Eyes on India. (Technology: Global Outsourcing).

Moving technology operations to india is giving insurers and insurance software providers cost savings and high-quality results.

In March 2001, New York Citybased Guardian Life Insurance Company of America began outsourcing information technology consultants to India. The company later expanded its outsourcing ventures to include help desk assistance, personal computer repair assistance and a disaster recovery operation. The result of Guardian's global outsourcing is an annual savings of $12.5 million, with no loss of productivity, said Dennis Callahan, executive vice president and chief information officer.

Guardian is one of several insurers and insurance software providers that are finding value in operating or outsourcing various information technology and back-office processes in India. While most insurers are turning to the country as a way to drive down costs, they are finding even more than they bargained for with increased quality and the availability of a large talent pool of English-speaking personnel.

With nearly 85% of the global offshore technology outsourcing business, India is often called the "birthplace of offshore outsourcing." Over the past several years, the country has become a powerhouse in meeting the demands of insurers' outsourced information technology and back-office processes.

Investment banker Merrill Lynch predicts India's share of spending on global outsourced IT services will increase to 6% this year from 3% last year.

Making the Move

Over the past decade, India outsourcing shifted from its initial stronghold with technology companies to tremendous growth in the banking and financial services areas. Insurers are finding value in India-based outsourcing companies to assist with functions such as direct marketing, customer support, account management and claims processing. On the technology side, Indian firms are offering insurers application development and maintenance, network management and operations, application and IT support, help desk and problem resolution.

"When insurers are looking to customize systems, there is often the opportunity to do it more efficiently from a cost perspective using overseas outsourcing and resources in development of competitive applications," said William Carr, a partner with the information risk management practice at the accounting and tax firm KPMG LLP.

In May 2001, Ebix.com, an international supplier of software and e-commerce solutions for the property/casualty industry, set up its own offshore operation in India to assist with software development, call center operations, data conversion and outside software projects. The result of the global venture for the Atlanta-based company is an annual savings of $12 million.

"For us, the result has been huge savings, but more importantly, we have produced and developed more product than we'd done during the prior five years," said Robin Raina, Ebix chairman and chief executive officer. Ebix's creation of its own offshore operation is an approach somewhat different from most insurers' outsourcing of services and processes with India-based firms.

Costs and Quality

Global outsourcing users estimate savings of 20% to 40% of a project's total cost, according to an article by research service Gartner Dataquest. Mukesh Mehta, vice president of information technology for New York City-based MetLife, said that when compared with New York prices, the cost savings of outsourcing abroad are closer to 50%.

In India, a major contributor to cost savings is lower salaries. For example, most highly qualified software engineers in India earn less than $10,000 a year, while a typical software engineer in the United States earns a median base salary of $50,786, according to Salary.com. These savings sometimes come with a price, however. Forrester Research predicted in a recent report that the acceleration in outsourcing would result in 3.3 million American jobs moving offshore by 2015, with 70% of the jobs moving to India, 20% to the Philippines and 10% to China.

Prudential UK, which relocated a call-center operation from the United Kingdom to India last year, announced that 850 jobs in its Reading, U.K., facility would be cut as a result. The reduction of jobs will be managed where possible, however, by voluntary redundancy-the practice of encouraging attrition with incentives--and redeployment within the United Kingdom business, said Paul Keeble, a company spokesman. Prudential UK's new India-based operation is designed to improve customer service capability on a global scale, improve service delivery and reduce costs.

Along with added savings, insurers are reaping the benefits of increased quality. While many in-house operations can't defer development and support to focus on a single project, offshore firms generally devote 100% of their time to one project. "Most companies first come to India for price, but stay for quality," said Raina. While price initially drove Ebix's decision to shift some operations to India, the company soon discovered the country had much more to offer. "The quality of services and products, combined with cost savings, makes India the best of all breeds," Raina said.

Tapping Into the Talent Pool

"India offers a huge pool of qualified people that are very comfortable with the English language," said Raja Gopalakrishan, business practice head, banking and insurance, for ICICI OneSource, an offshore business process and customer relationship management firm based in India, with operations in the United States and the United Kingdom. The company is currently working with several insurers on outsourcing operations to India.

India's talent pool now includes more than 4 million highly trained English-speaking technical personnel, second only to the United States. This highly qualified work force was one of the main drivers for Swiss Re's Shared Services (India) Pvt. Ltd.'s decision to select Bangalore, India, as an outsourcing locale. "The high density of business schools and universities in the area means the pool is also constantly renewed," said Thomas Zuerrer, managing director. Swiss Re outsources business support of various administrative activities, including technical reinsurance accounting, contract administration, claims settlement, current account management and writing special business reports for external and internal needs.

