The UK has long looked at India as a trading partner, especially its outsourcing sector. Following a recent visit by a delegation led by the Prime Minister, Daniel Dunkley looks at how the insurance industry is building its own links with the country.
It is quite rare to see the doe-eyed, fully fledged spectacle of a courtship on an international scale. Yet turn the clock back to the end of July and the UK government, with trade delegation in tow, flew around the world to woo that enticing, ever attractive prospect — India.
Now known as one of the 'Bric' countries — a small group of elite emerging economies also comprising Brazil, Russia and China — India is one of the most rapidly developing nations in the world. Having shaken off its colonial shackles, India is becoming a country known for its fast emerging trade and technology industries, and its prospering economic climate.
Prime Minister David Cameron and his delegation used the trip to capitalise on growing prosperity in the Indian Republic. As the coalition government aims to kick start economic growth by forging new export links with the country, the impetus for the insurance industry to gain a greater foothold in the country is similarly pressing.
Two members of Cameron's delegation, Aviva group chief executive Andrew Moss and Xchanging chief executive David Andrews, each had their own agendas. While the Aviva chief was looking to increase the insurer's stake in its Indian joint venture, Dabur, Mr Andrews used the visit to launch an outsourcing site North-west of Bangalore.
This deal saw Xchanging sign an agreement with the State Government of Karnataka to lease and jointly develop six acres of land in Shimoga. The site will host a low-carbon centre, and is set to handle administrative tasks on behalf of a number of UK firms.
Kerry Purcell, Xchanging's head of Asia-Pacific, says insurers are closely following banks into the Indian market, keen on maximising their administration spend — something the more cost effective Asian markets can facilitate: "The banks have been the first movers in that space. In the past 18 months, we have seen a significant pick up in insurance.
"Some are using their own captive operations, while most have benefited from using third parties to get arm's length governance and transparency. Those firms often move up the experience curve at a faster rate — rather than learning how it's all done by trying to do it alone."
Nimish Soni, head of Xchanging's India operation, says work for insurers is plentiful and varied: "Our work ranges from underwriting to policy administration. Claims processes are also often outsourced but few customers take the full suite of options."
Mr Purcell says the economic downturn has become a key driver in sending business offshore: "A lot of chief financial officers have looked at where they can maintain service levels, close skills shortages, and deliver on cost savings. There has been a consistent move across the board with insurers. They have challenged themselves on moving work to India or other offshore locations."
Despite its growing prominence, it would be wrong to suggest Indian outsourcing is a fairly recent phenomenon, and Mr Soni says: "This was already happening in India before the recession."
It is evident India is front of mind for several UK companies looking to cut costs. According to Mr Soni, the Indian regulatory environment makes it easier for the country to attract UK business: "Indian insurance regulation was originally designed by the British. The Indian Insurance Institute is affiliated with its British counterpart. There are a lot of similarities in the talent pool in India that can serve the western insurance world."
However, not everyone agrees with Mr Soni's point that the Indian regulatory system is easy to negotiate. Several insurance figures, including Aviva Group chief executive Andrew Moss, have said India could do more to welcome foreign investment. Current rules stipulate that a UK firm can only own 25% of an Indian partner.
Mr Soni predicts the Indian Government will become more open with time: "There are a lot of people in the industry that are requesting the government to open up. I think it will eventually. Politics is naturally involved — the left leaning parties are resisting foreign entry into the insurance market. However, any one election can tilt it in favour of those who want deregulation."
Mr Purcell adds India remains attractive compared to its rivals — despite these regulatory hurdles: "India has worked hard to harmonise regulatory requirements as much as possible — relative to other emerging economies that have some high skills to offer the market."
Insurers operating in the UK may visualise the sprawling urban landscapes of Mumbai, Delhi, or Bangalore. However, Mr Soni believes there is a huge incentive to move into the smaller cities.
Shimoga, the site of Xchanging's newest operation, is home to a rich talent pool in technology, despite being relatively small in comparison with others — a 'tier 3' city. He says: "We are starting to move into smaller cities. This is due to the higher cost of living in the big cities. We feel it is more sustainable to go to the smaller towns, which have a population of 500 000 to one million — by Indian standards that is very small."
Cost base efficiencies
Capita employs 350 staff on its general insurance site, 320 in the city of Pune, and 30 in Mumbai. The outsourcing firm works with brokers including Marsh on claims processing, as well as broking and premium refund collection. The firm also conducts work on the underwriting side including message processing, risk capture and schedule aggregation.
The regulatory impact is not one way though. Simon Barnes, operations director at Capita, says intensive UK regulation has been a driver in UK firms seeking outsourcing partners: "Either insurance companies are under pressure because of competition, or regulatory compliance."
