Whether its insurers in mature markets such as the United States looking to shave costs, or insurers in emerging economies looking to tap a reservoir of insurance skills, the demand for third-party business processing is going to increase.

In their new report “Insurance Business Process Outsourcing: A Global View” Mike Fitzgerald and Catherine Stagg-Macey, senior analysts at Boston-based Celent, foresee a compound annual growth rate of 10.6% for outsourced core insurance processes.

“The combination of unrelenting pressure on expenses, vast improvements in networking and communication technology and increased appreciation for highly flexible business models has caused virtually all insurers to explore nontraditional options for running their businesses,” they write, estimating that the global insurance business process outsourcing (BPO) market will grow from $5.2 billion in 2008 to $8.7 billion by 2013.

Yet, the authors say this growth in BPO will come more from insurers expanding existing BPO agreements rather than from new "standing start" initiatives.

“Those insurers who have embedded outsourcing as part of their approach will have a distinct advantage in being able to further extend outsourcing relationships, and thus release further cost savings,” the authors state, citing call center and claims, followed by policy administration as the functions most likely to be outsourced.

However, given the recent upheaval in outsourcing hotbed India, carriers considering BPO with need a robust due diligence process to mollify internal concerns about sending core processes overseas. “The news of the spectacular fraud at Satyam will fuel arguments of buyers inherently resistant to outsourcing.”

Such caveats notwithstanding, the economic argument for BPO will hold sway with carriers, Fitzgerald and Stagg-Macey contend. “An insurer able to reduce costs in the current climate is well positioned to benefit when the economic cycle swings once more.”

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