IT companies build on insurers’ non-core work

IT companies build on insurers’ non-core work
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First Published: Thu, Sep 11 2008. 10 24 PM IST

Perfect Fit: A call centre in Gurgaon. The new business opportunity is a timely boost for business process outsourcing firms as they try to ride out a slowdown in the US economy. S Burmaula / HT
Perfect Fit: A call centre in Gurgaon. The new business opportunity is a timely boost for business process outsourcing firms as they try to ride out a slowdown in the US economy. S Burmaula / HT
Updated: Thu, Sep 11 2008. 10 24 PM IST
New Delhi: An unexpected surge in the life insurance business is forcing insurers to farm out back-office functions—including data entry and customer service—opening a new business opportunity for software and outsourcing companies such as Tata Consultancy Services Ltd, or TCS, and International Business Machines Corp., or IBM.
Insurers need to outsource such work to keep their costs down, stay focused on their main business and remain competitive at a time when the industry, like many other sectors in Asia’s third largest economy, is struggling with a shortage of trained employees.
India has 21 life insurance companies—the latest being DLF Pramerica Life Insurance Co. Ltd, a joint venture between real estate developer DLF Ltd and Prudential Financial Inc. of the US. The country opened up the life insurance business to the private sector in 2000 by dismantling the monopoly of state-owned Life Insurance Corp. of India.
Perfect Fit: A call centre in Gurgaon. The new business opportunity is a timely boost for business process outsourcing firms as they try to ride out a slowdown in the US economy. S Burmaula / HT
Fresh business, or first-year premiums, in the life insurance sector jumped 23.31% to Rs92,989 crore in 2007-08 from a year ago. In the two preceding fiscals, business had grown even faster at 94.96% and 47.94%, respectively, according to a report by the Insurance Regulatory and Development Authority, or Irda.
“To build scalability and speed up our entry in the market, we have outsourced all our non-core activities to different providers. TCS is one of them,” said Kapil Mehta, chief executive officer of DLF Pramerica.
“The benefits of outsourcing do not directly come from lower cost. It flows from increased efficiency of work, too. To customers it will benefit in the form of better services as operations will be handled by a specialized team,” Mehta said.
TCS declined to comment.
The insurance business has grown faster than expected since it opened up, as growing incomes and the absence of a social security system spurred middle-class Indians to opt for long-term savings plans.
Trained insurance employees and agents are hard to find in an economy that has been expanding rapidly for the past five years.
“Given the crunch of agents in the market, life insurers are expected to outsource more of their activities in future,” said Vikash Jain, engagement director of Everest Group, a consulting firm.
For business process outsourcing (BPO) firms, the new business opportunity is a timely boost. Software and services firms are trying to ride out a slowdown in the US following the credit crisis in the world’s biggest economy, after having weathered a steep appreciation in the rupee last year that dented export revenue.
“With insurance in India one of the fastest growing businesses, outsourcing of operational work by life insurers is a very positive sign for the BPO industry,” said Sanjiv Kapur, senior vice-president and head of Patni Computer Systems Ltd. “Outsourcing can initially start with non-core processes but gradually we can move up in the value chain with gain in customers’ confidence.”
Patni also handles actuarial work, such as assessing whether or not a pension fund has enough assets to pay off promised benefits and calculating prices and payouts for insurance policies for its foreign insurance clients. Overseas insurance firms make up a sizeable share of revenue for Indian outsourcing firms.
That’s the kind of skilled and essential work that Indian insurers can gradually farm out.
“We have believed in outsourcing as a core philosophy of the company,” said Anita Pai, executive vice-president, customer service and technology, at ICICI Prudential Life Insurance Co. Ltd. “Outsourcing of core activities can be looked at, but with some kind of internal guidelines.”
Max New York Life Insurance Co. Ltd this month entered an outsourcing agreement with IBM India for Max Vijay, a new life insurance policy in which a policyholder can invest as little as Rs10 every day. The policy will be sold through wireless hand-held devices installed at retail outlets, microfinance institutions and non-profit organizations. IBM will provide complete services from policy set-up to claims processing and customer service.
IBM declined comment.
Life insurers have no option but to outsource work given their high growth rates, said a senior official at Max New York Life, who declined to be named. “We are looking at process-to-process outsourcing for other products, too,” this official said. “At an initial level, however, we plan to begin with non-core activities such as renewal of policies through telecalling, customer service and, later on, documentation which is a technology-driven process.”
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First Published: Thu, Sep 11 2008. 10 24 PM IST
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