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Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says

Insurers’ increased focus on customer experience and risk management has led to a marked boost in tech and business outsourcing, according to research.

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 Sheridan 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 publication Promo Marketing and a number of ... View Full Bio

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Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
1/13/2014 | 10:02:01 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
That is a possible benefit of outsourcing though, the ability to react and deploy a service or capability much quicker than if relying on an internal team. We see in retail banking that some banks simply rush ahead with certain mobile banking services that they're competitors already offer by partnering up with a provider. There may be long term benefits to do it in-house, but if you have to play catch up then outsourcing has some upside there.
Kelly22
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Kelly22,
User Rank: Author
1/13/2014 | 10:00:36 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
Thanks, venusw. That should give some more background to anyone interested. Definitely worth a read.
venusw
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venusw,
User Rank: Apprentice
1/13/2014 | 8:12:51 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
The two reports Kelly referenced can be found here:
- ITO in Insurance Annual Report 2013: https://research.everestgrp.co...

- BPO in Insurance Annual Report 2013: https://research.everestgrp.co...
Kelly22
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Kelly22,
User Rank: Author
1/13/2014 | 6:26:38 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
Good points - there is risk involved in outsourcing, but risk that insurers are willing to take in exchange for efficiency. As the demand for efficiency increases, more companies will increase their outsourcing for a portion of their operations.
Nathan Golia
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Nathan Golia,
User Rank: Author
1/11/2014 | 3:03:40 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
I agree, Marc. My comment was more to the point that insurers need to add tech capabilities at an increasing rate, so they are turning to outsourced solutions earlier before even finding out whether or not the cost would be more internally simply because of the need for expediency.
MarcAnthony
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MarcAnthony,
User Rank: Apprentice
1/10/2014 | 10:07:07 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
Nathan,
Mmy point of view on this article is insurers are looking for strategic partners and will utilize sourcing more as part of their overall operating architecture. If you look only at the cost reduction play, sourcing then becomes a commodity play. My view is they are looking more for effectiveness, efficiencies, and to really make it as a "strategic partner" they'll have to bear some risk. Will costs be impacted? Of course. But they may be lower cost of growth than shrinking current costs.
The model will be mixed on/off shore/global delivery. Sourcing has become a bit of a political football and strategic partnering helps with the reputational risk most US based insurers don't want to come into play.
If one looks at the full value chain, there are a few key functions that need to remain in the domain of the insurer. Nearly all of the rest can be done by someone else, somewhere else, at lower costs, and can scale faster with growth. This assumes that in the partnering relationship, stringent controls are a key attribute and part of the risk bearing component of the "partnership." Again, all this is only my point of view, not a prognostication. If I could do that accurately, I'd be an investment banker:-)
Kelly22
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Kelly22,
User Rank: Author
1/10/2014 | 7:18:46 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
Good point - and given that more insurers will be exploring explore those initiatives, Rajesh is likely right in saying that 2014 will bring another boost in outsourcing.
Nathan Golia
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Nathan Golia,
User Rank: Author
1/10/2014 | 5:24:50 PM
re: Outsourcing Does More For Insurers Than Lower Costs, Everest Group Says
I thought these were interesting findings. The kinds of data-driven initiatives that insurers want to get ahead on can tax their infrastructure. So either way, they're actually adding cost to do them Gă÷ with outsourcing, they're able to simply add less cost.
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