The claims processing business is estimated to be worth $400 million by 2005 for Indian BPO vendors. A number of insurance companies are increasingly offshoring to India. However, while the opportunity is huge, Indian companies need to examine the need for providing automated solutions in order to gain sustainable competitive advantage. More than 1,500 companies in the US sell some form of property and casualty insurance (P&C). It is estimated that direct written premiums exceed $280 billion and millions of individuals submit about 120 million P&C claims every year. Of these, around 72% were charged to personal-lines insurance policies, personal auto liability, auto physical damage, and home and farm owners.

Insurance carriers spent around $42 billion in loss and loss-adjustment expense supported by $180 million in actual settlement payouts. Finally, it is estimated that US claims professionals distribute over $200 billion annually. Statistics show that the P&C claims industry spends approximately $23 billion in human capital annually—with estimated 150,000 claims professionals—and more than 300,000 supporting personnel. Furthermore, these individuals process about 750 claims per professional per year or about 120 million new claims every year.

The claims processing function has become one of the key differentiators to sustain competitive advantage for insurance companies. However, most companies have been slow to address claims services through technology. They face a challenge not only of technology automation, but also of differentiating their claims services from competition. Additionally claims costs are forcing insurance companies to focus on a significantly higher level of proactive management. According to a recent study by Tower Group, on an average, 70% of every premium dollar goes towards claims costs.

What it means for India
The claims organization and settlement function is one that holds significant potential for Indian BPO and call-centre players. In this function, the potential for cost savings is the highest, and feasibility of offshore operations—based on the level of standardization of the process, level of centralization, and the need for physical interaction—is also high. To calibrate the feasibility of offshoring and the cost saving potential of any process, a rigorous four-step procedure was followed.

• Lay out the entire value chain for the process

• Break down each segment of the value chain into its constituent activities

• Identify the activities that can be performed remotely based on the criteria mentioned

• Estimate the cost of activities like labor and associated infrastructure that can be managed offshore.

What this means is that while in claims processing, most activities in origination and closing can be done offshore, others require a physical interface with the claimant and therefore cannot be managed offshore. The current trend in the insurance sector that are being managed offshore also suggests that claims and servicing are the focus processes. Most companies that offshore the insurance process to India started with simple low-complexity claims and policy servicing processes.

The risk factor
Insurance companies and BPO vendors in the US are aggressively pushing for building a more efficient claims industry. What this means is that the emphasis in now more on the importance of open, modular, and accessible solutions. Some observers contend that the Internet, which was supposed to make things better, has actually convoluted the industry as multiple, proprietary applications have crowded the market. Explains Op de Beeck of ADP Claims, "We may be connected on a superficial level, but our systems and applications do not talk to each other." The result has been confusion, not the comprehensive solution that industry leaders envisioned. The stakes of this disconnection are high. According to Beeck a truly open, modular, accessible solution could provide several billions in annual savings to the claims industry. This, however, can be achieved only by enabling increased use of electronic communication, reduced cycle time and elimination of redundant data entry.

In fact, a truly open solution needs to be open not only to integration within organizations, but to vendors and competitors as well. Making these solutions modular decreases time to market, enables easy updates and allows users to structure workflow. And finally, accessibility means getting needed information anytime, anywhere and from any device.

TEAM DQ