An Increasingly Compelling BPO Value Proposition Raises Questions for Insurers

Business process outsourcing gives insurers an opportunity to modify business models to meet rapidly changing customer demands in a cost-effective manner, according to Karen Furtado, SMA Strategy Meets Action.

Given the transactional and rules-based nature of automation in insurance, initial projections for the use of business process outsourcing (BPO) were high. Although adoption to date appears to be much slower than anticipated, the rate really depends on what is being measured.

Some companies have been long-time users of some level of BPO services, even if only for claims adjusting and lockbox processing. Still, very few companies believe they are outsourcing business processes. Perhaps more interesting is the fact that only a small percentage of insurers are looking to BPO as a way both to more effectively control operational costs and boost efficiency and to gain new strategic insights and unique expertise.

In today's economic environment, the harsh reality of cost pressure is pushing many companies to look at their businesses differently as they seek ways to streamline and improve service at the same time. Many are finding that it is no longer possible, nor is it prudent, to conduct all operations in-house. The explosion of advances in information and communication technologies is forever changing customers' buying behaviors and expectations; keeping up is a formidable challenge for insurers.

As your company looks for ways to transform business models, carefully consider BPO as one of the key efficiency and cost levers in the mix. Consider how BPO services can provide new, strategic insights and unique expertise. Start by examining the strategic objectives for your business. Determine where you want and need to be an expert - customer service, marketing, channel flexibility, innovative products - and then evaluate ways that BPO services might support and strengthen the business capabilities required.

The age-old rule applies: You probably don't want to outsource the functions that you rely on for your differentiation. That said, it is possible that you can use BPO services to augment your unique capabilities. Thinking through the following questions can help you explore the possibilities and narrow the options:

1. Where will we be able to achieve the highest degree of success for the lowest investment? No matter how much money you put into a project, your core expertise and experience occasionally will fail to improve the delivery of that function.

2. Where are we already experts? Are these functions critical to operations? To our strategy? Many companies have focused on becoming expert at functions that are important but not crucial to them. The result is a distraction of time, money and focus from mission-critical functions.

3. Do we want a scalable business model? Some traditional companies are entering new business opportunities but are unsure of their needs or how results will take shape.

For the insurance industry, BPO services are available as horizontal offerings that apply to enterprisewide solutions, such as payroll or lockbox processing, HR services, and accounting. BPO insurance-specific services are offered for enrollment processing; underwriting assistance; catastrophe claims adjusting; off-hour call center support; and mail services, including form development, preparation and delivery.

Now might be the right time to seriously assess the opportunities afforded through the BPO offerings available in insurance. Just as the comfort level with IT outsourcing (ITO) services continues to increase, you need to be looking to BPO services in the push for transformation - with the full understanding that in today's dynamic and complex business environment, the smartest approach may just be to seek a little help from your friends. n

Karen Furtado is a partner at Boston-based SMA Strategy Meets Action, a strategic advisory firm offering research, advisory and consulting services to the insurance industry. This article summarizes SMA's ongoing research on business capabilities and BPO. For more information, visit www.strategymeetsaction.com.