Indian workers' strong knowledge of customer care also adds to India's appeal. "India, and Mumbai in particular, is increasingly recognized as a center of excellence for the provision of customer service operations because it has the necessary infrastructure, a high standard of education and English as a common language," said Prudential UK's Keeble. As the largest life assurance company operating in Asia, the company's move of its call center to India was "an obvious choice," he said.

Indian workers' firm grasp of the insurance industry is also driving insurers to India-based outsourcing firms. "The abundant availability of human resources trained in insurance selling, claims processing, accounting and financial activities related to insurance, in addition to the abundance of easily trainable human resources, capable of delivering good quality work at a fraction of the cost in the U.S., is a major reason for American insurers to get their work done from India, either through their own captive facilities or through third-party service providers," said Ravi Datar, senior analyst for IT services for Gartner India Research and Advisory Services. The Indian insurance market went through some major changes over the past several years, including its recent deregulation after years of government control.

India's once weak infrastructure is now blossoming into a technology powerhouse, due in large part to the Indian government's support. Over the past few years, the government encouraged advances in the software industry's development through company tax breaks and educational incentives for students and technology personnel. In addition, the government was key in strengthening India's telecommunications and IT capabilities, including the growing availability of bandwidth and networking infrastructure that helps companies monitor information, communicate with other companies and maintain high-quality circuits carrying data.

Overcoming Cultural Hurdles

Shifting operations into a different culture is often rocked by challenges along the way, but insurers are working hard to eliminate difficulties by improving communication and educating U.S. staff on the Indian culture.

"In offshore engagements, there's a certain contingent of people always on site and you have to learn how to do business with people from different cultures," said MetLife's Mehta. Even simple cultural differences, such as shaking one's head back and forth, can imply different things in different cultures. "In the United States, this gesture generally implies 'yes,' but to an Indian employee it signifies that he or she is listening to what you're saying." MetLife recently brought in an outside consultant to acclimate its project managers on doing business with people from the Indian culture.

"People are basically the same; it's just cultural differences that exist," said Jim Tremaine, executive director of client services for Chesterfield, Mo.-based RGA Technology Partners, which offers software solutions to Reinsurance Group of America's reinsurance clients and other insurers. "A common thread we all have is technology." RGA Technology Partners has outsourced some application development of noncore components and client-system integration of its software product, Automated Underwriting and Risk Analysis, to an offshore Indian firm.

Another challenge insurers may face is the difficulty of not having a proven executive model in place. "Being able to have skills required to do an analysis of a customer's portfolio is very important," said Simmi Singh, head of the health-care practice for Teaneck, N.J.-based Cognizant Technology Solutions, which provides custom software development, integration and application outsourcing services. The analysis allows companies to see which applications and functions would most benefit from being outsourced, in addition to potential challenges that may occur throughout the process. "Design done on the front end creates success at the back end," Singh said.

The shift to India doesn't occur overnight. Ebix's Raina, a native of India, said that companies' stabilization into the country generally takes at least a year. "[Insurers] have to understand the local culture during the initial stages, attract the best talent in the market and work with the local government." Ebix's move into India was much quicker, however, with its India-based unit up and running in only 60 days, thanks to Raina's experience with the Indian culture and government.

Maintaining morale at the home office may pose challenges for some companies. "We have to balance the impact outsourcing has on the internal organization to ensure our software developers aren't threatened by it;' said Tremaine. The way RGA Technology Partners delineates the separation between internal and offshore responsibilities is by allowing internal staff to focus on core product development, whereas noncore development and some integration services are performed by offshore staff, he added.

For some insurers, however, shifting functions back into the United States has proven more beneficial. In April 2002, Indianapolis-based Conseco announced it acquired a firm specializing in customer service and back-office outsourcing to India and planned to move 14% of its U.S. jobs to India over the next two years. The company announced later that year that it sold its interest in the India outsourcing firm as part of its restructuring in order to allow the parent company to re-focus its resources and management time on its core businesses. In addition, Conseco made the decision to return more of the outsourced jobs to its operations facilities in the United States. The decision was based on two factors--reduced volume of business and the need to exercise very close control over the processes that most directly affect its relationships with current customers and distribution partners. "We found that some of these processes were more difficult to manage successfully at a distance," said Jim Rosensteele, a co mpany spokesman.

The Next Step

Ebix hopes to expand its call center division into India by the end of the year, in addition to taking on even more insurers' projects, such as coding, binding policies, handling business process outsourcing and claims adjudication. The result? Raina anticipates that its Indian unit will staff more than 700 employees over the next 24 months.

While property/casualty and life insurers have primarily been the heavy hitters in terms of outsourcing to India, health insurers are now beginning to take a look at ways India-based operations can help drive down costs. "Health-care organizations increasingly are looking for ways to outsource application maintenance, call-center operations, customer relationship management and some back-end integration;' said Cognizant's Singh.

