The insurance industry has been involved in outsourcing since the 1970s. Some of the top global companies in the insurance industry are on their second or third generation agreements with one or more outsourcing providers. Some of these relationships span 10 years or more. Recently there has been a tremendous wave of outsourcing contracts in the insurance industry over the last 24 months. The breath of the activity has been extraordinary and includes virtually every large insurance company, a number of the large and emerging outsourcing providers, and a wide variety of areas to include finance, human resources, information technology and dedicated unique processes such as claims and underwriting.
The softening economy has further driven the move to outsourcing to reduce costs, improve efficiency, and consolidate infrastructure. Unlike the response to the economic downturn several years ago when outsourcing was less accepted, the strategic potential is now more fully understood.
This wave has also seen large companies tap the offshore market directly. Our research indicates that a number of insurance companies have in addition to outsourcing opted to create offshore centers where they have hired local employees to access lower cost labor. The following graph represents a plot of the relative view of strategies adopted by each company and an arrow indicating where we predict that their future strategy will take them. This is a view based on secondary research and public sources. It should be noted that this chart is an inference based on our research and is not inclusive.
What is Driving this Change?
The insurance industry has seen companies grow through mergers and acquisition as they expand into new areas; both in terms of products and geography. This has often resulted in a mix of different business units, separated by location and systems, with differences in products and services by market. Often, the acquiring global companies want standardization. To achieve the transformation needed to become a truly global company with consistent products and services, they need to transform and unify their business processes. The near unanimous decision on achieving this ambitious goal has been for insurance companies to utilize outsourcing or offshore centralized captive centers as their change agent.
Outsourcing and the cheaper offshore labor has provided insurance companies the ability to accelerate their transitions and enhance the organization’s capability to leverage their existing intellectual capital in a much more efficient delivery model. Click here for another interesting point of view. This has been done this by consolidating labor cost of operations and through system driven process improvements. Not only has the hardware and applications been consolidated, the regional corporate silos have been broken down.
The most extensive of these programs, in which outsourcing is used to create a new operating model, has seen the formation of global management teams within the organizations. These teams manage the outsourcing providers, typically a multiple number with a best of breed and/or regional approach. The teams also oversee the overall operations of the functions. This model has enhanced the capability of the organization for ongoing change and future success. The streamlined, efficient delivery model has accelerated the speed of adding future acquisitions and developing new products. We have also commented on the need to properly handle and manage the transformation of client organizations. Click on this link for more on optimizing value from the start.
The softer economy will enhance the attractiveness of outsourcing as a vehicle to reducing non-core processes by full time employees. Many companies that weathered the storm in the downturn several years ago, found themselves in difficulty in replacing laid off staff when the economic climate improved. By shifting routine tasks to a service provider, key employees that are of strategic value to the company can be retained.
Alsbridge is a leading provider of unbiased advice on sourcing, and has worked with top insurance companies on their sourcing strategies. Please contact us for a meeting to see how we can help your company optimize your sourcing strategy.
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