Insurance AO Activity Doubles

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As P&C and life insurers seek to enhance customer experience, manage risk optimally and improve profitability, digital technologies becomes ever important. As a result, the number of large, active insurance-application outsourcing contracts more than doubled in 2012, according to a report from Everest Global Inc. And the demand for large-sized deals, those with total contract value greater than $25 million, continues to rise. Large deals accounted for one-third of all deals signed in 2012, the report states.

According to Everest’s “IT Outsourcing in Insurance – Annual Report 2013: SMAC is the Panacea for all Insurance Industry Problems,” much of the increase comes from activity in North America; European buyers cut back their discretionary spending and focused on enterprise resource planning (ERP) projects to manage their entire insurance enterprise. Overall, while application development, maintenance and testing remained the largest functions outsourced by life and P&C buyers, implementation of packaged and ERP software led the incremental growth in 2012. In addition to the application outsourcing (AO) overview, the report includes a section on the ITO market and a look at buyers emerging priorities.

Small insurance firms opened up to AO and signed more contracts in 2012. And while they continue to focus on leveraging global delivery networks and look beyond India for insurance AO delivery, Asia continues to be the most cost-effective option for application outsourcing services delivery, according to the report.

In terms of pricing structures, more than half of active insurance AO contracts in 2012 are fixed-price contracts, followed by input-based/time-and-materials contracts. According to Everest, buyers preferred fixed-price as they seek to control the overall IT spend and spread the financial risk between both parties.

Everest predicts the demand for insurance AO will remain strong, citing approximately 75 large deals worth a total of $7.6 billion coming up for renewal between 2012 and 2017.

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