OUTSOURCING: Insurance BPO Market Blossoms
U.S. insurers are becoming increasingly reliant on business process outsourcing providers, a new study from Boston-based Celent finds. The firm anticipates a combined annual growth rate of 10% in the North American core insurance BPO market, with insurer expenditures growing from an estimated $2.3 billion in 2011 to $3.7 billion by 2016.
The report, authored by Celent Senior Analyst Mike Fitzgerald and Analyst Karen Monks, also expects that BPO revenue growth in life/annuity/health sector will be slightly higher than the P&C industry given the larger average deal size in that sector.
The new report augments finding from a November 2010 survey of insurers by Celent that found that 49% of respondents expected their company's use of BPO to remain level in 2011, while 36% expected it to increase.
Fitzgerald and Monks note that BPO activity has most frequently been seen in non-core processes such as claims management, customer service, billing and payments, and imaging. However, in light of the budget restrictions faced by insurers following the financial crisis, they may be begrudgingly acquiescing to the use of BPO in more core insurance functions.
"It was expected that the economic events of 2008 through 2010 would force many insurers to rethink their views on business process outsourcing," the report states. "As cost containment became a mandate and insurers looked for ways to manage costs, business process outsourcing experienced growth over the past two years, but adoption of BPO by insurers for core insurance services progressed at a slower rate than expected in North America."
The authors predict that as insurers slowly use BPO for more core functions, BPO providers will have to adapt.
REGULATORY: McRaith Gets Help at FIO
The composition of the new Federal Insurance Office (FIO) is beginning to crystallize.
After naming Illinois Insurance Commissioner Michael McRaith as director of the office in March, the U.S. Treasury Department announced the creation of the Federal Advisory Committee on Insurance (FACI), which is intended to buttress the FIO by providing "advice, recommendations, analysis and information."
The FACI will consist of 15 members with expertise in the area of insurance culled from a diverse array of sources. Members will be selected by the Treasury Department and serve two-year terms.
The formation of the FACI seems prudent in light of the scope of the FIO's purview. Proscribed in the Dodd-Frank Act, the FIO's primary mission is to monitor "all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system."
The FIO also is charged with coordinating and developing a unified federal policy on insurance, and representing the United States before the International Association of Insurance Supervisors and other international bodies.
RISK MANAGEMENT: Insurers Need to Step Up Risk Efforts
In anticipation of the new Solvency II regime, as well as the eventual merging of the broader formal accounting rules policies from both the United Kingdom and United States, insurers need to strengthen their risk cultures. So says a report issued by global professional services firm Towers Watson, which recently measured the risk temperature of more than 80 delegates from a wide range of insurance companies.
The poll, conducted during a recent Solvency II seminar, revealed that only 29% of insurers measure and manage risk culture in their organizations as part of their ongoing risk assessments. Some insurers reported taking steps in strengthening the risk culture of their organizations, such as by forming risk committees; strengthening the role of the CRO; or by adjusting senior management incentive plans to have a greater element of risk focus.
"We see Solvency II as an opportunity to make a step change in risk culture within insurance companies," Towers Watson Senior Consultant Oliver Davidson said. "Central elements that we expect from an effective risk culture include committed leadership, effective governance structure with clear responsibilities and timely challenges, active learning from mistakes, incentives that reward thinking without the risk management objectives of the whole organization. While it is encouraging to see some leader firms taking proactive steps to build a solid risk culture, for many more, work is required."
Best of Our Blogs
From Joe McKendrick, May 9, 2011
Topic: The Insurance Innovators' Dilemma
...Clayton Christensen, Harvard professor and author of "The Innovator's Dilemma," says most large, well-established companies do a pretty decent job of managing themselves, and usually do the right things that are expected of them to respond to their markets. But the problem is that while they are concentrating on effectively managing their operations, disrupters swoop into the low ends of their markets with entirely new business models, catching these established leaders off guard.
Could the insurance industry be turned upside down by disrupters? A recent Deloitte paper says insurers will have a hard time achieving meaningful growth during a relatively sluggish economic recovery, especially as disruptive forces such as the Web continue to provide greater power to consumers to pick and choose options. The typical response from many carriers is to put all their energy into making existing processes more efficient and cost-effective, versus attempting to expand outward with new business approaches.
Therefore, carriers need to start thinking outside the box and explore new ways to innovate and transform their industry before someone else does it for them...
