ISG Provider Lens™ Insurance Services - Life & Retirement Insurance BPO Services - U.S. 2022

BPO, TPA and ITO providers are supporting U.S. insurers

The U.S. insurance industry, like other regions, continues to face challenges pertaining to losses resulting from pandemic-related claims, climate change risks, rising operation costs, claims inflation, and cyberattacks. These are compounded by energy scarcity, rapid inflation, geopolitical tensions, increased need for operational readiness for regulatory changes, and changing customer expectations. The world has entered a new era that has become structurally different over the past 30 years.

Insurers have come under immense pressure to address the rapid changes in customer expectations and regulatory activism amid their limited technology landscape. The industry is already reeling under the sharp drop in non-operational profits resulting from falling interest rates, stricter conduct-based regulations, and increased actuarial reserves and provisions. Such factors pose a major operational challenge, impacting the profitability of insurers.

In their quest to address these challenges and drive value creation, insurers are trying to reimagine, reinvent, and reposition themselves to remain sustainable in the mid- to long-term. They find that continuously rearchitecting their workforce is the best solution to these challenges. Furthermore, they need to manage this efficiently by modernizing their end-to-end technology stack and finding suitable partners to develop efficient solutions, along with interesting execution and delivery models that address changing customer expectations.

Customer advocacy is becoming a key ingredient for designing improved customer experience (CX), which is now a very competitive battleground, and insurers who lag on CX will do so at their peril.

At the same time, this has created a multifold challenge for insurers as they strive to balance the priorities of maintaining operations under the pressure of escalating claims, increased employee attrition, and hiring and retention issues, while keeping costs under control.

Modern technologies such as AI, machine learning, intelligent process automation, cloud, low-code/no-code, and advanced analytics can resolve many of these issues. However, they can lead to new problems. Because competitors deploy these technologies more rapidly, it creates a competitive disadvantage for others. Hence, the technology differentiation in terms of speed of design and deployment is essential for success, along with the ability to scale up efficiently and cost effectively. This results in an increased and urgent demand for a rearchitected workforce.

BPO and ITO providers are helping insurers to successfully address these issues and meet customer expectations. Customer advocacy has become a key competitive aspect for improving the customer experience. These providers can also act as strategic partners for a rearchitected workforce. Such partnerships can enable insurers to focus more on critical tasks and decision-making processes, thus allowing enterprises to deliver on more critical objectives, saving time and effort.

These providers have thousands of employees with extensive experience and expertise in digital technologies. They can rapidly scale up to major events such as the pandemic-triggered lockdowns and operate 24/7 with a blended delivery model comprising onshore, nearshore, and offshore capabilities. They are also continuously investing in comprehensive upskilling programs to create global capabilities that translate into digital transformation outcomes along with a competitive advantage for their insurance clients.

ISG advisors report that growth in insurance BPO and ITO services has been buoyant for the entire insurance industry over the last few years. This is because a plethora of insurance clients have survived the impacts of the pandemic successfully due to the seamless delivery support and capability of these providers.

Providers that deliver transformational capabilities in the U.S. have matured. They have managed to meet the performance expectations and have ensured high standards of basic operations before delivering more complex operations, including digital transformation.

Moreover, these providers are expanding their services beyond traditional BPO and ITO to encompass strategy, consulting, digital, and operational transformation of services and processes that they already manage. This is driven by an increased interest from insurers to keep innovating and enabling their digital transformation journey.

Some of the key themes that emerged from this study are as follows:

Experiences for all (customer, intermediaries, and employees)

Given the challenges already noted, insurers and their provider partners should now rethink and innovate the customer journey. This requires the use of design concepts and modern methodologies for building digital products by using usercentric research, better insights from deep analytics, design thinking, agile ways of working and product development, and the “first principles thinking” approach.

Insurance will continue to remain a distribution-led business comprising agents, brokers, bancassurance, aggregators, and insurtech platforms. Driving business growth will be a key aspect for providing a more authentic omnichannel experience.