Blue Gross of Northeastern Pennsylvania, which currently outsources implementation support for a new claims system and gap analysis for Health Insurance Portability and Accountability Act compliance to an Indian firm, also plans on keeping the country at the top of its list when looking at future outsourcing opportunities. These possible outsourcing services may include mapping, design, programming, implementation and integrations, said Edward Syron, senior director of operational performance improvement.

While India remains an outsourcing hot spot for insurers, several other locations, such as Canada, China, Eastern Europe, Ireland, Israel, Mexico, Russia and South Africa, are also beginning to emerge as predominant outsourcing locales. China, for example, has a top-notch educational system with a heavy focus on IT, in addition to being price competitive with India in terms of offshore outsourcing. Its limited availability of English-speaking workers makes it a hard sell, however.

Some experts believe these countries may have more to offer than India. "While India has a large population, the depth of experience doesn't go back beyond 10 years or so," said Jim Logan, general manager of insurance services for Exigen Group. Eastern Europe, for example, offers more experienced workers with longevity of background in the industry, he added. He also said environmental and accessibility differences and geopolitical stability are adding to Eastern Europe's appeal.

Insurers and experts continue to find value in the Indian market, however, and believe outsourcing will continue to grow at a healthy pace. "Like many other industries that are beginning to reach maturity and get into the mainstream model, the shake-out will be huge over the next few years," said Singh. "The distance between the best and the rest is going to continue to widen dramatically." She also believes as insurers become more aware of the benefits outsourcing provides, they will concentrate more on value rather than seeking out the cheapest price.

RELATED ARTICLE: Strategies for Outsourcing Success

Offshore outsourcing of information technology and various back-office functions to India has become an integral part of some insurers' operations. Insurers believe the key to their success in outsourcing these tasks across global borders involves several important strategies.

"For some companies, like Guardian, there's a significant departure when outsourcing, and it's very important that people driving the outsourcing create a comfort level around their board senior management, staff and business areas dependent upon it," said Dennis Callahan, executive vice president and chief information officer for Guardian Life Insurance Company of America, based in New York. "Companies can't just go off in a vacuum and successfully outsource."

Guardian began outsourcing technology processes to India in 2001. In March 2003, Guardian announced that it awarded outsourced software services to Patni Computer Systems (P) Ltd., India's sixth largest software services company. Under the terms of the initial contract, potentially worth $35 million over seven years, Patni will assist Guardian in introducing new life and annuity products, and undertake gap analysis and implementation of IT systems to meet the changing business needs in the insurance marketplace.

Callahan also believes insurers should view outsourcing as an extension of how the company operates. "Outsourcing is often unsuccessful when people look at it as taking in something here, shipping it over there, dealing with it and then sending it back," he said. Rather, outsourcing ventures need to be actively managed and controlled. Guardian achieved this strategy by implementing a management model to oversee all operations, including major outsourcing vendors at home and offshore, and to establish collaboration among all parties. Each project includes a team comprised of a Guardian manager and outsourcing staff, all of whom remain on Guardian soil, he added. About 30% of Guardian's outsourcing vendors work in the United States, with 70% offshore. "Working shoulder-to-shoulder on the same team and the benefit of varying cost of labor in different locations allow us to take down the overall costs," Callahan said.

For Atlanta-based Ebix.com, an international supplier of software and e-commerce solutions for the property/casualty insurance industry, creating an outsourcing operation as an institution is a key to success. Ebix's move into India, with its call center operation and several other IT and back-office functions, was a natural next step for the company, said Chairman and Chief Executive Officer Robin Raina, a native of India, Ebix's India-based "institution," which is housed in two fully-owned buildings with more than 135 employees, replicates an Indian palace, complete with a gym, shuttle cars to public transportation and 24-hours-a-day free cafeteria service.

Helping clients realize and align their offshore business goals is an important strategy for third-party providers. "This can include helping companies set up facilities and establish a technology architecture identifying other processes that need to be migrated into these facilities, doing the actual migration which involves interactive project management to ensure smooth movement of work from the homeland operation to India, and recruitment of key management to run the entire business properly," said Raja Gopalakrishan, business practice head banking and insurance, at ICICI OneSource, an offshore business process and customer relationship management firm based in India, with operations in the United States and the United Kingdom. The company is currently working with several insurers on outsourcing operations in India.

Simmi Singh, head of the health-care practice for Cognizant Technology Solutions, believes the simple knowledge that companies can get more for their money if they consider worldwide labor markets, also supports outsourcing success. The Teaneck, N.J.-based company provides custom software development, integration and application outsourcing services. In addition, the shift into a round-the-clock availability of service--service by day in the United States and assistance by India at night--can help insurers increase customer satisfaction and impact the strategic metrics in a very positive way, all of which Singh believes lead to increased competitiveness. "Outsourcing is about cost, but in the end, our survival as successful American operations is about boosting competitiveness, achieved by working with the right partner," she added.