Calling time on attrition

Offshoring is now a fact of life for large sectors of the financial services industry and many insurers have built it firmly into their business plans. Insurers will need to keep a careful eye on fundamental areas such as human resources and developments in technology in order to get the most out of their offshore investment and, perhaps more importantly, to maintain good customer service levels.

One issue that could potentially cause trouble ahead is employee retention, with some recent reports pointing to high levels of staff turnover. In particular, a recent Financial Services Authority report into offshoring operations in India says the industry there is suffering similar problems to those faced by call centres in the UK (see box, below). The report identifies a number of possible reasons, including staff leaving to pursue higher education.

Brenda McDonnell, Allianz Cornhill's offshore programme manager, agrees that these particular HR problems are similar to those experienced in the UK. She comments: "Running a call centre is hard - it's hard here and it's hard there - and, if you do not do it well, you get attrition, whether over here or over there. So my own view is that it takes a lot of managing, but probably no more than it takes in the UK."

One of the major differences between call centres in the UK and those offshore is that insurers often demand higher levels of qualification from their offshore employees. McDonnell says the level of qualification is certainly higher than in the UK: "We set a minimum criterion in India that our employees have a degree, whereas we do not have that stipulation in the UK. By taking on graduates, we are tapping into some initiative and looking at people who really want to get on and have a career in mind."

However, filling call centres with highly qualified staff also means employers have to provide something in return if they are going to keep hold of them. Offering a good level of training and career development can help overcome staff attrition problems offshore, again, just as it can in the UK. As McDonnell observes, if people are looking for a career, it is incumbent on the employer to ensure the required level of personal development is available. "Well-run call centres that offer opportunities for training, for personal development, for variety and flexibility, will keep people," she concludes.

Commenting on the back-office offshoring, Tony Kelly, channel development director at Capgemini, says there has to be a focus not just on the recruitment process but also on career planning. "If you can provide a career plan where there is advancement and some growth, then you have the best chance of retention," he asserts. He adds, however, that it is easier to achieve where you are addressing back-office functions such as finance and accounting or procurement, than in a call-centre environment.

Oliver Sanders, Axa's head of business development for Europe, says comprehensive training packages have been developed for the insurer's Indian employees. He believes that offshore locations like Bangalore and Pune are sustainable in HR terms. He explains: "Turnover within our Indian sites is well within the tolerances we have set. The graduate employment pool within Bangalore and Pune is large and we have not experienced any difficulties in recruiting the necessary skills required for our offshore centres."

In terms of sourcing good recruits in the first place, Kelly explains that, if you are going to expand in a geographic region, effort and resources must be invested into forming relationships with local universities and recruitment agencies. "You have to build all the connections for the pipeline of supply and resource for the foreseeable future."

This level of investment in training and recruitment begs the question of how far companies are going to be prepared to move their offshore locations from country to country in the future - for example, in search of ever-lower labour costs. If you have set up a good source of skilled and loyal employees in one area, are you really going to uproot and start again somewhere else? In addition, as Kelly points out, if you set up a centre of excellence in a particular region, there is a resulting growth of supporting activities around it. Moving to look for a cheaper workforce may well be a false economy.

Low cost and instability

Kelly observes that, while lower labour costs and lower operating costs are a key part of the business process outsourcing proposition: "They are not the be all and end all." He explains: "It is not the case of absolute cheapest is best. The very lowest-cost labour location may have a technical or political infrastructure that is unstable and the cost of operating there begins to outweigh the low cost of the labour. So you must take an holistic view of a location - not just the labour rate."

Sanders agrees that employee costs are only part of the calculation of a company's expense base. He adds that labour cost is clearly a factor but so is business continuity, observing that simply touting business around the world to chase the lowest overall labour cost would not be in the best interests of the customer. Sanders draws a comparison with the motor industry: "If it was the case that the cheapest always prevailed, then motor cars would not be built in anywhere near the number of countries that they are today."

So how can insurers get the most out of the offshore locations in which they are investing? Technology will play an important part in achieving the required efficiencies. Graham Dawkes, managing director for Clear Technology in the UK, points to the fact that technology can be key in helping companies offshore the more complex processes.

Dawkes goes on to explain that technology plays a key role in enabling offshoring of processes that may need to operate partly here and partly in an offshore location - and takes underwriting as a case in point. "It is highly likely that you do not want all your underwriting offshore," he says, "Where possible, you want to automate the underwriting application and have low-cost labour to do any manual work associated with the underwriting case, but you also want to be able to route the case back when it needs to be looked at by more expert underwriters in this country."

However, in making use of technology, insurers will have to avoid the risk of 'dumbing down' through too much automation. Sanders emphasises that: "Regardless of the sophistication of IT applications, customers will still need to be able to deal with real people. IT developments may certainly help to make the customer engagement experience even better for all but that will not detract from the fact that financial services is a people business."

Dawkes asserts that it is important to automate the so-called 'non-value-added' processes, "So that what is left for people to do is the real value-added work, such as making expert judgements from an insurance perspective or talking to customers." He observes: "Brokers and customers do not care about how complex your filing system is in the background." As far as McDonnell is concerned, if there is good business case and no detriment to customer service, then automating is a sound idea.

FSA compliance is another area in which technology can prove useful for offshore operations. Of course, regardless of where operations are based, companies will need to ensure they remain compliant. As Dawkes comments: "In this highly regulated world, if you have a system based on a case-handling approach, that gives you a very solid and detailed audit trail for how each underwriting case or each claim was processed. This is irrespective of where it was processed in the world, because we can track everything."

Insurers are beginning to extend the range of processes they are prepared to move to offshore locations, with both back-office and customer-facing roles now being outsourced abroad. A recent Datamonitor report suggests that the outsourcing of core financial services functions offshore is on the rise. When the report was released, Andres Maehre, financial services technology analyst at Datamonitor, and author of the report, stated: "Offshore outsourcing has gathered tremendous pace in recent years. Political pressure and controversy has done little to deter top-line growth."

As offshoring becomes more widespread and more varied, success will depend to a great extent on the willingness to invest in training, recruitment and personnel development. There will also need to be recognition that the cheapest labour option is not necessarily the best. The challenge in terms of the implementation of technology will be very similar to the challenges faced back the in the UK - that is ensuring that increased use of IT does not have a negative impact on customer service levels.

Main findings

The FSA is interested in offshoring as a result of regulation that requires financial services firms to have appropriate systems and controls in place to manage the risks associated with outsourcing. Firms that were reviewed appear to have met FSA expectations by understanding the risks and having appropriate risk-management measures in place. The main risk identified was the complexity of achieving suitable management oversight and control from a distance. A high level of staff attrition was among the major observations.

According to the report, the industry in India is experiencing similar problems with retaining staff as call centres in the UK. Turnover is attributed to the industry's rapid growth, providing more job opportunities as well as the relatively young age of workers. The industry has also identified a cultural reason - many women tend to leave either because they cannot work after they are married or because they move to where their husband is located. Staff also leave to pursue higher education.

FSA REPORT

The Financial Services Authority has published the findings of a review of financial services firms' offshoring operations in India. The aim of the report is to help senior management compare the nature of risks associated with offshoring, learn how these risks are evolving and understand other firms' risk-management practices. The FSA visited 10 operations that provide services to both banks and insurance companies. Data from five other operations was also included.