While UK and Europe are traditionally perceived slow to offshore, these two markets are now emerging as a major demand driver for the global insurance offshoring business. While companies like Capita, Xchanging, Accenture and EDS are the larger, more established vendors in these markets (along with many smaller domestic rivals), Indian providers such as TCS BPO, EXLService, Genpact, WNS and 24/7 Customer have been winning some juicy contracts from UK insurers.

The Pearl contract bagged by TCS demonstrates the potential opportunity in this sector. TCS bagged the $923 m deal to provide BPO services (and take over existing assets) over an initial 12-year period for Pearl Group in processing and administration. This is the largest deal in the UK assurance market!

According to ValueNotes estimates, Indian revenues from offshore insurance BPO services are slated to rise from $690 m in FY2006 to about $2 b by FY2010. About 64% of the current offshore business is generated from insurance carriers based in the US. Of the remainder, 28% of the business comes from UK and Europe. However, we expect that by 2010, the share of UK and Europe will increase to 36%.

Shifting Focus

While the largest market segment for Indian vendors is currently the US-based insurance carriers, the UK and Europe markets are increasing in importance. Currently, insurance companies such as AXA, Aviva, Allianz Cornhill, Norwich Union and Abbey National offshore some services to India.

Regulatory requirements, high degree of standardization and limited resources, both monetary and human resources available for legacy systems, led to outsourcing of IT functions such as infrastructure, application development, and maintenance.

Insurance companies also sub-contracted their support functions such as accounting, payroll and human resource management that were not critical to their core businesses. As their comfort with outsourcing and offshore vendors grew, the list of functions that were outsourced/offshored has also grown.

The exhibit below lists some recent deals in the insurance sector.

Going Forward

While the US remains the dominant market for the Indian vendors, revenues from UK and Europe are gradually increasing. Almost all the large Indian vendors have operations in the UK, while the smaller players are gradually building their marketing presence.

Further, the Indian vendors are rapidly looking at penetrating into the UK and Europe markets by way of acquisitions. Recently, WNS acquired UK-based Call 24/7, an auto insurance claims processing services provider for a cash payment of £8 m and £1.6 m contingent earn-out.

This strategic imperative is now much more urgent, given that the US$ has depreciated against the Rupee by 8% in the past one year, the GBP has depreciated by 7% while the EUR has appreciated by 9%. This has an impact - higher pricing (for vendor) and lower costs (for buyer) - both gain!

The rising volume of insurance business due to globalization, in turn, promises greater opportunity for outsourcing vendors. This strategic imperative is now much more urgent, given that the US$ has depreciated against the Rupee by 14% in the past one year, while the GBP has depreciated by only 8%. Going forward, we see significant traction from UK and Europe-based insurance carriers' offshoring to India. Meanwhile, several Indian vendors who were already training their focus on UK will do so more aggressively.