The Role of BPO in the Insurance Industry
Business Process Outsourcing (BPO) is a popular concept in the insurance industry. According to research from KPMG, BPO can help increase efficiency and reduce costs by "outsourcing" certain business processes such as IT management, claims processing, sales operations, customer service, and more. The goal of these outsourced services is to maximize profits for insurance companies.
BPO can be considered a "core" part of the insurance business model. KPMG claims that BPO has quickly played a role in mergers and acquisitions within the insurance industry, and could account for up to 40 percent of insuring operations by 2010. For example, State Farm's 2008 acquisition of Markel was in part based on Markel's proven BPO efficiencies. Or consider All-State Insurance, the biggest writer of commercial auto insurance policies in the US. Much of their success is due to processing efficiency and specifically, BPO.
How Does This Work?
An insurance company hires a BPO provider to handle its telemarketing, claims to process, and other back-office operations. The provider employs workers who are paid less than the industry standard in-house. The insurance company then pays the BPO provider based on performance metrics such as the number of calls made or the claims process. This improves profit margins by cutting backroom costs and boosting revenue.
Insurance companies find this cost-cutting measure useful when they are failing to meet the minimum reserve requirements set by their state regulators or when they need to increase profitability due to a faltering economy. Insurers typically relocate these back offices to low-cost locations, such as the Philippines. Underpay workers by shifting office functions to low-cost locations where employees have limited or no bargaining power. For telemarketing, this often means hiring agents on a per-call basis and not paying overtime.
According to the Philippines Association of Accredited BPO Professionals (PABPP), outsourcing insurance services can reduce costs for insurers by 30%, allowing them to become more competitive. This also facilitates the hiring and retention of highly skilled staff, which is very costly.
For example, AIG entered the Philippines market in 2001 when it acquired a majority stake in Insure co-USA (now renamed Convergys). AIG Bank and Insurance are now one of Convergys's five global businesses. It provides back-office services such as claims administration, customer service, sales support, finance, and data management for insurance and financial services companies worldwide.
Here are some aspects of BPO that are helping insurance companies boost their performance and productivity:
Data Management
BPOs are capable of collecting data from a wide range of sources and storing them in one central location for analysis. They can sort, process, and store data in a way that insurance companies can easily access it whenever they need it. Insurance companies can use this data to streamline their business processes, standardize operations, and improve service quality and productivity.
Processing Claims
Insurance companies have a high number of claims coming in from different locations at any given time. With a BPO, insurance firms can outsource the processing of those claims to other countries where they are less expensive to process. This has proven to be especially helpful with claims in the United States because of all the rules and regulations involved in processing them. Outsourcing claim processing allows insurance companies to focus more on managing their service quality and pricing rather than focusing on how they can streamline and standardize their operations for incoming claims.
Cost-cutting for Business Development and Growth
BPOs allow companies to scale their operations cost-effectively without sacrificing key elements of the customer experience. Companies that grow beyond certain levels find it very difficult to expand their workforce while maintaining service standards, but BPOs offer an appealing alternative by allowing firms to focus on the core competencies of their business.
Because BPOs reduce the cost of customer service, companies can pass these savings on to customers through lower prices and more competitive pricing strategies. This results in increased market share for those businesses which can offer better rates.
Better Management of Resources
Because business operations can be scaled to demand, BPO offers companies the flexibility to manage resources based on market conditions. As a result of this efficient use of resources, businesses whose supply and production models are heavily dependent upon seasonal fluctuations have been able to increase their profits by being able to reduce costs during slow periods and scale up operations when demand increases.
Businesses that have successfully implemented BPO programs have seen their profits increase through improved efficiency, reduced costs, and higher market share.
Finance and Accounting
The insurance industry has been very conservative when it comes to accounting. BPOs help in streamlining the accounts department by providing them with suitable technology, which is important considering the changes that are occurring in this field. For example, US-based accounting firms have started offering online access to services and financial statements through their website. Some of these companies are now implementing paperless offices to save time, costs, and effort.
Customer Service and Sales Support
Insurance deals with a huge volume of customer query every day; some questions can be answered by an in-house customer service representative, but most queries are handled by the customer service department who in turn contact the sales staff. BPOs provide insurance companies with enhanced customer care through their outsourced call centers which not only allow them to reach out to more customers but also make it possible for firms to focus on providing quality services and products. For example, Indian BPOs have opened up the insurance industry to a larger customer base by providing services in regional languages and also through overseas offices.
Fraud Investigation and Control
Insurance companies are constantly dealing with fraud attempts that may cost those millions of dollars annually. BPOs provide an efficient solution by managing underwriting cases for insurers, thus making it easier for insurers to track fraud attempts and control risk.
Processing Insurance Applications
BPOs have helped insurers to process their applications faster, more efficiently, and effectively than companies doing it in-house. This saves large sums of money which the insurance industry can use to offer better services or lower premiums in the future.
Risk Management
BPOs provide a wide array of solutions to the insurance industry using their capabilities in data analysis and risk mitigation. It can do everything from managing active claims to preventing new fraud cases and analyzing risk pools.
Using the Internet to Offer Services
BPOs have helped insurance companies in their transition into e-commerce by offering them solutions for online customer service include price comparisons, quoting, and renewals. BPOs do not just offer web-based services but also provide consultation on payment systems for internet products and services like credit card billing and electronic fund transfers.
Last Word
As you can see, BPO has a significant role in the insurance industry. Whether it is an internal assessment of your processes or outsourcing to third-party companies for temporary staffing needs, there are many ways that this service can help your business as well as save money. We hope this blog post was helpful and we would love to hear from you about any questions or comments. If you're looking for more information about how BPO can help your company grow, contact us today!
