insurance outsourcing – ensuring a brighter future - september 2011

Today’s Webinar is brought to you by Everest Group

Today’s Webinar

Insurance Outsourcing – Ensuring a Brighter Future

Synopsis:Everest Group will highlight the findings of its reports on the insurance IT Application Outsourcing (AO) and insurance Business Process Outsourcing (BPO) market covering the following aspects: Insurance outsourcing – Market size and growth: Define insurance outsourcing industry size, review growth trends,

understand the key factors driving the growth of insurance outsourcing and discuss the specific AO and BPO valueunderstand the key factors driving the growth of insurance outsourcing, and discuss the specific AO and BPO value propositions in light of these drivers

Key transaction and adoption trends in Insurance AO & Insurance BPO: Analyze the current IT-BP activity in the insurance sector covering ‘large, multi-year AO relationships’ within IT, and ‘insurance industry specific and non-voice BPO’

Emerging priorities and future outlook: Highlight themes that are influencing the sourcing priorities of global insurance majors; and discuss how these changes will impact the AO and BPO outsourcing landscape evolution in the futurej ; g p g p

About Everest Group

Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back and middle office business serviceshelping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations and private equity firms, in six continents across all

Proprietary & Confidential. © 2011, Everest Global, Inc. 1

g , p , y g p q y ,industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.For more information, contact Mark Williamson at [email protected]

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Webinar: Insurance Outsourcing –Ensuring a Brighter FutureSeptember 2011

Introductions

Rajesh RanjanResearch DirectorEverest [email protected]

Rajat JunejaSenior Research AnalystEverest Group

j t j j @ [email protected]


Agenda

Background and context

Insurance outsourcing – Market size and growth

Key transaction and adoption trends in Insurance AO & Insurance BPO

Emerging priorities and future outlook

Q&A


This webinar presents results of Everest Group’s recently released reports on the Insurance BPO and Insurance Applications Outsourcing (AO) market

NOT EXHAUSTIVEFocus of webinar

BFSI

Applications Outsourcing (AO) market

Retail financial services (B2C1)– Retail banking– Lending– Cards

Banking Investment banking Asset management Custody Fund administration

Capital markets Life and pensions Property and casualty

Insurance

Commercial banking (B2B2)

Services industry

Traditional IO Remote Infrastructure

Management (RIM) Infrastructure Management

IT Infrastructure Outsourcing (IO)

Application development Applications maintenance Independent testing Package implementation

IT Applications Outsourcing (AO)

BFSI-specific BPO

HRO FAO

Business Process Outsourcing (BPO)

IT strategy/operations consulting

Business consulting Infrastructure consulting

Consulting

Infrastructure Management Services (IMS)

Cloud

Package implementation ERP services Business intelligence / Data

warehousing

FAO PO Contact center Knowledge services

Infrastructure consulting Infrastructure roll-outs

Everest Group’s research analyzes business process (BPO) and IT applications outsourcing (AO) market in the Insurance sub-ti l ith f i d t ifi BPO d l AO t ti

Everest Group’s research analyzes business process (BPO) and IT applications outsourcing (AO) market in the Insurance sub-ti l ith f i d t ifi BPO d l AO t ti


vertical with a focus on industry-specific-BPO and large AO transactionsvertical with a focus on industry-specific-BPO and large AO transactions1 Business-to-consumer relationships2 Business-to-business relationships

From a scope perspective, the BPO section of this webinar provides coverage of non-voice and industry specific BPO in insuranceTypical value chain for insurance business processes

Product development and business acquisitionProduct development and business acquisition New businessNew business Policy servicing

and reportingPolicy servicing and reporting Claims processingClaims processingProduct development

and business acquisition New business Policy servicing and reporting Claims processing

nctio

ns

insurance

and business acquisitionand business acquisition and reportingand reportingand business acquisition and reporting

esse

sFu

n

Actuarial data processing

Actuarial analysis and review

Initial policy creation

Underwriting

Premium collection and

Policy servicing –financial

Policy records management

Initial claims processing

Claims management This report covers industry specific

try-

spec

ific

proc

e

Proposals andillustrations

Agent and broker management

accounting

Policy issuance

gClaims review and investigation (adjudication)

