Get your destination right

Rising claims, increasing product commoditisation, high customer churn, competitive pressures, regulation, and increasing product and channel complexity - all factors driving insurers to increase service quality. And their quality needs constant improvement to retain and grow customer bases, increase flexibility and cut costs.

Greater use of business process outsourcing is one of the options that many insurance organisations have pursued or are at least considering. Their ability to adopt this strategy has been simplified by regulation, which drives investment in technology and workflow analysis - two elements that tend to make it easier to identify specific processes that could be outsourced.

Market analysts also point to huge potential growth in outsourcing. Nearly 50% of insurers currently use at least one BPO service according to Datamonitor and, if analysis company Gartner's predictions are correct, the insurance BPO market is forecast to be worth between $10bn (£5bn) and $11bn (£5.5bn) by 2008. Datamonitor in particular has predicted that claims and policy administration will be among the fastest growing BPO areas.

So what are the benefits of outsourcing to a specialist BPO provider and where are the latest developments occurring? Those with dedicated insurance practices can review processes and not only deliver them faster and more cost effectively, but also make process improvement recommendations using tools such as Six Sigma, Kaizen and Lean to offer enhanced customer service. Outsourcing can also give insurers the agility to quickly scale up their operations to help them enter markets faster when launching new products. Peak business periods, such as during marketing promotions, could also be managed more easily or even when there is just a backlog of work.

Yet for many insurers, the key outsourcing decision has been about whether to outsource within the UK or offshore. With a 46% share of the global BPO market, India has undoubtedly become the offshore location of choice for the financial services industry, according to both McKinsey and Company and the Indian National Association of Software and Services Companies. India has also become a centre for 'knowledge process outsourcing' activities including risk assessment and high-end research - for example, analysing new market opportunities or the potential of new products and services.

Seven of the largest general insurers in the UK - namely Allianz, Aviva, Axa, Bupa, Lloyds TSB, Royal and Sun Alliance and Zurich Financial Services - have all offshored business services to the subcontinent.

However in the last two years, the range of services that can be outsourced as well as the choice of countries to which they can be outsourced have both increased.

Indian BPOs have played a vital role in establishing global outsourcing standards and remain at the forefront of the industry. But they have also started to replicate their 'continuous process improvement models' at new delivery operations in the UK, the US, and other countries outside India, such as China, the Philippines, mainland Europe and Latin America.

Selecting the right shore

Consequently, the expansion of outsourcing locations means that BPO is arguably now about strategic 'right-shoring' - a network solution based on using the best resources for each job, wherever they may be located. The potential benefits from outsourcing are therefore greater than before and are no longer simply a question of either outsourcing processes within the UK or offshoring them to India. As a result, right-shoring outsourcing is moving up the corporate value chain. Consultancy Capgemini has trademarked the term, defining right-shoring as a business model that "cuts across geographies to access the right service, in the right place, at the right price".

Strategic right-shoring requires a more in-depth analysis of the processes outsourced and the packages provided by different outsourcing service providers. Selecting the most appropriate destination for service provision now depends on a complex variety of factors: the nature of the service; type of process; expertise of the preferred service providers; available skill sets in the potential locations; labour costs; infrastructure; time differences; customer and investor requirements; union attitudes and the competition's outsourcing strategies. Right-shoring can also be a key element of business continuity planning by spreading the risk of locating key processes across several locations.

Some insurers are opting for a blended BPO model to take advantage of the benefits of right-shoring. One option is to use several geographic locations and both captive services and a range of outsourced suppliers. This route can increase complexity in the management of different outsourcing providers but can also enable the exchange of best practices and healthy competition between suppliers.

Another model is to use an onshore facility for complex, business-to-business interactions or advice-based sales processes requiring multiple calls and a strong social and cultural understanding. This could be blended with offshore delivery for high volume, rules-based, voice-intensive customer interactions and non-voice related back-office work such as the production and mailing of documents, claims registration, case management, quotations and renewals, and payment processing.

Right-shoring can also be used to provide more flexibility and to determine the most appropriate location in the longer term for different processes. For example, processes can be tested and refined onshore then, once the process is stabilised, it can be moved offshore to increase potential cost savings and take advantage of time zone differences to turn round processing times.

Some firms have adopted this 'follow the sun' outsourcing strategy to facilitate around the clock customer service operations. The work is directed to whichever location is operating within the region's normal working hours. This is a policy that can radically reduce processing time; agents can carry out work while UK offices are closed and are able to turn around paperwork literally overnight. This approach also saves money through avoiding premium wages for anti-social hours and can reduce staff attrition.

As the choice of outsourcing locations expands and the range of the processes that can be outsourced becomes more comprehensive, the decision to outsource is becoming increasingly strategic. Right-shoring is the trend for the future. Greater due diligence will be required to determine the most appropriate location and provider for each service. But, ultimately, right-shoring has the potential to offer superior returns by delivering more efficient processes and greater agility, as well as making substantial cost savings.

- Matthew Vallance is managing director for Europe at Indian outsourcing provider Firstsource Solutions, formerly ICICI Onesource.