January 08, 2014

Two studies from Everest Group reveal that information technology outsourcing (ITO) and business processing outsourcing (BPO) in insurance have grown by 18 and 15 percent, respectively, in 2012. The focus of outsourcing has shifted away from cost reduction and towards improving company technology.

The reports analyze current market trends and predict the future of outsourcing relationships. Both concluded that insurers are seeking strategic partners who can help with developing solutions that will boost efficiency and keep up with new technologies.

[More on insurance outsourcing: Barnstable Mutual Does More With Less Using IDP Outsourcing. ]

“Traditionally, insurance is considered conservative,” says Rajesh Ranjan, VP of Everest Group, in an interview. “I think that [reputation] is opening up as they look to outsource IT and business processing.”

The rise in ITO is due to insurers’ increased use of social media, mobility, analytics and cloud computing (SMAC) to enhance customer experience, better manage risk, and improve efficiencies to boost productivity. The BPO market has grown to $2.3 billion because of insurers’ greater need for platform-based solutions, new technologies that improve customer experience, and complex work such as analytics and actuarial analysis.

These changes in outsourcing come down to a general shift in buyers’ and insurers’ priorities, Ranjan explains. The consumerization of IT has demanded that insurers enhance their customer experience strategies and prepare for new advancements in the changing tech market. Insurers also face margin pressure and an increasingly challenging business environment. Ranjan expects that SMAC components will quickly increase among insurers in the coming year.

Buyers face a unique challenge. They must vary their tech investments to leverage SMAC components while keeping cost reduction in mind. With outsourcing, buyers can reduce expenses so they have greater funds to invest in new technologies, Ranjan says.

The coming year will bring an industry-wide increase in outsourcing, says Ranjan. More companies will begin outsourcing, he predicts, and those who already outsource will increase the scope of their activity.

Kelly is an associate editor for Insurance & Technology. Prior to joining InformationWeek Financial Services, she was a staff writer for InformationWeek and InformationWeek Education. Kelly has also written for trade ...