Claims adjustment and disbursements

Member enrollment and management

Eligibility requirement and verification

industry specific Insurance BPO

This report also covers insurance-specific

Indu

st Regulatory and compliance management

Product testing

Fraud detection and management

Claims litigation, recovery/ subrogation

pknowledge services (such as, analytics) and F&A work like closing of books but does not cover horizontal F&A processes like accounts

bl tKnowledge services

Human resource management

Customer interaction and support

Finance & accounting

Hor

izon

tal

proc

esse

s

payable or accounts receivable

This report is not aimed at coverage of voice-based BPO and other horizontal BPO areas like


Procurement serviceshorizontal BPO areas like HR or procurement

Source: Everest Group (2011)

These reports are a part of Everest Group’s series of 15 reports focused on BFSI Outsourcing in 2011

Global Lending BPO across Credit Cards, Consumer Loans and

Capital Markets BPO Market Overview

Service Providers’ (Profiles Compendium) for IT Application Services

Published

Focus of the webinar

Consumer Loans, and Commercial loans

FS BPO Service Provider Profile Compendium

Insurance BPO Market Overview

for IT Application Services in Banking

Market Trends for IT Application Services in Capital Markets

Upcoming

Global sourcing in FS BPO – Significant Traction Yet Tremendous

Capital Markets

Market Trends for IT Application Services in Insurance

Service Provider Landscape for IT Application Services in

Market Trends for IT Application Services in Banking

Traction, Yet Tremendous Potential

Insurance

Service providers’ Profiles Compendium for IT Application Services in

Application Services in Capital Markets

Service Provider Landscape for IT Application Services inBanking

Service Provider Landscape for IT Application Services in

Service Providers’ Profiles Compendium for IT Application Services in

Application Services in Capital Markets

Application Services in Insurance

Trade Reconciliations BPO Market Overview


Application Services in Banking

IT Application Services in Insurance

Everest Group’s BFSI research is based on two key sources of proprietary information

Proprietary Everest Group database of ~345 large, multi-year AO contracts within BFSI (updated annually), and 820+ publicly announced BFSI BPO contracts signed as of Q1 2011

The database tracks the following elements of each BPO / large AO relationship:

1

g g– Buyer details including industry, size, and signing region– Contract details including TCV, ACV, term, start date, service provider FTEs, and pricing structure– Activity broken down separately for banking, capital markets, and insurance, and by Lines of Business (e.g., retail banking, credit

cards, loans and mortgages)– Scope includes coverage of buyer geography as well as functional activities– Global sourcing, including delivery locations and level of offshoringG oba sou c g, c ud g de e y ocat o s a d e e o o s o g

Proprietary Everest Group database of operational capability of 20+ BFSI AO and 15+ BFSI BPO service providers (updated annually)

The database tracks the following capability elements for each service provider:– Key leaders

M j BFSI BPO BFSI AO li t d t i

2

– Major BFSI BPO + BFSI AO clients and recent wins – Overall revenues, total employees, and BFSI employees– Recent BFSI-related developments– BFSI BPO + AO delivery locations– BFSI BPO + AO service suite– Domain capabilities, proprietary solutions, and intellectual property investments

In addition to these databases: Everest Group conducts executive-level interviews with leading insurance BPO / insurance AO service providers and insurance

BPO/AO clients Everest Group leverages its experience and IP in the Insurance BPO, Insurance AO market

In addition to these databases: Everest Group conducts executive-level interviews with leading insurance BPO / insurance AO service providers and insurance

BPO/AO clients Everest Group leverages its experience and IP in the Insurance BPO, Insurance AO market


Note: We continuously monitor market developments and track additional service providers beyond those included in the analysisConfidentiality: Everest Group takes its confidentiality pledge very seriously. Any information we collect, that is contract specific, will be

presented back to the industry only in an aggregated fashion

Everest Group has collated information on BFSI BPO, and large-sized BFSI AO transactions and used this robust data-set to analyze various aspects of the BFSI outsourcing market

Industry: Insurance (life, annuities and pensions; property and casualty insurance); excludes banking, capital markets, and healthcare payers

