Value Chain & Services Overview - Insurance BPO by Sutherland Global Services

Value Chain & Services Overview Insurance BPO January, 2012

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Value Chain & Services Overview - Insurance BPO Client • The client is a leading provider of Insurance based out of the U.S. with a need to understand the outsourcing scenarios in insurance industry, and evaluate the option of outsourcing for themselves

Project Scope • Key objectives of the study were to understand the Global & U.S. insurance industry BPO market, for: o Major BPO offerings across the entire value chain for Insurers o Key insurance outsourcing drivers

Sutherland’s Solution • SGS conducted extensive primary and secondary research to identify major trends & drivers in insurance BPO markets and also identified maturity of offerings in insurance BPO value chain • SGS collected corroborative evidence from multiple sources to validate the data • All financial and qualitative databases to which SGS holds subscription, were extensively used to identify key markets in the insurance industry across the world as well as to collate the financial information for them

• Benefits to the Client • The project provided significant and exclusive intelligence to the client with regards to the different BPO offerings across the Insurance value chain, and the respective stage of maturity. The client was able to derive significant knowledge from the study about outsourcing in insurance industry • After this study, the client was positive on outsourcing and decided to take the next step in preparing a more thorough strategy for the same

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The insurance industry is facing some critical challenges, which can be capitalized by SGS through its BPO offerings Insurance Outsourcing Drivers

Underlying insurance industry challenges • Falling insurance premiums

Growth and cost pressures post recession

Changing Consumer Behavior

• Increasing cost of reinsurance • Mounting claims, expenses and outgo

Technology Upgrades

• Build a low-cost and scalable operating model • Improve the ability to acquire new business

• Managing cost of booked policies in complex market capital conditions • New markets and customer segments

• Improve current customer service levels

• More demanding customers, Diminished customer loyalty and trust

• Process excellence and self-service capabilities are key focus areas to improve customer stickiness

• Usage of internet to purchase Insurance – Online revenue for insurance is expected to go from 4% currently to 10% by 2011

• Social media as a consumer influencer platform

Business issues and operational pain-points

Insurance BPO value proposition

• Increased fraudulent claims • Changing regulatory frameworks and increasing cost of compliance

• Assist in developing and managing online channel • Social Media monitoring for brand management, for fraud detection, for product innovation, etc • Align operations and reporting to regulatory and compliance requirements • Improve quality and speed of transactions

• Increased operational complexity driven by M&A

• Increase speed-to-competency for the sales and marketing functions

• Inability of legacy systems to scale-up to new volumes and new type of products

• Access better technology with limited upfront cost through a platform-based BPO option

• Achieving better returns on IT investments

Source : Everest group (2011)

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While comparable in size, the two insurance segments (Life and Non-Life) differs in terms of BPO adoption pattern Distribution of third-party BPO services by insurance segment (Global) Life & Pension

Property & Casualty 40-45 %

55-60%

100% = 3.5-4.5 US$ billion

Driver to Outsource Business Processes Cost/expense reduction

Differ in BPO adoption by the two insurance segments P&C

Life & Pension

Penetration

Overall higher penetration in terms of number of deals

Lower penetration in terms of number of deals

Size of contracts

Smaller-sized deals

Larger-sized deals (more comprehensive approach especially around closedblock 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

24%

Revenue growth/value creation

Access to skills

Regulatory compliance

Customer service efficiency/differentiation

Risk management

Healthcare reform

5% 0%

10%

15%

20%

25%

Comments • In terms of factors that BPO providers believe are driving the uptake of BPO in the insurance sector, cost or expense reduction is found to be the most prominent, followed by revenue growth/value creation • In line with these findings, many of the responding providers have developed marketing messages that focus strongly on successes with reducing insurer costs based on key performance indicators, such as: • Claims to shorten time to market • Reduced policy costs • Improved customer response time • Improved policy holder retention • Enabling regulatory compliance • Platform BPO

Note: Results are shown as a percentage of the total responses in each category. Only the top seven responses are shown. Source: Everest Group (2011), Source: Gartner (October 2010)