Join the conversation: http://www.insurancenetworking.com/blogs/
LIFE: Opportunity Knocks for Insurers
A new study from Conning Research & Consulting uncovers a golden opportunity for insurers that develop and distribute retirement income products-the transfer of longevity.
Insurers already have a basic suite of products that transfer group and individual longevity risk to insurers. Further product development will enhance the ability of insurers to answer customer concerns about current products, and deepen penetration in these segments.
"The life industry has grown significantly during the past two decades by helping individuals accumulate retirement assets," says Scott Hawkins, analyst at Conning Research & Consulting. "However, Baby Boomers are increasingly concerned about outliving their accumulated assets as they near or enter retirement. At the same time, pension plan sponsors are concerned about managing their assets to meet their obligations to current and future retirees as life spans increase. The longevity risk concerns of both individuals and groups represent significant premium growth opportunities for insurers over the medium term."
The market opportunity from both individuals and defined benefit plans is large and potentially profitable, according to the study. That profitability rests, however, on the ability of insurers to understand and manage the longevity risk they will be accepting. While tools and solutions to accomplish those tasks do exist, some are relatively new and need further development. Given that, the longevity opportunity is a series of waves insurers should use the next few years to invest in that development, Conning suggests.
DISTRACTED DRIVING: 9 Most Common Distracted Driving Behaviors Revealed
It's been many years since Candid Camera was possibly thought to be relevant to television viewers, but now, a different version of it may help to make the roads safer for motorists.
A study released by SmartDrive Systems, a company specializing in fleet safety and operational efficiency, examined distracted driving rates in the commercial fleet during the past year in great detail.
After evaluating more than 13.8 million video events recorded over the course of 2010 involving 34,466 commercial drivers, SmartDrive quantified distractions such as cell phone usage, text messaging, use of maps or navigation, doing paperwork as well as other actions.
The data was compiled using in-vehicle recorders that capture video, audio and vehicle data during sudden stops, swerves, collisions and other risky driving maneuvers. The events were then categorized and scored according to 50-plus safety observations.
The nine most common distractions observed in conjunction with a risky driving maneuver were:
1. Object in Hand/44.5%
2. Talking on a Handheld Mobile Phone/13.4%
3. Beverage/12.7%4. Food /10.1%
5. Smoking/9.9%
6. Operating a Handheld Device/9.1%
7. Talking/Listening Mobile Phone - Hands Free/5.2%
8. Manifest, Map or Navigation/1.0%
9. Grooming/Personal Hygiene/0.6%
A separate report, released by Santander UK plc, looked at the distractions most affecting drivers across the pond, and found striking similarities. Thirty percent of men and a fifth of women reported near misses as a result of distractions, citing adjusting the car stereo, eating or drinking soft drinks while driving.
CLAIMS: Supply Chain Management for Claims
Insurers can drive costs out of their claims process with better supply chain management (SCM), a study from Boston-based Aité Group finds. The report says insurers will be well served to make broader use of SCM to iron out operational kinks in their claims processes.
“SCM was, and to a great extent, still is seen by carriers as a procurement function focused on controlling cost and quality through the request for information (RFI) and request for proposal (RFP) processes and vendor contract development, including service-level agreements,†the report, authored by Aité Senior Analyst Stephen Applebaum, states. “But more visionary carriers see SCM 2.0 as an opportunity to improve overall customer experience and policyholder retention through superior service delivery.â€
Nowhere is this potential greater, Applebaum contends, than in auto insurance claims, due to the complex transactions and large number of vendors involved.
The report says carriers utilizing SCM can rationalize currently fragmented supply chains by forging fewer but deeper relationships with large national suppliers that boast standardized national offerings and a wide range of service capabilities.
IT JOBS: MassMutual's Layoff Affects IT Department
As part of a restructuring, MassMutual said late-April it will lay off 75 employees at its Springfield, Mass., headquarters, chiefly within its information technology department.
Spokesman Mark Cybulski, director of corporate relations, told a Massachusetts news outlet that the layoffs are the result of a review of operations for its Enterprise Technology Organization, which is in charge of IT systems.
“Like most organizations, MassMutual conducts regular reviews of its operations to ensure it has the right resources in place to efficiently and effectively meet the company’s strategic objectives,†he said.
Cybulski pointed to the insurer’s larger goal, to appropriately direct resources to meet the company’s goals. An operations review that evaluated upcoming projects resulted in the determination that current information technology staffing levels would no longer be necessary, he said.
“While decisions like this are never easy, we made this decision to compete as effectively as possible today and in the future,†he said.