Research scope

set to analyze various aspects of the BFSI outsourcing market

p y Services: Large (TCV >US$25 million), multi-year (> three years), annuity-based application outsourcing, and insurance

industry specific business process outsourcing Geography: Global Sourcing model: Third-party AO transactions; excludes shared services or captives

Everest Group’s Transaction Intelligence Database

~18,000 transactions listed Over 95% transactions post-

2000

~350 active large-sized BFSI AO transactions1

Banking

Insurance (110 large-sized transactions) Focus of this webinar2000

~4,300 BFSI transactions

Everest Group’s RFIs to BFSI

Capital Markets

~820 active BFSI BPO transactions

Everest Group’s RFIs to BFSI BPO, and BFSI AO service providers

Participation by over 20 leading service providers

Banking

Insurance (250+ industry-specific transactions)

Capital Markets

Focus of this webinar


service providers

1 Transactions with TCV >US$25 million, which are active as of Dec 2010Source: Everest Group (2011)

Agenda





Q&A


Insurance vertical represents significant third-party spend across IT and business processes within BFSI, the largest buyer segment in the outsourcing and offshoring industrybuyer segment in the outsourcing and offshoring industryBFSI IT services: BFSI % contribution to global IT outsourcing and off-shoring, 2010

BFSI IT spending remained

BFSI BPO Services: BFSI % contribution to global BPO transactions, and off-shoring market, 2010 BFSI remains the largest BPO segment

~16%

~ 35%

strong in 2010 across different towers including AO, IO, SI etc.

~30%1~40%

globally, but is still poised to grow more than other less mature segments

IT outsourcing contribution IT offshoring contribution

2010 BFSI third-party IT services spend 2010 BFSI third-party business Market share of third-party

Contribution to number of BPO transactions

BP offshoring contribution

US$ billion process services spendUS$ billion

Insurance spendPercentage

Capital markets

100% = US$72-80 billion100% = US$25-34 billion

12-1412 16Banking

100% = US$9-12 billion

40 50%BPO

Banking

Insurance27-30

33-37 9-12

4-6

12-16Banking

C it l k t

Insurance40-50%3.5-4.5

4.5-5.550-60%

TPAs


1 Based on Everest Group’s proprietary Transactions Intelligence (TI) databaseSource: Everest Group (2011)

Capital markets

The number of contracts signed in Insurance BPO and Insurance AO dipped in 2008-2009 but are starting to witness a revivala revival

Number of large, active insurance AO contracts1

Number of transactions

17

814

19

2007 2008 2009 2010

Global third-party Insurance BPO contract signings over time2

Number of new contracts signed (publicly announced)

31

21

12

28

12

2007 2008 2009 2010


1 New transactions with TCV >US$25 million, which started in the given period and are active as of December 20102 101 publicly announced Insurance BPO contracts signed between January 2007 and April 2011


Growth and cost pressures, business pain-points, changing consumer behavior, and technology issues are the four major drivers for outsourcing within Insurance verticaldrivers for outsourcing within Insurance vertical

Underlying insurance industry challengesInsurance Outsourcing drivers

Growth and cost pressures post recession

Falling insurance premiums Increased cost of re-insurance Mounting claims, expenses, and outgo Managing cost of supporting booked policies in complex market capital conditions

Changing consumer behavior

New markets and customer segments More demanding customers Diminished customer loyalty and trust

Business issues and operational pain-points

Increased fraudulent claims Changing regulatory frameworks and increasing cost of compliance Increased operational complexity driven by M&Apain-points p p y y Aging workforce and limited availability of skilled resources for high-end work

Technology Inability of legacy systems to scale-up to new volumes and new type of products Achieving better returns on IT investments


gyupgrades

g

Growing operational pressures are forcing insurance majors to invest in IT-BPO legacy modernization, innovation and administrative improvement initiatives

