Life Companies Seek Support for New Products & New Geographies via BPO

NelsonHall's new Insurance BPO study, entitled 'Targeting Life & Pensions BPO' identifies four distinct market segments for L&P BPO:

• Cost focused policy administration - typified by life companies and multi-line financial services organizations closing and/or disposing of small sub-scale blocks of business. Consolidators such as Swiss Re and Pearl are continuing to acquire closed blocks. In this segment, clients expect guaranteed cost reduction of 25%-60% around closed block policy processing in 3-5 years and year-on-year reductions of 5%-7%
• Service focused policy administration - in this segment, product commoditization is driving life companies to differentiate through customer service around active product portfolios. Life companies are seeking to maximize revenue potential of closed blocks. Growth is in sectors requiring high customer service levels and complex product portfolio management, e.g. high net worth and non-domiciled individuals. The focus is on customer service improvements to drive new business growth within open block and increase retention rates within closed block (e.g. reduced policy issuance time, reduced policy error rates, tiered service levels, etc.). Clients expect guaranteed cost reduction of 20%-35% around policy processing within both open and closed blocks and 3%-5% year-on-year reductions
• New product introduction - New product opportunities particularly in the U.S. are being driven by changing demographics (e.g. increasing proportion nearing retirement, increasing ethnic diversity). Clients require reduced time-to-market around new product introduction (typically within 3-6 months), implementation and management of infrastructure and resources in support of new product introduction with the capability to ramp up or down, and high-end analytics and product development services (e.g. market assessment, competitor mapping)
• Entry to new geographic markets - U.S. & European life companies are establishing a presence in the emerging markets of China, India and the Middle East. Clients are looking for reduced time to establish operational presence in a new geography (typically within 12 months) and implementation and management of operational infrastructure and resources in new geographies

The study reveals a L&P BPO market where there are strong opportunities for vendors to support new product introduction, as life companies respond to changing demographics in the U.S., and to support U.S. and European insurers as they look to penetrate emerging markets. Also, in the U.S. market, there is an increasing requirement to migrate more complex processes (e.g. actuarial support, contested claims) offshore. Offshore personnel will represent c. 30% of the total by 2012.

In the U.K. market, there will be increasing use of offshore service delivery to achieve ongoing cost reduction following initial operational improvement achieved onshore. Circa 20% of U.K. based L&P personnel will be located offshore by 2012.

Slow growth of activity in Continental Europe is being driven by competitive pressure, growing acceptance of BPO and growth in Eastern Europe. Growth is likely to increase if the EU Commission review extends VAT exemptions in 2010-2011.

The study 'Targeting Life & Pensions BPO' is published within NelsonHall's Insurance Sourcing program. To find out more, contact Paul Connolly.