The numbers are too compelling to ignore. The average salary for a call center agent in India is one-tenth that of a U.S. agent's-or roughly $300 a month. In a 500-seat operation, that amounts to $16.2 million a year in payroll savings alone.In addition, India's young, educated and highly motivated workforce, views working in a call center as a prestigious job, unlike their American counterparts who typically view it as a temporary step toward a "real" career.

With comparisons like these, it's no wonder many insurers are beginning to consider India as a viable destination for outsourcing their call center operations.

Conseco Inc. has already paved the way. Its current capital restructuring notwithstanding, the Carmel, Ind.-based financial services firm said it expected to save $60 million a year by sending customer service work to India, according to American Banker in December 2001.

To that end, Conseco purchased an Indian call center operation, exlService, in 1999. Since the end of 2000, the Conseco subsidiary has been providing telemarketing, customer service, policy administration, claims processing, and account reconciliation to its insurance, banking and lending operations.

Conseco is not alone in relocating customer service operations to India. GE Capital Corp. is generally credited with starting the trend when it opened a captive call center in New Delhi in 1997.

"When GE Capital came into the market in India, they had no alternative but to build their own operations," says Susheel Kurien, president of U.S. operations of ICICI OneSource, one of the largest business processing firms in India (see "Top Indian ITES Outsourcing Firms," page 34).

The second phase for firms outsourcing to India involved joint ventures, Kurien says. "Now, we're in the third wave, so to speak, where third parties with credentials and capital backing and capability have come to the table." Essentially, he says, the door is now open to companies that are not as large as GE Capital or Conseco.

In fact, offshore business processing (OBP)-which includes customer service, telemarketing, help desk, back-office accounting, payroll management, insurance claims and credit-card processing-is a bona fide business trend.

According to PricewaterhouseCoopers (PwC), a New York-based division of IBM Corp., White Plains, N.Y., offshore business processing-also known as IT-enabled services (ITES)-is expected to explode to $142 billion globally by 2008.

Currently, India has captured 57% of the market, with the Philippines in second place at 17% (see chart, "Where Companies Go For Offshore Business Processing," page 35). The National Association of Software Services Cos. (NASSCOM), in New Delhi, predicts India's revenue from IT-enabled services will reach $17 billion by 2008, from $830 million last year.

Insurers Moving In

Outsourcing customer service work to India started with technical support, says Cliff Moore, chairman of the Customer Operations Performance Center Inc. (COPC), an Amherst, N.Y.-based call center consulting and certification firm. "If you were to call Gateway or Dell or IBM and ask about your computer, much of that work is being done in India."

The second wave involved the hospitality and retail industries, which send calls to India for catalog orders and reservations, says Moore, who has spent 25 weeks over the past 18 months in India touring call centers seeking COPC certification. "More recently, I've started to see more and more financial institutions in the market," he says.

Until now, insurance companies have not been outsourcing much of their inbound and outbound voice services to the region, Moore says. But some are sending back-office transactional work to India. Plus, he fully expects insurers to outsource to Indian call centers much more over the next two years.

Most third-party call centers in India are new, he notes, cropping up only over the past 18 months. Currently, India has approximately 100 companies that offer customer-care services, according to NASSCOM. In addition, Moore says, the groups touring India recently to look at these centers have included some of the major financial institutions.

In fact, sources say, it's a natural progression for insurers to outsource business processing and customer care offshore, since financial institutions have amassed considerable experience outsourcing IT development, maintenance and systems management overseas.

Insurers including Prudential, Royal & SunAlliance, Farmers, Grange Insurance Group and AIG have shipped IT projects to places such as India and Ireland, where costs are lower and skilled professionals are readily available.

The track record for these projects is excellent. Not only do companies typically save 40% to 50% in costs, but the majority of firms also cite quality improvements.

A recent PwC survey of 51 companies (45% in financial services) indicates that 69% perform some IT work offshore, and a full 94% of those firms say they're satisfied with the work.

Quality is actually better, according to 68% of firms sending IT work overseas, and most of those companies (84%) plan to increase their offshore activities (see chart, "Future Plans of Companies Now Using Offshore Outsourcing," page 35).

As a result, in the last five years alone, offshore outsourcing of IT services has grown more than 50% per year to more than $8 billion in 2001, PwC reports.

More than one-third of Fortune 500 companies sent at least some IT service work offshore, according to PwC, and India claims 86% of that market, with Ireland a distant second at 7%.

Proven Success

With proven success in IT services, more companies (56% in the PwC survey) are starting to send business processing services to India and other countries. Insurers are among them.

"In many cases, a U.S.-based or U.K.-based insurance company will scan its documents, e-mail them over to India, then the folks (in India) do the processing, entering, and analysis using the insurance company's proprietary systems," COPC's Moore says.