Insurance Outsourcing drivers Insurance AO value proposition

administrative improvement initiatives

Insurance BPO value proposition

Growth and cost pressures post recession

Optimize administration costs, and accurately evaluate risks

Improve business performance by strengthening customer relationships

Support growth through modernization

Build a low-cost and scalable operating model

Improve the ability to acquire new business

Changing consumer behavior

Improve time-to-market for new products, geographies

Support product innovation Better address information demands of

customers

Improve current customer service levels Process excellence and self-service

capabilities are key focus areas to improve customer stickiness

Business issues and Business issues and operational pain-points

Reduce complexity of operating environment Risk and compliance management support Consolidate operations to unify disparate

business units

Align operations and reporting to regulatory and compliance requirements

Improve the quality and speed of transactions Increase speed-to-competency for the sales

and marketing functions

Technology Simplifying administrative processes (through

use of IT-enabled rules-based administration) Access better technology with limited upfront

cost through a platform-based BPO option

g Access hard-to-find skilled professionals such

as actuaries


gyupgrades

) Fostering innovation in product and process

management

g p p

Agenda





Q&A


While comparable in size, the two insurance segments differs in terms of BPO adoption pattern

Distribution of third-party BPO services by insurance segmentUS$ billion

100% = 3.5-4.5

Property and casualtyLife and pension40-45%

55-60%

&C &

p y y

The two insurance segments differ in terms of BPO adoption

P&C L&P

Penetration Overall higher penetration in terms of number of deals

Lower penetration in terms of number of deals

Size of contracts Smaller-sized deals (typically piecemeal around administrative tasks)

Larger-sized deals (more comprehensive approach especially around closed-block businesses greateraround administrative tasks) especially around closed-block businesses, greater role of technology)

Demand outlook Relatively stagnant Higher upturn in demand currently

Buyer adoption Emerging opportunities from Tier-two/three insurers

Large Tier-1 insurers likely to drive market growth in the near term


Sample size: 257 publicly announced Insurance BPO contracts signed up to April 2011Source: Everest Group (2011)

While U.S. and the UK are comparable in market size, the former represents significant untapped potential

Geographical mix of insurance industry revenues and insurance outsourcing valueUS$US$

32%

11%

3.5-4.5 billion~4.0 trillion100% =

Rest of World

8%41%

32%

UK

Rest of World

28%

42%

U.S.

f 32%

6%

Insurance industry revenues

Insurance BPO

Rest of Europe


revenuesSample size: 161 industry-specific Insurance BPO contracts signed till April 2011

Sources: Everest Group (2011); OneSource data

Large insurers dominate the Insurance BPO market but adoption by small and medium buyers is increasing

Share of Insurance BPO contracts by size of organizationNumber of contracts

20100% = 68 32

Small and medium

40% 46% 50%(Revenues less

than US$5 billion)

60% 54% 50%

Large (revenues

greater than US$5 billion)

Upto 2002 2003-2007 2008-2010

US$5 billion)


Sample size: Based on information from 12+ Insurance BPO service providers Source: Everest Group (2011)

Within AO, Application development and maintenance services, form the primary component in most insurance contracts

Sub-functions in large insurance AO transactions1

Frequency of inclusion2

contracts

96%

74%

ADM

Testing 74%

50%

Testing

Package implementation

(PI)

41%

57%Includes other AO subfunctions such as

( )

ERP services

Others 57%subfunctions such as systems integration, and application related consulting

Others


1 Transactions with TCV >US$25 million and which are active as of December 20102 Percentage of large insurance AO transactions (with known scope details) in which the given subfunction is in scope


Scope of insurance AO contracts is balanced across life and P&C segments; ADM & testing are the dominant functions across both LoBs

Insurance LoBs included in large AO transactions1

Frequency of inclusion2Sub-functional demand across different LoBsFrequency of inclusion

High Medium Low

across both LoBs

52%Life,

annuities, and pensions

ADM Testing PI ERP

Life, annuities, and pension

Others

g

58%Property and casualty

and pension

Property, and casualty

8%Others

Other

Includes other insurance services, such as re-insurance, speciality insurance etc.


