An offshore investment

Brokers often complain it is hard to get through to insurers, and phoning a call centre in Bangalore may be more problematic than reaching one in Ipswich. Outsourcing claims is a continuing trend in the insurance industry and the current move towards offshoring could create more headaches in the future.

UK unions may protest at moving jobs to India but there is no immediate need to panic. Graeme Trudgill, senior technical officer for the British Insurance Brokers' Association, says: "So far we have not had any indications that insurer staff dealing with brokers are working from India, although as far as the industry is concerned there are concerns about jobs. We'll be keeping an eye on what's happening."

Whether in the UK or abroad, the claims industry is in no doubt that outsourcing is here to stay. It has been a dominant trend in the sector since the early 1990s when insurers realised they could employ fewer claims staff and contract out much of the customer facing and administrative work.

Market factors

Tumbling share prices, the arrival of the 1% world in the savings markets, and rising personal injury claims have all put huge pressure on the UK insurance industry to cut costs. And experts are predicting that redundancies in the UK are set to increase as jobs overseas are created. A report on the UK insurance industry by US investment bank JP Morgan said outsourcing operations is set to escalate.

Financial services consultancy Troika predicts that more than 100,000 UK financial services jobs will be lost to overseas locations, such as India and China, as insurers and banks struggle to cut costs. Andrew Stewart, managing director of Troika, said up to 20,000 jobs had already been moved to India and around 25% of all back-office staff could be employed abroad within the next five to seven years.

Outsourcing has not been without its critics. One of the main arguments is that it leads to a lack of control for insurers and that it has helped create the current skill shortage in the industry - outsourcing companies traditionally employ large numbers of call centre staff and supply services that are high volume and generally low on insurance expertise.

Michael Booth, claims technical director for Groupama, says it is not a route his company wants to take. "We prefer to keep core skills and competencies, such as underwriting and claims, in-house," he states. "There are cases where we work with brokers on a delegated arrangement but we manage these carefully."

Louise Zucchi, spokeswoman for Norwich Union, says: "We have a number of long-standing UK arrangements that prove outsourcing can work. It is not a good business proposition for us to employ vast numbers on a 24-hour basis but by using other companies we can provide a full service for policyholders who need claims assistance."

The arrangement between Capita and Royal & SunAlliance is typical. While RSA largely handles its claims in-house, Capita has been appointed to provide emergency maintenance services and oversee a network of emergency contractors on a 24-hour, seven-days-a-week basis.

Fortunately, even those insurers that outsource extensively realise the potential perils of losing control of their broker liaison staff, even if service standards remain low.

When it comes to claims, a growing number of brokers realise the need to take the initiative. Larger firms in particular realise they need to offer own-label policies, a 24-hour service and a claims handling facility.

Layton Blackham, one of the UK's largest independent brokers, is a prime example. Marketing director Charles Whitfield says: "We employ claims staff but outsource much of the work to loss adjuster Woodgate & Clark. It deals with the claims for our Elite range of SME package policies, which accounts for 23% of our commercial business. It means we can offer our clients a highly professional service."

Michael Woodgate, joint managing director of Woodgate & Clark, says his firm knows it has to go the extra mile to create customer satisfaction. "We don't have trainees, we only provide experienced loss adjusters to handle claims."

He says this helps Layton Blackham "put its Elite products in the shop window". He adds: "If a publican, for example, suffers a serious flood, fire or break-in they'll receive a fair deal and prompt attention." Woodgate says many other brokers targeting the SME market deal with a range of insurers and pass claims directly to them.

He says brokers that offer their own claims service and work with a single firm of adjusters can also bring benefits to underwriters. "It is possible to bring in savings and great efficiency by sharing technology and cutting back on double handling of data."

Woodgate says that longer term he is concerned there will be problems if claims start to be handled direct by call centres based in India. "You can supply maps but there could still be problems with geography. Brokers and their clients want experienced people who are not only good on the phone but can also assist in more complex cases and make a visit."

