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Insurance Industry BPO: Opportunities and Challenges

Insurance Industry BPO: Opportunities and Challenges

Insurance Industry BPO (Business Process Outsourcing) is on the cusp of epochal change. The insurance industry has been and will continue to be in the midst of a technological upheaval that challenges the old ways of doing business. The market demographics of insurance customers are changing substantially, because baby boomers, who are mid-forties and older, are being replaced by millennials, who are adults under the age of 34-years old.

This demographic change in the American population is also the causation of the aging industry workforce in the insurance sector. The departments of human resources for insurers now need to look towards older Americans in order find qualified workers with sufficient insurance industry experience. At the same time, increasing automation and the

In the past, some insurance providers were reluctant to outsource major business process functions; however, the possible cost savings and efficiency improvements now make BPO a strategic choice for all insurers.

use of artificial intelligence is making some employment positions redundant. One solution for these problems is business process outsourcing (BPO) or KPO (Knowledge Process Outsourcing).

In the life and annuity markets, insurers can use BPO to improve operational efficiency. BPO is a particular type of outsourcing that hires third-party companies to take responsibility for the operations needed to support an entire business process. Using BPO reduces the internal hiring needs for an organization. In fact, one of the main benefits of using BPO/KPO comes from the cost savings of sourcing specialized vendors, with potentially cheaper resources.

The insurance industry BPO market has been growing steadily. According to Everest Group, “The global property and casualty (P&C) insurance business process outsourcing (BPO) market registered nearly 17 percent compound annual growth rate (CAGR) over the last few years to reach US$1.45 billion. Amid political uncertainties in the United States (due to the presidential election) and the United Kingdom (due to Brexit), (we) expect the market to grow at 14 to 16 percent, reaching US$1.9 billion by 2017.”

Areas where life insurance companies and annuity providers successfully use BPO include:

  • Claims Processing
  • Customer Service Management
  • Customer Acquisition
  • Sales
  • Customer Loyalty Programs
  • Back-Office Services such as collections, commissions, and disbursements
  • Policy Administration
  • Finance and Accounting
  • Human Resources
  • Actuarial Services
  • Investment Portfolio Monitoring
  • Data Mining and Business Intelligence
  • Competitor Mapping
  • Security
  • Fraud Mitigation and Investigation

In the past, some insurance providers were reluctant to outsource major business process functions; however, the possible cost savings and efficiency improvements now make BPO a strategic choice for all insurers. By using BPO, some insurance companies experience savings that reduce administration costs up to 50%. Almost any process that can be managed as a separate function is a candidate for efficiency improvement using BPO.

However, when done well, BPO can also be effective for complex, specialized tasks, such as risk analysis for policy underwriting and insurance fraud detection.

Another driver that makes BPO attractive is the need to consolidate operations and functions after an acquisition or a merger. Using BPO is a quick way to gain the most from of the financial benefits of combining organizations.

Insurance Industry BPO Case Studies

These three case studies are illustrative of the kinds of business processes that are possible to outsource and the results achieved. Insurance industry BPO is considered adequate for mundane and repetitive tasks, such as processing high-volume and common claims. However, when done well, BPO can also be effective for complex, specialized tasks, such as risk analysis for policy underwriting and insurance fraud detection.

Insurance industry BPO

Case Study 1 – BPO Used for Scalability and Flexibility in Volatile Times

This insurance company underwent a complete operational design to take advantage of a shared services model.

A shared services model is one that supports the same business processes for more than one insurance company to achieve the benefits from economies of scale. The weighted allocation of expenses in a shared business model reduces the costs for each of the companies using the shared business services

Additionally, a shared services model is advantageous by providing better analytics for fraud detection and risk evaluation. One thing noted in this case study was that cost-saving opportunities exist for insurance companies that move the financing and accounting functions to a captive BPO center. The positive trend is to move more business processes to a shared services center for the efficiency possible and the cost savings. In this case, study, using shared services centers is a global, industrialized model for insurance companies to adopt.

For the company in this case study, the savings generated by using BPO and a shared services center amounted to approximately $25 million per year.

Case Study 2 – Major Underwriter Outsources Inbound Mail Processing

A leading insurance company with over $118 billion in assets and more than $25 billion in annual revenues wanted to improve the handling and processing of inbound mail. The goal was to reduce operational costs and improve customer satisfaction by reducing lost mail and slow responses, without investing significant capital in the BPO solution.

Achievement of the goal came from outsourcing mail processing to a third party that used a better design for document flow in a new facility that was set up to centralize all mail processing.

The BPO transformation of mail processing resulted in a 30% cost saving and improved customer service levels as measured by the client response surveys. The appropriate staff transferred from the insurance company to take on new jobs in the BPO facility. The transfers minimized the impact of job loss at the insurance company.

Case Study 3 – After Initial Success, Insurer Expands Use of BPO

Since 2002, this large insurer began BPO with the documentation and recording of any new insurance business. The third party BPO provider used a staff of 25 people for this activity.

Since the beginning, insurance industry BPO efforts have managed to reduce costs and increasing customer satisfaction for this insurance company. Subsequently, the BPO staff expanded to 125 people and now handles many underwriting tasks, claims administration, and broker support.

The BPO team is now responsible for the following:

  • New policy setup
  • Issuance of policy certificates
  • Policy amendments and renewals
  • Claims administration, indexing, and referencing
  • Broker support that includes quotations, setting up new brokers, issuance of policy documents, policy modifications and policy renewals

Measurable results of success in this case study showed an improvement in renewal accuracy from 90% to 97%, reduction in the average processing time of new policy applications by half, and reducing the turnaround time in claims processing by 65% to achieve a claims processing time of fewer than 48 hours. All of these improvements increased customer satisfaction.

Because of the insurance underwriter’s appreciation of the quality levels achieved and the cost savings, the number of business processes managed by the third party provider increased from 19 to 98 over a period of six years.

Disadvantages of Insurance Industry BPO

Careful selection of a BPO provider includes proper investigation with thorough due diligence, combined with full legal contracts for the BPO services.

This detailed examination of the BPO provider is necessary to avoid the disadvantages that may arise, such as:

  • Problems caused by loss of management control
  • Hidden fees and cost overruns
  • Security risks for confidential and proprietary data
  • Quality issues with the work performed
  • Financial weaknesses in third-party providers
  • Bad publicity and damaged employee morale for “shipping” jobs overseas

Summary

For most insurers, the advantages of insurance industry BPO outweigh the disadvantages as long as they are careful in selecting the third party providers. Using a shared services center is a strategy that allows a company to scale up or down quickly, depending on market conditions, without the complex difficulties of managing human resources in response to market volatility.

Insurers getting the most benefits from using BPO are those that start with simpler BPO and then, based on success, expanded the BPO efforts from a trusted provider to cover more areas of the business operations.

2018-07-08T08:23:56+00:00

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