It's the same old adage: a penny saved is a penny earned. For many insurers, that means a boost in 2007 outsourced services. But for an up-and-coming group of carriers, that penny translates to a one-pence, kroner, deutsche mark or Euro.Across the globe, interest in business process outsourcing (BPO) services continues to increase, chiefly because insurers must continue to seek ways to achieve operational efficiencies and take advantage of growth opportunities.

But nowhere is that more apparent than in Europe, where the insurance BPO landscape stands in stark contrast with its U.S. counterpart. While roughly the same size market as the one in the United States, its complex and varied language, political climate and labor and tax laws have contributed to a slower BPO adoption rate by insurers in Europe.

"Increased cost pressure in most European markets is putting BPO ever more on the map," says Matthew Whittall, chief operating officer based in Germany at United Kingdom-based Innovation Group, a provider of specialized outsourcing services to the UK and Germany.

"But the language problem means that for many European markets it is not easy to offshore simple processes-how many Indians speak German, for example?"

That's expected to change. Currently, 64% of the offshore business in India is generated from U.S. carriers, and of the remainder, 28% comes from the UK and other parts of Europe, according to ValueNotes, a Pune, India, business intelligence and research provider. ValueNotes predicts that by 2010, the share of U.S. business will drop to 54%, while that of the UK and the rest of Europe will increase to 36%.


As the U.S. reduces its outsource services activities in the next five years, the core European insurance BPO market is predicted to expand at a CAGR of 14% over the same period, according to Boston-based research firm Celent LLC.

The core insurance BPO market in Europe is already sizable. Celent estimates the market at U.S. $2.73 billion for 2006 and anticipates growth to U.S. $5.46 billion in 2011, according to the report, "BPO in the European Insurance Market."

Europe's new interest in BPO has more to do with carriers meeting a diverse set of objectives rather than cost savings alone, reports Celent.

Europe's widely held slow adoption can be explained not only by its complexity of cultures and laws. Another contributor is its overall receptiveness to outsourcing.

Karim Benrais, head of Bermuda-based Accenture Insurance Services (AIS) in Paris, reports that sensitivity about BPO varies a lot among European countries. Accenture provides BPO services overseas to France, Italy, the Netherlands, Spain, Eastern Europe, India and the Philippines.

"In some countries (such as France, the UK) [BPO] is perceived and openly evaluated as a valuable alternative," says Benrais. "Consequently, buyers have a clear perception of benefits and potential issues, and know very well how to prepare an RFP and to evaluate responses. In these countries the market is more mature and the competition is greater."

In other countries, such as Italy and Netherlands, BPO is still seen as a niche alternative, limited to specific needs, such as reducing time-to-market for a single product or filling in for the lack of competence for an old IT system, claims Benrais.

"As a result, the market is less mature and it's more difficult to compare competitors, offers and prices, and the client is less experienced, with lower perception of benefits and difficulty in managing BPO providers," Benrais says.


There is even some confusion-shore to shore-about what "sourcing" entails.

"Sourcing is all about finding and obtaining the resources an insurance company needs to continually deliver value to its clients and other stakeholders along the value chain," says Barry Rabkin, senior research analyst, insurance, at Financial Insights, a Framingham, Mass., research firm.

"It's more than software, and it's more than business functionality. Sourcing means the 'where' and 'how' insurers obtain the software systems [commonly called information technology outsourcing or ITO] that support business functionality or the business functionality itself [called business process outsourcing or BPO] needed to run the company or both."

The variance across geographic and political landscapes creates the propensity for BPO to be adopted differently in each country, providing a challenge to vendors looking to provide a single service across Europe with economies of scale and standardized processes.

"Political issues certainly exist, even if it is different from one country to another," says Benrais.

Differing languages, tax laws, regulatory rules and product characteristics are barriers to a pan-European BPO service, because they increase marketing and development costs and reduce potential synergies.

"On the other hand, these things can also represent opportunity, as many companies are interested in having a single provider that can offer services with a consistent quality across different markets that copes with local peculiarities," Benrais says.

The biggest challenge faced by vendors such as the Innovation Group is working in European insurance markets deregulated only in the last decade, yet still holding fast to tough employment laws, notes Whittall.

"This means that even though senior management can clearly see a financial case for outsourcing, they struggle to implement significant outsourcing projects," says Whittall. "Movement is still slow. Whilst insurers recognize the need for change, the pace at which they can effect change, due to legislation, etc., can represent a significant problem."

In Europe other challenges, such as the Value Added Tax (VAT), which calls for insurers to pay VAT on services provided by outsourcing companies, dog vendors trying to get a foot in the door.

Celent's senior analyst Catherine Stagg-Macey says the uncertainty about VAT has "dampened the activity in the last year, but clarification in the next year should see activity levels rise."

Like Benrais, Whittall sees other opportunities emerging from the fog. "Insurers are under huge pressure to cut costs," he says. "The opportunity for BPO in Europe will be more specialized and less generic than in the UK or the United States for this reason. We have to show them how they can save money in the more complex processes-for example with claims.

Indeed, companies take different approaches to BPO, which typically reflect the overall level of acceptance of BPO and the organization's strategic objective, notes Stagg-Macey. "But we are increasingly seeing more sophisticated buyers, especially in the UK," she says.

The UK market is the largest, most mature market and also the most aggressive in its adoption of BPO, especially by large Tier 1 insurers focusing on outsourcing core processes such as general systems, policy administration and customer care activities, namely call centers, reports Celent.

Celent reports that the outsourcing to vendors such as Accenture and Innovation Group of closed books on business in the UK seems to have paved the way for more activity across all lines of business.

And across Europe, many insurers with BPO in place are taking the "in for a penny, in for a pound" approach and are looking to expand their efforts.

"Other buyers continue to focus on outsourcing non-core processes as the first step," says Stagg-Macey. "A possible explanation is that small deals signed for short periods are seen as low risk, whereas the megadeals have a certain momentum and organizational commitment that allow them to proceed unimpeded through this time of uncertainty."

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