed of transactions
points
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 upfront
Technology
gy use of IT-enabled rules-based administration)
) cost through a p
g platform-based BPO option
p
upgrades  Fostering innovation in product and process
management


Agenda





 Q&A


While comparable in size, the two insurance
segments 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 term

Sample size: 257 publicly announced Insurance BPO contracts signed up to April 2011


While U.S. and the UK are comparable in market size, the
former 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
revenues
Sample size: 161 industry-specific Insurance BPO contracts signed till April 2011
Sources: Everest Group (2011); OneSource data


Large insurers dominate the Insurance BPO market but
adoption 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 2008-2010

Sample size: Based on information from 12+ Insurance BPO service providers


Within AO, Application development and maintenance
services, form the primary component in most insurance
contracts

Sub-functions in large insurance AO transactions1
Frequency of inclusion2

ADM 96%

Testing 74%

Package
implementation 50%
( )
(PI)

ERP services 41%

Includes other AO
subfunctions such as Others 57%
systems integration,
and application related
consulting

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 scope


Scope of insurance AO contracts is balanced across life and
P&C segments; ADM & testing are the dominant functions
across both LoBs
Insurance LoBs included in large AO transactions1 Sub-functional demand across different LoBs
Frequency of inclusion2 Frequency of inclusion
g
High Medium Low

Life, ADM Testing PI ERP Others
annuities, 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.

2 Percentage of large insurance AO transactions (with known scope details) in which the given subfunction is in scope


While North America leads in the number of large insurance
AO transactions signed, transaction values remain
significantly 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

2 Transactions for which details of signing region were known


While India continues to be the largest offshore center for
insurance AO and BPO delivery, other locations are gaining
increasing popularity among insurance companies
Insurance 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 work


Agenda





 Q&A


Emerging trends across the insurance industry value chain
have redefined the IT application priorities for insurance
buyers

Emerging priorities  Re-engineer products to combat growing competition in the industry, and align
of insurance AO to changing customer preferences
buyers
b  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 expenses

Implications and  Transform orientation to position themselves as “partners” rather than
future outlook for “providers”: With buyers engaging service providers in early product design and
providers 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


Growth, cost pressures, and technological needs are the
emerging priorities for buyers in Insurance BPO, and service
providers need to adapt accordingly

Emerging priorities  Post-recession growth and cost pressures continue to play an important role
of insurance BPO  Changing regulatory frameworks and increasing cost of compliance
buyers
b  Inability of legacy systems to scale up to new volumes and new types of
products
 Limited availability of skilled resources for high-end work

Implications and  Beyond transaction activities, the ability to effectively support complex
future outlook for insurance processes like underwriting and actuarial analysis as well as help run
providers 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


Agenda





 Q&A


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 today

To 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


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

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