Financial services companies have expanded offshore delivery functions 18-fold over the last four years, according to a recently released report for Deloitte Touche Tohmatsu. Yet while the insurance industry is in-step with its FS brethren in some areas of offshoring, in others it still lags behind, says the author of the report.

With regard to offshore IT capabilities, insurance stands alongside the best practices found elsewhere in financial services, says Chris Gentle, a London-based associate partner at Deloitte and the report's lead author. “However, insurance does typically lag behind in other areas such as business process, finance, accounting, HR and, to an extent, call centers,” Gentle relates. “We find that insurers are particularly behind retail banks and investment banks, who have been leading the charge.”

And it's quite a big charge. According to the report (Global Financial Services Offshoring Report 2007), more than 75 percent of major financial institutions have offshore operations, compared to less than ten percent in 2001. Further, the average number of staff employed offshore by a given company has increased from 150 to 2,700 over the last four years. The report estimates that the financial services industry presently saves $9 billion a year thanks to offshoring.

“The acceleration is extremely significant,” Gentle says. “An 18-fold increase over four years is quite an incredible shift within the industry and it's changing the very basis of competition within financial services. It should very much be at the top of insurers' strategic agendas going forward.”

The report identifies three stages of development-build, optimize and release--with regard to a company's offshoring operations, with the first stage focused largely on labor arbitrage and the latter two focused on increasing scale and scope and capturing full value, respectively.

“Nearly all insurance companies find themselves in the build phase, and we see most of the industry now on the cusp of the optimize phase. [Insurers] haven't moved into the optimize phase and that is where you really release significant value by re-engineering processes on a worldwide basis,” Gentle says.

One key for an insurance company, or any organization looking to leverage the full benefits of offshoring, is avoiding a “champagne moment,” Gentle suggests, referring to the proclivity of business leaders and board members to cease their interest in offshore operations after the initial set up.

“There's a tendency to fly the board out to India, do the tour and have the champagne. Then everybody gets back on the plane and, to some extent, forgets about what's going on with offshore capabilities,” Gentle explains. “The champagne moment is really about not having an effective long term strategy.”

While Gentle does point out that there are short-term benefits to be had, he also says there's a correlation between companies that have increased the scale and scope of offshore capabilities and companies that have been the most successful.

Continued company involvement in offshore operations, post-champagne toast, can only help efforts to achieve similar success. Other best practices include making sure there is good clarity regarding which functions will and will not be moved offshore and assigning one executive with the responsibility and accountability for offshore operations across the enterprise.

By Nathan Conz

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