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1 Product Development

Sales & Distribution

Policy Administration

Product Planning

Business Analysis

Direct Sales & Promotion

Marketing Activities

Name/ Address Changes

Certificate re-issue

Policy Pricing

Policy Wording

OB / IB Tele Sales

Premium Calculation

Coverage Changes

Renewals & Quotes

Policy form designing

Reinsurance Set-up

Application Entry

Policy Issuance

Cancellations

Premium audit scheduling

Activities

Processes

Insurance BPO Value Chain (1/3)

Potential

Actuarial Support

With the emphasis on new product development, specialized services like actuarial function could hold potential

Current focus

Contact center support for quote and policy enquiry

Medium to long term focus

Most frequently outsourced service

Less Likely to be outsourced

Source : 2010 SGS Research & Analysis

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Activities

Processes

Insurance BPO Value Chain (2/3) 4

5 Underwriting & New Business

6 Premium Accounting

Rule Based Underwriting

Application Data Entry

Collections

Remittance exceptions

Claims registration & notification

Indexing

Data Verification

Policy Printing & Issuance

Account Reconciliation

Refunds

Claim and Policy Verification

Claims evaluation & litigation

Voice Support

Reinsurance Underwriting

Billing

Premium mode change

Disbursement

Recovery / adjustment of overpayment

Reinsurance Claims Recording

Fraud checks

Premium audit

Potential

Claims Management

Most traditional and common process â&#x20AC;&#x201C; great potential

Current focus

Generally outsourced as a part of F&A processes

Medium to long term focus

One of the initial processes to get outsourced

Unlikely to be outsourced

Source : 2010 SGS Research & Analysis

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Potential

Activities

Processes

Insurance BPO Value Chain (3/3) 7

8 Actuarial Support

Finance & Accounting

Business Analytics

Actuarial data processing

Actuarial analysis

Commission Accounting

Accounts payable / receivable

Portfolio Analysis

Claims Analysis

Price modeling

Loss reserving

Reconciliations

Financial Reporting

Customer Analysis

Product Analytics

CAT modeling

Cash receipts & disbursement

Book keeping

Marketing Analytics

Industry Benchmarking Studies

Price adequacy

Future Potential Area

Current focus

A non-vertical specific area, this hold potential in the near future

Medium to long term focus

With the potential to add immediate gains to the bottom line & presence of specialized players, this function is slated for immediate growth

Unlikely to be outsourced

Source : 2010 SGS Research & Analysis

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List of top three offerings of BPO service providers for the insurance sector in terms of revenue – Policy Admin and Claims Management still rule Segment

Offerings listed as No. 1 Offerings listed as No. 2 Offerings listed as No. 3 by BPO Service by BPO Service by BPO Service Providers Providers Providers • Policy administration (33%)

Life

• Policy Admin (23%)

• Closed book (27%)

• Claims management (15%)

• TPA (13%)

• F&A (15%)

• Customer service/call center (36%) • New business (18%)

• New business (15%)

P&C

• Policy administration (36%)

• Claims management (29%)

• Claims management (21%)

• Policy administration (29%)

• Customer service/call center (15%)

• F&A (14%)

• Claims management (62%)

Health

• Enrollment (18%)

• Policy administration (15%)

• Billing and payments (25%)

Comments • For Life and P&C insurance, Policy Admin tops the list of offerings, followed by Claims Management and then Customer Service • For Life insurance, Closed book is also a prominent offering • For Health Insurance however, Claims management tops the list of BPO offerings, followed by policy admin and Enrollment

• Customer service/call center (25%) • Mailroom (25%)

Note: Responses are shown where more than one respondent provided that response. Source: Gartner Survey(March 2011)

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The Insurance BPO industry is slowly evolving from typical back-office tasks, to higher value-added offerings Maturity of Insurance BPO Offerings

High

Moderate

Low/Emerging

• Actuarial tasks

• Marketing

• Nontraditional product setup

• Application/claims data

• Broker management,

• Market assessment and

entry

licensing and commissions

product design

• Claims processing

• Rule-based underwriting

• Product setup/reporting

• Regulatory reporting/

• Closed-book servicing (life)

• Skilled underwriting

• Claims assignment/adjusting

• Fraud specialists

• Billing/collections

• Social media

compliance • Print/Policy generation • Medical bill review

reporting/analysis

• Claims first notice of loss (P&C) • Flood BPO services Source: Gartner (December 2011) © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Thank You.