1 Transactions with TCV >US$25 million and which are active as of December 20102 Percentage of large insurance AO transactions (with known scope details) in which the given subfunction is in scope


While North America leads in the number of large insurance AO transactions signed, transaction values remain significantly higher in Europesignificantly higher in Europe

Transaction and TCV distribution by signing region1

Number of transactions2 and TCV in US$ billion

12106100%

8% 4%3% 3%2% 3%

~12106100% =

Asia PacificLatin AmericaMEA

55%

34%

North America

32%

56%

E 32%

Number of transactions TCV

Europe


1 Transactions with TCV >US$25 million and which are active as of December 20102 Transactions for which details of signing region were known


While India continues to be the largest offshore center for insurance AO and BPO delivery, other locations are gaining increasing popularity among insurance companies

Insurance AO and BPO capabilities placement in key offshore locations NOT EXHAUSTIVE

Maturity1 level: High Medium Low

increasing popularity among insurance companies

China

Poland

HungaryBulgaria

MexicoIndia

Brazil

Philippines

Egypt

Malaysia

Argentina


1 “Maturity” is based on ~20 leading service providers’ aggregate delivery workforce present in the countries for AO workSource: Everest Group (2011)

Agenda





Q&A


Emerging trends across the insurance industry value chain have redefined the IT application priorities for insurance buyersbuyers

Emerging priorities of insurance AO b

Emerging priorities of insurance AO b

Re-engineer products to combat growing competition in the industry, and align to changing customer preferences

Revamp distribution strategies (across agency and other emerging channels) tobuyersbuyers Revamp distribution strategies (across agency and other emerging channels) to adapt to evolving buying behaviour

Increase focus on superior underwriting techniques to grow underwriting profits that have been elusive in recent years

Replace legacy policy management frameworks with adaptive, rules-based policy administration systems

Reduce fraudulent claims, improving claims’ service for subscribers, and controlling claims administration expenses

Transform orientation to position themselves as “partners” rather than “providers”: With buyers engaging service providers in early product design and development activities, providers must evaluate “partnership-based” engagement models These could be in the form of: Partner in creating “joint

Implications and future outlook for providers


engagement models. These could be in the form of: Partner in creating joint Centers of Excellence (CoEs)” or pursuing a combined go-to-market strategy in emerging areas

Develop strong LoB-centric expertise, to support particular business units across the operating value chainE d l b l d li f t i t t t b ’ th bj ti


Expand global delivery footprint to meet buyers’ growth objectives

Growth, cost pressures, and technological needs are the emerging priorities for buyers in Insurance BPO, and service providers need to adapt accordinglyproviders need to adapt accordingly

Emerging priorities of insurance BPO b

Emerging priorities of insurance BPO b

Post-recession growth and cost pressures continue to play an important role Changing regulatory frameworks and increasing cost of compliance Inability of legacy systems to scale up to new volumes and new types ofbuyersbuyers Inability of legacy systems to scale up to new volumes and new types of

products Limited availability of skilled resources for high-end work



Beyond transaction activities, the ability to effectively support complex insurance processes like underwriting and actuarial analysis as well as help run analytics and risk modelling are increasingly becoming important to differentiate and succeed

Some of the regulatory requirements as well as an increasing consideration to keep voice-based services closer to the buyer market necessitates onshore/nearshore presence

The ability to offer platform-led solutions is becoming a key requirement to succeed in specific insurance segments (e.g., closed-block businesses in lifesucceed in specific insurance segments (e.g., closed block businesses in life and pensions)

The ability to offer higher-end services (actuarial / fraud analytics / research) will be a key differentiator in the time to come


Agenda





Q&A


Q&A

Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version

Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version

For advice or research on the BFSI outsourcing and offshoring market, please contact:– Rajesh Ranjan, [email protected]– Rajat Juneja, [email protected]

For advice or research on the BFSI outsourcing and offshoring market, please contact:– Rajesh Ranjan, [email protected]– Rajat Juneja, [email protected]

For background information on Everest Group, please visit:– www.everestgrp.com– research.everestgrp.com

Thank you for attending today

For background information on Everest Group, please visit:– www.everestgrp.com– research.everestgrp.com

Thank you for attending today

To ask a question during the Q&A session

Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen

To ask a question during the Q&A session

Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen

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insurance outsourcing – ensuring a brighter future - september 2011

Business

floating tool bar

growth key transaction

insurance ao

block businesses

cost pressures

contracts signed

insurance bpo

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