Although the hype surrounding offshore insurance business process outsourcing (BPO) is rising, insurers are reluctant to "go there" with their core processes. Meanwhile, the vendors have not yet proven their domain expertise. This is according to recent research conducted by Stamford, Conn.-based Gartner Inc.

Offshore BPO sounds promising, since insurers theoretically can save by moving staffing and operations to developing regions, such as India, China, South Africa or the Phillipines, says Kimberly Harris, research director at Gartner. However, in reality, initiating and managing offshore BPO will be a challenge for insurers through 2007, she says.

Insurers' fears regarding offshore BPO for insurance processes include the following:

  • The ability to position offshore BPO providers in direct interaction with business managers.
  • The loss of customer interaction for servicing activities.
  • The possible unavailability of systems and data.
  • The lack of Web-enabled legacy systems for external accessibility.
  • The risk of noncompliance with privacy regulations.

In addition, the Gartner research points out, offshore BPO models have inherent problems, which include a lack of insurance domain expertise or client base with similar BPO experience. "BPO projects have been random, without a common process," says Harris. "Without repeatable experience in similar processes, it will be difficult to provide the risk aversion and cost savings associated with economies of scale."
As a result, Gartner predicts that offshore BPO for insurance will have slow growth during the next five years. Instead, insurers will consider domestic and nearshore BPO alternatives, while the offshore BPO provider market consolidates and vendors gain domain expertise that leverage their core competencies.

Source: Gartner Inc., "The Offshore Insurance BPO Market Has Not Yet Matured"

Note: Kimberly Harris will be speaking on BPO at the Insurance Networking News Insurance Outsourcing Forum, Feb. 26-27, in Tampa. 

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