Changing opportunity

Our earlier report on Global Insurance Outsourcing in 2004 predicted a growth rate of 21 percent CAGR for insurance offshoring to India. Since then, our research shows that industry dynamics have undergone substantial change - especially led by factors such as fraud, change in consumer demographics, and more importantly, a spate of natural calamities. These events have brought pressure on insurance carriers, who have to manage their risks much better to remain competitive. Coupled with these changes is an increasingly stringent regulatory environment, which is imposing a greater cost of compliance on the insurance industry.

We believe that outsourcing will be a growing imperative in the insurance industry, owing to these and other drivers, and this has led to a rise in the growth prediction for the next three years. ValueNotes estimates suggest that the Indian outsourcing industry is set to gain as offshoring intensifies, with growth rates in the range of 30 percent CAGR in the next three years.

The Vendor Landscape

The vendor landscape consists of captives and third party BPO vendors. The industry is also witnessing a large number of 'hybrid operating arrangements', which tends to combine the advantages of more than one model.

The third party landscape consists of large, mid-tier and small vendors. The larger BPOs such as Genpact, EXL Service and WNS are all very strongly placed, with insurance domain expertise that has arisen out of a legacy of servicing insurance carriers, or through acquisitions.

In the last three to four years, the vendor group that has gained maximum traction has been that of BPO offshoots of large IT companies such as TCS, Infosys (Progeon), Wipro. These companies have seen rapid growth in insurance, as they are in a position to leverage the client base, offshoring know-how and financial backing of their IT parents.

Typically Offshored Processes

Support functions such as accounting and human resource functions were among the first processes offshored by insurance carriers. Vendors typically require lower insurance domain expertise for these functions, than for some of the other transaction processing functions. The figure below shows processes that have been finding their way offshore.

Processes being offshored

Source: ValueNotes Research

In the future, there will be a rising trend towards outsourcing of higher-end processes such as underwriting, actuaries and analytics to the larger third party BPO vendors, who are fast gaining capabilities in these areas. "By FY2010", says Arun Jethmalani, CEO of ValueNotes, "a large number of Indian vendors will have evolved into mature, end-to-end service providers, competing with multinational outsourcing companies".

The prediction for the future

Revenues from insurance offshoring to India have been estimated to be in the range of $695 currently, and are expected to reach around $2 billion by 2010. Employment is also expected to soar in this industry from 41,600 currently to about 100,500 in 2010.

Following the privatization of the insurance sector in 2000, there is also evidence of greater skill development in insurance in India. "This is likely to create a sustainable eco-system, which will provide the necessary talent and experience to fuel further growth in insurance BPO in India", says Arpita Bedekar, analyst at ValueNotes.

The report "Insurance Outsourcing: India Gains Momentum As Offshoring Intensifies " provides an overview of the buyer scenario and an in-depth analysis of the Indian vendor space along with profiles of major industry players.

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