Experiences drawn from insurers as a steppingstone to a more engaging CX

Poor employee experiences have become more visible given the rising attrition and hiring challenges. This is due to many factors, such as weak organizational cultures, poorly linked incentives, mismatch in expectations, and unclear career paths. Insurance is a knowledgedriven business and people are a critical aspect of it. A poor employee experience can deeply affect morale, impacting the business and customer outcomes.

Commoditization vs. cannibalization

The days of “one size fits all” are rapidly fading. Insurers are realizing that the new generation of digital savvy customers are more engaging. Personalized insurance solutions that can be tailored to customer expectations with scope for higher integration and protection against newer types of risks are necessary.

Catering to these new customers with the right value proposition is a tall order in the present business and IT architecture. It requires considerable experimentation and newer strategies, which get restricted due to the layers of processes and decades of culture within insurance organizations.

Incumbent insurance carriers are thus taking a fresh approach, such as the use of digital twins as a greenfield route with new digital identities and reimagined insurance products that cater specifically to the needs of digital customers. They are also using AI and machine learning technologies to obtain first and thirdparty data from both internal and external sources for quickly crafting personalized solutions. This can help win new customers through attractive premium offers while effectively managing risk. Also, this doesn’t require the applicant to submit additional application details because savvy insurers and insurtech are capturing data digitally – for example, uploads from fitness wearables in the case of life and health insurance.

Leveraging insurtech innovation with complementary ecosystems for deeper value

Over the past few years, local and regional insurtech players have established themselves as vital catalysts for innovation in the insurance industry. These start-up companies follow an agile and technology-centric “first principle thinking” approach and are highly adaptive to emerging customer needs. They address the need for refreshed insurance products and services with a B2B SaaSbased approach.

These digital-native businesses are aggressively challenging established insurers with new models and processes in a way that is similar to the one followed by fintech in the banking and payments industry. They focus on transforming the traditionally lengthy and unwieldy processes in the insurance sector and are increasingly entering partnerships to create embedded ecosystems and plugand- play point solutions to insurance clients.

Some of their initiatives include a low-code/no-code light policy approach, journey-building solutions, and agent/ broker self-service solutions, AI-based SaaS solutions for claims, underwriting, FWA (fraud, waste and abuse) intelligence, customer engagement automation, and real-time analytics by using data lakes.

Use of other intelligent technologies as a strong market differentiator

This gives insurers a competitive edge in decision making, for efficiently managing their customer acquisition costs and effectively improving customer retention. New-age technologies can simplify operational processes, improve time and speed to market, enable frictionless straight-through processes, reduce FWA, and increase indemnity savings.

Furthermore, they offer deep insights about operational challenges, the IT landscape, and customer pain points. They help insurers identify the right solutions and operationalize them appropriately in the business and IT environment.

By employing new-age technologies, insurers can focus more on vast data assets and enable effective and faster underwriting, pricing optimization, and risk selection. Providers are responding to their needs by investing heavily in upskilling their staff in these technologies.

Increasing appetite to outsource complex processes

Providers say insurers are looking beyond outsourcing transactional processes, such as customer onboarding or claims handling and are focusing on outsourcing highly skilled insurance domain processes, such as underwriting, actuarial services, and subrogation assessment.

This reflects insurers’ confidence in the professional insurance domain experience of providers’ staff, backed by their expertise in AI, machine learning, and advanced analytics technologies. Providers have built centers of excellence (CoE) in these domains.

A move toward outcome and value-based commercial agreements

Insurers are beginning to explore contracts where price is based on tangible business outcomes and the value delivered rather than on inputbased factors such as the number of FTEs or number of transactions. They want to manage costs and have some control over the volume and value of the services provided. While such contracts are becoming more common globally, ISG advisors report limited adoption so far by the insurance industry.

One of the main challenges is that many deals involve a principal provider with multiple provider partners. This extends the efforts involved in constructing such contracts, managing performance, and quantifying the outcomes.

The report shows how these providers are deploying new services, products, and partnerships to address some of the key challenges of U.S. insurance clients.

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