Consider the Source

Outsourcing Observations on Insurance

By: Paul Reynolds, Director and Chief Research Officer, TPI Momentum

Having just completed a detailed review of outsourcing activity in 26 different vertical industry groups, I want to share some interesting findings from my research. The Insurance vertical sector has been hard hit by the economic issues of the last year, so I will share my observations on this industry segment first.

A quick look at the companies in the Forbes® Global 2000 reveals that there are more than 100 companies in the Insurance vertical sector, of which just less than half have an active outsourcing contract with a total contract value (TCV) of $25 million or more, according to TPI Research. As a group, these companies have increased their spending on outsourcing in each of the last 13 years, reaching an all time high of nearly $5 billion in annualized contract value in 2008. Compared to other industry groups, however, the typical insurance company spends about $10 million less per year than the overall market average, indicating that this vertical may be well-positioned for increased spending in the future.

 

Companies in this vertical sector have been somewhat slow to the BPO party, though TPI has recently observed increased attention being given to processes that can be offshored due to board pressure to reduce costs. Companies are also considering onshore options; especially those have taken TARP funding. This shift may benefit the US-based multinational service providers, who can market their US-based delivery centers.

To sum up, the Insurance vertical sector is a large market that already spends significant dollars on outsourcing. TPI sees opportunities for increased spending among companies that already source and expects more Insurance companies to adopt outsourcing during 2009, especially those positioned in the mid-market.

I’d be very interested to hear your thoughts on outsourcing in the Insurance vertical sector.

Source: TPI Momentum Q109 Vertical Industries Report
For more information visit: http://www.tpi.net/pdf/resources/TPI-Momentum-Market-Trends-Insights-1Q09-Verticals-Summary.pdf

Waves of Change

Today's blog comes from Peter Allen, Partner and Managing Director, TPI. 

Keep an eye out for the ripples of activity in the insurance processing segment. There has been big movement by big players.

Last year, Prudential UK completed a large deal with Captiva, a real game-changer for managed service offerings for the insurance market.  Then, this year, along comes the Aviva-WNS deal - another big move foreshadowing some major market changes.

Large insurance organizations are looking to restructure their operations to improve their cost models, achieve more flexible capacity, and enhance their analytical capabilities. The insurance processing industry is saddled with a heavy legacy burden and the investments required to modernize and transform are daunting. 

Alas, that’s where the outsourcing industry comes into the picture, providing a leveraged investment approach for new capabilities and flexible capacity.

Over the past several years, insurance companies have increasingly leveraged offshore delivery, whether captive or outsourced, to reduce cost, increase efficiencies, and transform processes.  It’s the applications-support functions that are largely being supported offshore for both corporations and individuals. They include general insurance, healthcare, life and pensions, and property and casualty.

But very few insurance companies have aggressively moved key components of their operations offshore, and that gives rise to a rather attractive market opportunity. 

The Prudential UK and Aviva moves have paved the way for some increased market activity among the insurance segment. Question is: How long before the ripple effect turns into waves of change?