(reprinted with permission from
Your Virtual Insurance, March 28 issue)
As insurance carriers face competitive pressures to reduce
operating costs and streamline business operations, many insurers are turning to business
process outsourcing (BPO) and information technology outsourcing to achieve those goals,
according to a survey by Gartner, Inc. (NYSE: IT and ITB).
In October and November of 2001, Gartner surveyed 114 U.S.
insurance carrier organizations that had written net premiums of $100 million or more. The
survey showed that 51 percent of life and health insurers and 48 percent of property and
casualty insurers outsourced at least one business process in 2001. An additional 6
percent of life and health insurers and 9 percent of property and casualty insurers have
plans to outsource some business processes in 2002.
“With increasing pressures to reduce operating costs
and launch new products, many insurers are finding those objectives difficult to meet.
They have inadequate internal resources, such as people and skilled workers, or they are
so overwhelmed with other priorities that they simply cannot complete all the requirements
in the necessary time frame,” said Kimberly Harris, research director for Gartner.
“The insurers’ top reasons for BPO included a lack of
time, inappropriate skill sets, and faster turnaround with the use of outsourcers,”
Harris said. “Many insurers are looking to gain competitive advantages and are using
BPO and technology outsourcing services as a means to accomplish that.”
To obtain optimum return on investment (ROI) from outsourcing, Gartner says
insurers must have a corporate strategy that includes the reasons to outsource.
“Insurers looking for long-term ROI from BPO and
information technology outsourcing will find greater success from having a corporate
outsourcing strategy in place rather than haphazardly responding to institutional
constraints,” said Harris. “Lack of a corporate vision for outsourcing will
inhibit an organization’s ability to find corporate value from using external service providers.”
Gartner recommends that insurers develop a business and
technological agenda that includes strategies for outsourcing. Requirements should be
established for any process or project that is done externally and procedures should be
developed for handling outsourcing agreements and projects.
“The focus should be on market distinction with an
emphasis on core competency rather than tactical requirements,” said Harris.
“That change will promote greater opportunities for positive corporatewide ROI from
outsourcing and will allow an alignment of resources with the core competency.”
More analysis is available in the Gartner Research Note,
“Insurance Outsourcing: Tactical Response, Not Strategic.” The Research Note
examines how insurers are leveraging outsourcing, and how they plan to do it in the future.