Ideal partners

Industry sources claim that business process outsourcing grew to almost 40% of the entire outsourcing market in the UK last year. It is expected to make up half by the end of the decade, eclipsing the outsourcing of call centres.

In support of this trend, a survey by WNS Assistance two years ago revealed that almost three-quarters of insurance brokers did not consider claims handling as core to their business.

It might easily be argued, then, that outsourcing and claims management make a consummate pairing.

Similarly, with all the media coverage they currently elicit, outsourcing and offshoring are increasingly seen as a natural partnership, particularly where the insurance industry is concerned.

Offshoring

Offshoring, essentially to India, arose from outsourcing less as a means of cutting costs - although it does that as well - but more as a way of providing a better quality of service to the customer without increasing costs in the process. Facilities there are often state of the art and the quality of the graduates that comprise much of the workforce is excellent.

Moreover, with UK employment at a record level, offshoring is the only alternative to massive immigration to bridge the increasing gap between the demand for, and supply of, labour in this country.

As Confederation of British Industry director general Digby Jones recently said about outsourcing: "Make no mistake, this is a survival issue. Anybody who believes that firms have a great deal of choice is naive. Companies know that, if they do not do it, somebody else will. If competitors act and they do not respond, they may put their businesses at risk."

This applies particularly in the insurance market, where broking customers are demanding a better service while rates are tightening so that insurers and brokers are having to outsource/offshore work in order to remain competitive.

In this respect, where outsourcing/offshoring the management of claims is concerned, the trend in the insurance industry has already been established, with the expansion rate accelerating all the time.

Selective outsourcing

The increasing popularity of outsourcing/offshoring is the first of three major reasons why, in the long term, insurance brokers who do not already do so are likely to outsource their claims management or, at least, certain aspects of it. Outsourcing claims management need not mean handing it over lock, stock and barrel to a specialist firm.

A recent survey of brokers by WNS Assistance revealed that, where motor claims were concerned, well over two-thirds of brokers outsourced uninsured loss recovery, almost half outsourced insured loss recovery and more than 30% outsourced third-party claims handling. When it came to future plans for outsourcing claims management, motor accident repair and first notification of claim were both favoured by brokers.

If the fact that everybody else is doing it is the first reason that many progressive brokers favour outsourcing claims management, the second reason is one that few can ignore.

This is the fact that most growing firms are eventually forced to make a massive reorganisation of the way they actually do business to cope with their growth - and this usually involves a major review of their IT. At this point, they are bound to ask themselves whether it is better to make the necessary investment in staff, buildings, IT and the whole operation of managing a supply chain or to outsource non-core processes such as claims management to a specialist who has already invested heavily in the very latest technology.

Outsourcing to a reputable specialist, moreover, would deliver the service in a more measurable and cost-effective manner, transforming long-term fixed costs into a variable cost, dependent on the volume of claims at any one time.

In an industry such as insurance, which is highly sensitive to cycles, this issue of variable costs is significant.

Where some brokers are concerned, however, there is a certain resistance to outsourcing claims. In a sense, this is hardly surprising. Most policyholders judge their broker on price, but the acid test of loyalty comes when they make a claim. Any change in the claims service, therefore, is likely to be viewed with suspicion by the provider on the grounds that it might lead to disruption, not to speak of a perceived lack of control.

But it seems that a belief is growing that competitive advantage now depends, at least in part, on a firm's ability to reorganise its claims management systems to cut costs in the long term while actually providing a more efficient service to its customers at the same time.

Workflow technology

Outsourcing to a firm with workflow technology is the key to success here. Workflow technology is the application of process management software, proven in its efficiency over many years in labour-intensive procedures where many documents are involved.

Considering that the processing of hundreds of thousands of claims annually generates enormous overheads, it is obvious that such technology is ideally suited to the insurance market. Claims handling also involves vast document generation, co-ordination and time management, all of which benefit from workflow software as this co-ordinates, aligns and controls resources, applications and activities to the highest performance levels.

Most business processes have certain functions in common. The management of key contacts, tasks and documents, together with efficient communication through e-mail and the generation of regular management reports to enable strategic planning, is common to them all. This means that workflow technology, properly adapted to replicate existing claims management procedures, can slot naturally into place.

This final point is essential. Workflow software does not replace manual claims-management operations as such. It is adapted to mirror them technologically so that all the procedures and tasks involved are co-ordinated in a systematic fashion. This applies from the incoming call, when the core claim data is collected on a computer, to the form sent to the claimant, to scanning the returned information into a computer, to managing the repair through to completion and so on.

Individually tailored service

All of this leads to an increase in efficiency and a consequent reduction in operating costs. Document imaging, for instance, which enables all the information related to a particular claim to be accessed at the same time by many different users, can lead to an increase in operational efficiency of up to one-third. Further efficiency results from the fact that all relevant correspondence is generated automatically on generic templates as part of a service individually tailored to each client.

Where the claims handlers themselves are concerned, workflow technology does not replace the need for key skilled staff but ensures the effective utilisation of their skills, experience and time of every employee. This is because every necessary task in the claims process is automatically distributed to a handler's PC based on key information such as the type of task and their current workload so that it can be completed in order of priority and within set time frames.

Thus, where highly qualified and skilled claims managers might previously have wasted precious time dealing with remedial enquiries, these tasks are now allocated to less experienced workers, freeing up time for the more experienced employees to deal with complex claims.

Another increasingly important capability is the potential to run the technology across different sites. This is particularly important in terms of outsourcing non-core activities offshore to India. With a time difference of four hours, this means that the working day is effectively increased to 12 hours, speeding up the resolution of claims in the process.

Workflow technology, then, encourages a culture whereby the claims process can be broken down into tasks, examined and reworked to reduce errors, improve consistency and speed things up. This can lead to accuracy rates of 99% to 100% in certain areas of insurance.

Competitive advantage

This brings us to the third and final reason why brokers outsource all or certain key aspects of their claims management. This is simply that, in certain situations, outsourcing claims offers distinct benefits that can be turned to the broker's competitive advantage.

Certain precautions are, however, necessary. Brokers must assure themselves of the genuine expertise of any potential partner, also that the contract is watertight, that it is managed efficiently through service-level agreements and that it involves regular management reports.

As long as these conditions are met, brokers can benefit from their new partner's IT investment, expertise and economies of scale, which, in turn, leverage greater purchasing power, leading to cost reductions. In the area of motor claims, for instance, the specialist is likely to have a national network of retained repairers and suppliers that are bound by strict service-level agreements. They will also have a highly experienced team of former mechanics to scrutinise every estimate and ensure that a repair is carried out correctly and in the minimum possible time.

Other benefits brokers should look for might include a secure real-time internet-tracking service for pending claims. This latter service might offer such features as imaging of the damaged vehicle during repair, an opportunity to view claims documents and regular e-mail updates of self-tailored reports.

The upshot of such effective outsourcing of claims management is that it enables brokers to concentrate on their core competency, releases funds to finance growth and liberates staff to pursue new business opportunities.

In view of the compatibility of business process outsourcing and claims management, it is no accident that the two have been closely connected since the very beginning. Neither is it accidental that surveys predict that the two will continue to develop their close relationship for a long time to come.

- Tim Rankin, Managing director, WNS Assistance

- A recent Confederation of British Industry survey of its members found that almost one-third had already outsourced some of their activities overseas, while a further 25% were considering such a move.

- A recent study of the UK economy estimated that around 250,000 more jobs will go offshore by 2010 but that the increased profitability of the firms concerned would create 700,000 new UK jobs in the process.