Call centre approach

Whitfield adds that most brokers have no need to be involved in every claim. "It's important clients know you are there if there is a problem but in many cases a good claims service is provided by insurers in-house. If you're placing business with an insurer like Chubb there is no need for us to get involved or use our adjusters. Chubb does not have a call centre approach."

Mass market claims work is likely to be increasingly handled from India. Town & Country, a company providing outsourced claims administration services, has a head office in Ipswich with 200 staff but employs the bulk of its 4000 staff in the Indian cities of Mumbai and Pune.

Managing director Theodore Agnew explains that some 200,000 claims are handled a year, with the company working both for brokers and insurers. "We're fleet specialists and provide claims handling for brokers such as Aon, Marsh and Willis." Most calls direct from policyholders are handled from the Ipswich office but some are now being taken in India.

Agnew set Town & Country up from scratch but recently sold the company to WNS Global Services and remains managing director of the UK division. He argues that critics opposed to offshoring need to understand the practicalities.

"All the major insurers are outsourcing, including Norwich Union, RSA and Cox. It is a very powerful business model with savings in the region of 40%. You can employ graduates who are hungry to improve and learn and who have a strong work ethic. Staff are generally highly trained and provide excellent service."

He says while first notifications of a loss are taken in the UK, the Indian operations swing into action soon after, booking vehicles into garages and chasing up repairs.

Agnew adds there remains misconceptions about the operations being run in India. "I went out there five times last year and while the roads are not always good, there are good quality offices, better than some in the UK. Also, you don't have problems with recruitment - for 10 vacancies, we had 600 applicants. This is a trend here to stay and in the future we can expect to see insurers also looking at China, the Philippines, Latin America and South Africa. The main reason India is selected is that it has a good education system with lessons taught in English. In addition, there are two and a half million graduates a year."

Companies providing claims outsourcing services in the UK argue there are substantial advantages to remaining at home. "The services that can be provided are far more advanced in the UK than offshore. There remains a lack of understanding about the advantages of domestic outsourcing and with so much being done in India, some insurers have taken their eye off the ball. There can still be major savings by using a UK outsourcing provider and with claims we are able to supply reception, settlement and supply chain services."

Eyebrows were raised at the end of last year when Allianz Cornhill announced it would be transferring 400 jobs to India by setting up an offshore company. Allianz Cornhill Information Services will deliver a range of services including IT, data processing and call centre activities, with the aim of making savings of £5m a year through the facility.

Some of the work will involve claims processing but spokesman Geoff Mayhew insists brokers and policyholders will not suffer from any service hitches. "The important point is that we are not outsourcing. We are offshoring but we will be employing our own staff. We have to appreciate that the Indian workforce is high quality and we'll be taking on some first-rate employees for 400 positions."

He says the insurer expects to complete the transfer with minimal redundancies, as the jobs affected experience high staff turnover. This pales into insignificance when compared to Aviva - Norwich Union's holding company - which last year was said to be cutting 2350 jobs in the UK and exporting them overseas, primarily to Delhi and Bangalore. Union Amicus described the move as "deplorable" and said there would be at least 500 compulsory redundancies. It is in claims where Aviva has been testing the water with offshoring - it already has offices in Delhi and Bangalore, where about 1200 staff process general insurance claims. The company defended its plans by saying the time difference between the UK and India would allow the company to move to round-the-clock claims processing and administration.

It is hard to deny the savings when an average call centre claims handler would be paid in the region of £12,500 a year in the UK, compared to £1200 a year in India. Worldwide, Aviva now employs about 59,000 people, and by the end of 2004 the insurer expects at least 3700 of them to be working in India.

No broker needs reminding these are changing times in the insurance industry. For the foreseeable future there is no doubt some smaller or specialist insurers are less likely to take the outsourcing route, unless for out-of-hours work. Those focusing on top-of-the-range business are also more able to keep their claims handling in-house. But for bulk lines of business where cost is all, brokers and policyholders can expect to see overseas claims handlers keeping the industry ticking over. The question will be whether the processes and service standards will be up to scratch or will result in a backlash through further job losses.