However, he adds the firm has been able to largely overcome its barriers to entry in the market, as it owns a business in India: "The barriers from the UK insurer side are more about regulation. The new regime under Solvency II will require all outsourcing to be closely monitored. Firms have to have all of the necessary controls distinctly in place. You couldn't go to someone with no experience to do the role."
Mr Barnes says the time difference between the UK and India is another strength: "The staff in India are high quality, literate, motivated, and there is great flexibility. Taking into account time differences, you can split work between Europe and India to stay open longer."
Legal outsourcing firm Pangea 3 provides legal outsourcing capability, including contract drafting, document review and litigation support, for insurers. The firm's co- chief executive Sanjay Kamlani argues that even on complex legal issues, outsourcing firms are in demand. "We are seeing real interest in our off-shore legal processing services from in-house legal departments of the insurance industry driven from a need to handle increasing volume within constrained budgets."
Another firm operating in the Indian outsourcing market is Infosys, and Ritesh Idnani, its chief operating officer, agrees that his industry has seen a surge in interest since the effects of the recession hit businesses: "BPO is certainly nothing new, but it has increased in maturity. In 2010 we have seen an increase from insurers from 2009."
Back in 2003, Aviva became one of the first insurers to move a significant section of its back office function to India. The insurer created 2500 Indian jobs in 2003, comprising approximately 350 call centre roles and 2000 back office administration, processing and IT roles.
Aviva Investors is the global asset management business of Aviva. Its operations and change director, John Hodgson, helped to build Aviva's offshore business in India, which was later sold to WNS Assistance.
The group originally chose to follow its own processes in India — a decision driven by a desire to stick to its UK brand and procedures — and Mr Hodgson says: "Each individual case is different. A firm may want to introduce what is called an 'enterprise extension' because it plans to use its own processes — the result is there is no difference between a centre in Sheffield or Bangalore.
"However, if you have a discreet business process that you want to run as efficiently as possible offshore, it would be as sensible to use an outsourcing firm's expertise — as you gain from their productivity skills."
Cost efficiency has been cited as the motivating factor for insurers looking to outsource. Mr Hodgson says India now has the technical expertise to match the UK: "Now, you can buy certain high level skill sets, and there is more depth in the market. The resources are easy to deploy. There is no doubt some of the Indian companies have built world-class reputations. They are now competing on delivery, as well as price."
The use of the English language and sheer scale of the country — which has a population of 1.2 billion people — are the key weapons in India's armoury, he adds: "Most Indians have a minimum of eight years education in English. It is a democratic state. The quality of the people is astonishing, as is the scale of the labour market. There is also an open attitude to Western business. If you add that together, it is obvious why India comes top of the list."
Stereotypes of Indian outsourcing centres, popularised by films such as Slumdog Millionaire are often riddled with negativity. Mr Hodgson says such perceptions still blight the outsourcing market: "There has been a stigma. There is a misunderstanding about it and there is still a lot of protectionism. People don't like to see jobs going offshore. I find it surprising that people want to spend £100 000 buying a Japanese car, but would be worried talking to someone in India about a component of a £100 insurance policy.
"It is about common sense. There are certain areas around claims where you need a degree of cultural empathy, which isn't going to be there if a person is 6000 miles away. Aviva never considered moving its death claims, for example."
Mr Hodgson predicts the negative stereotypes will gradually disappear: "In professional service, when people are doing analytics, there is much less stigma. To some extent these things will progressively dissolve. We are moving to a much more mature trading environment, where people conduct business where it is most appropriate — rather than having nationalism driving decisions."
Embracing UK investment
The regulatory system, praised by Mr Soni, could do more to embrace UK investment, Mr Hodgson says: "As Andrew Moss has pointed out, it would be very helpful if the Indian government would relax their restrictions on foreign ownership of insurance companies. It would send a strong message that India is really open for business — and it would help it build its insurance market."
Mr Idnani predicts UK companies with a foot already in the Indian market will be best placed to gain serious ground — once regulations are relaxed: "Most companies currently in joint ventures with Indian firms are already benefiting from partial deregulation. It bodes well for these insurers."
Perceptions of India are often blurred, however the general consensus from within the insurance industry appears to be simple — the UK wants in. "You can understand 10 years ago before the liberalisation from nationalisation, that people were worried about the impact of foreign influence. Now it is probably time to relax those rules. It probably does India more harm than good," Mr Hodgson adds.
As Mr Idnani says, the alliance between UK enthusiasm and Indian potential could well deliver. And for a country with one of the largest populations in the world, India — for now — remains largely untouched, fiercely determined and extremely ambitious: "India has a proven model. The worldwide BPO market is something like £220bn. We are just scratching the surface with an 8% stake. There is clearly substantial growth potential."
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