Because India is roughly 12 hours ahead of the United States, U.S. companies can provide faster turnaround-and around-the-clock service. At Conseco, for example, 30 minutes before U.S.-based employees leave for the day, they scan images and send them to India, says Raja Gopalakrishnan, who managed business development and migration for exlService after Conseco acquired it.

"Then, workers in India process them during their day time. And when the U.S. workers come in the next morning, everything is processed and ready to be handed over to the customer. It reduces turnaround time tremendously," he says.

In fact, sending back-office processing and night-shift customer-service calls to a center in India is a "perfect entry strategy" for insurers looking to test the market, says ICICI's Kurien. "Let's start with the things that are causing you the most pain and carry the least risk," he says.

Still, the risks of offshore outsourcing is a concern to insurance companies, particularly in India, where the threat of war with Pakistan is a continual strain.

Surprisingly, the Sept. 11 attacks didn't deter offshore outsourcing, according to the PwC survey, which was conducted from November 2001 to February 2002. The terrorist attacks did not cause a single company surveyed to withdraw from offshoring, the report states.

Nonetheless, companies are taking precautions. Many are putting more emphasis on contingency planning and diversifying risk, for instance, by outsourcing to multiple vendors and multiple countries.

"There are a number of attractive options for U.S. insurers that can offer the same pricing as India," COPC's Moore notes. He cites the Philippines, the Dominican Republic, Puerto Rico, and Panama.

"South Africa is also starting to emerge as a major hub," he says. And Canada and Mexico are gaining interest with U.S. companies that are more comfortable staying closer to home.

Two concerns insurers don't have to worry about in India, however, are infrastructure or service levels-as long as they select a reputable third party, sources say.

"The domestic telecommunications infrastructure (in India) is not real good," COPC's Moore admits. But most of the call centers he's auditing are using fiber-optic cable to the United States. Called Integrated Private Lease Circuits (IPLC) or E1 lines, they have 99.2% or better uptime, he says.

In addition, most of the reputable centers also have their own universal power supplies, which are operating 100% of the time, according to Moore. They also have generators with about six to eight days worth of fuel, he says. "They're basically running they're own little utilities. So they've mitigated that risk completely."

Since the majority of the centers are less than two years old, they're also equipped with state-of-the art technology, Moore says. "There's no such thing as a legacy system here."

Typically, Indian call centers establish a virtual private network with their U.S.- or U.K.-based clients, whereby call center agents are connected as remote users via the Internet on the clients' host systems.

The centers also have been designed and built by Indian IT firms, which have the highest certification levels in the world. According to a 2001 report from McKinsey & Co Inc., of the 14 companies worldwide that had achieved the highest certification rating (level-5-CMM) in 1999 from the Software Engineering Institute, one-half were based in India.

Due Diligence Required

In addition to performing due diligence with third parties to ensure they have adequate technical capabilities, insurance executives should evaluate Indian vendors based on the domain expertise they bring to the table, says Gopalakrishnan, who recently left Conseco's exlService subsidiary to become the insurance vertical business head at ICICI OneSource.

"They should evaluate the management team and the organization." Is it a smaller venture-capital-funded company or a larger one with financial backing for the long-term?, he asks.

Indeed, call center operations in India and large financial institutions or IT services firms are forming alliances to meet this need for stability in the U.S. insurance market.

For example, ICICI OneSource in May acquired CustomerAsset, a leading contact center in India. ICICI OneSource is a member of ICICI Group, one of India's largest private sector banks. "We're beginning to see a tiering in the market," says ICICI's Kurien. "Companies are very clear about who they want to play with and who they don't want to play with. And typically, that's being driven by capital commitment and credibility."

Similarly, India-based IT services firm Wipro Ltd. in July acquired an additional 66% stake in Spectramind, bringing its ownership in the business processing outsourcing firm to 90%.

"The 90% ownership gives us a complete footprint of services to offer, including business processing, reengineering, optimization, transaction processing, call center, and on the IT side: architecture, integration and management," says Makarand Teje, regional general manager, finance solutions for Wipro Technologies.

And, at the end of last year, Tata Consultancy Services, an Indian software development firm, launched Intelenet Global Services Ltd.-a call center and back-office processing operation-with HDFC, a large financial services firm in India.

"Our plan is to create six or seven centers of excellence for large clients," says Ramesh Gudalar, vice president of global sales and solutions for TCS.

To that end, Intelenet is building a new 2,000-seat call center in Bombay to meet the needs of a major (anonymous) U.S. credit-card firm, which is ramping up its business to 2,000 seats within the next 36 months, he says.

Outsourcing business processing and customer service to India is an option insurers should certainly consider, COPC's Moore says. But they shouldn't rush into it, especially if they've never outsourced before.

COPC works with companies considering outsourcing in two stages, he says. If an insurer has never outsourced, "a much more prudent step is to figure out how to do it first, forget where you put it," Moore explains.

"You've got to create the internal capabilities-the attitudes, the technology and the skills-to outsource at all." Then, figure out how to outsource domestically or within the Americas, before moving across the globe, he says.

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