Insurance BPO Vendor Profile – EXL Service

EXL’s insurance experience is proven by 60 leading global insurance carrier clients and the tenure of more than 4,000 industry professionals and is dominant player in the US Insurance BPO Market. EXL provides high quality services and better controls support to clients allowing them to be more efficient and to better understand their customers, their markets and their risks. Clients leverage EXL’s outsourcing, analytics, advisory and risk management capabilities.

Collaborate with clients to understand their priorities & design solutions to address insurers needs and support them to manage claims, enhance subrogation services, improve first notice of loss, build compliance preparedness, improve underwriting margins, optimize loss ratios, increase customer penetration or accelerate customer reach, &  help P&C, life, annuity and health insurers become competitive.

In October 2012, EXL acquired Landacorp, a provider of software in support of clinical data exchange in the healthcare industry  and acquisition brings 15 payer clients and 50 provider clients and Landacorp has  50 million members under management on its platforms

In October 2011, EXL acquired Trumbull Services, a specialized provider of Insurance BPO services in the Property & Casualty (P&C) segment in the US, which has a ready-made technology platform to offer in  U.S. P&C Insurance BPO space and the insurance subrogation BPO business in particular. In May 2010, it acquired PDMA, the maker of LifePRO, a policy administration system in the Life Insurance BPO market deployed with 40+ insurers around the world.  

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Insurance BPO Vendor Profile – TCS BPO

Tata Consultancy Services (TCS) has been designated as a leader in insurance BPO in the Everest Group report – PEAK Matrix. TCS is dominant in UK market through its subsidiary Diligenta.

Diligenta, UK FSA regulated subsidiary was established in 2005 to specialize in the provision of business process outsourcing (BPO) services for the UK life & pensions industry. In 2006, Diligenta secured its first £486 million deal with the Phoenix Group (formerly known as the Pearl Group). Since then, Diligenta has secured a number of new clients in the Life and Pensions sector and today administers circa 5 million policies.

TCS has over three decades of experience, partnering with over 90 regional and global insurers to achieve improved operational efficiencies, reduced costs and customer / partner satisfaction and  services span all insurance segments - life, healthcare, property and casualty (general insurance) as well as annuities, pensions and retirement, and span the complete life cycle.

Recently concluded a multi-year, multi-million dollar transformation project at Phoenix Group, the UK’s largest specialist consolidator of closed life funds that involved replacing and decommissioning 11 major life and pension administration systems, hundreds of peripheral systems and migrating more than four million policies and customer records, across multiple brands and product lines into TCS BaNCS Insurance.

TCS won its second-biggest outsourcing contract worth $2.2 billion from UK based pension firm Friends Life, based on a model wherein the company will be paid for each insurance transaction and will add another 3.2 million policies. 

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Global Insurance BPO Market 2012

The global insurance BPO market has been valued at US$2 billion by the end of 2012. and segment grew by 17% annually. Third-party Business Process Services (BPS) in the insurance industry currently a US$6-8 billion market growing at ~17% annually.

Post 2008 Financial crisis there had been a stable growth in the number of contracts signed in both the Life & Pensions (L&P) and Property & Casualty (P&C) lines. In fact the contracts almost doubled in number when compared to 2008-2009 when the financial crisis had a severe impact on the insurance companies. BPS in insurance rebounded with 53 new, publicly-announced contracts signed in 2010-2011.

United States and United Kingdom are the primary markets for Indian Insurance BPO vendors, but the market is also going global and activity is picking up in other regions of the world too. Asia Pacific showed significantly increased activity over the last one to two years .

Insurers expect BPO as a key tool to cut costs, improve operations, and manage regulations. Service providers are differentiating their offerings through better technology, strong delivery capabilities, and the ability to serve niche segments.

The 2012 insurance BPO PEAK Matrix has three:

1. Leaders (EXL Service, TCS, and WNS)

2. Major Contenders (Genpact, HCL, Infosys, and Wipro)

3. Emerging Players (Capgemini, Cognizant, and Serco) 

4. Leaders control 60% of the overall insurance BPO market in revenue terms with healthy growth rate.

5. EXL Service is dominant player in the U.S. BPO insurance market.

6. TCS dominant in the UK BPO insurance market

Industry-specific BPO accounts for over 60% of BPO contracts in insurance, spanning product development and business acquisition, new business, policy servicing and reporting, and claims processing.

Leaders have a wide scale of operations and have a significant advantage over Major Contenders and Emerging Players. Capabilities of the major players differ not only in terms of the variance of the service offerings but also in terms of the Geographies they are servicing successfully.

Leaders and Major Contenders have built delivery capabilities from various different locations and this global delivery presence is a big competitive advantage when compared to Emerging Players.

The five themes identified Everest group are Platform-based BPO offerings, increasing focus on the U.S. closed books BPO market, inclusion of complex processes in insurance BPO contracts, higher degree of on shoring, and regulatory and risk management BPO. 

Source: Everest Group.

 1. https://research.everestgrp.com/Product/11922  

2. https://research.everestgrp.com/Product/11946

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Global SaaS Market growth will continue & drive software sales growth in 2013

Worldwide Software as a Service (SaaS) Market is expected to continue its growth in 2013 as more and more businesses are adopting SaaS and most of the Independent Software Vendors (ISV) including the big vendors like IBM, Oracle, SAP, Salesforce.com, etc. have increased their product offerings in the SaaS segment. There has also been a spate of acquisitions in the SaaS segment where ISVs acquired specialist small and medium SaaS vendors and product developers and integrated acquired software and product offerings into their core products. The SaaS software market will increase 25 percent in 2013 to $59 billion, a 25 percent increase. In 2014, the market is expected to total $75 billion, according to Forrester Research. Gartner predicts the size of the SaaS market will grow from $16 billion in 2012 to more than $21 billion in 2015. Mark Hurd, President of Oracle has said that cloud computing services will reach $72.5 billion over the next five years from 2010 levels of $21.5 billion and estimates that by 2014 around 14 million more jobs will be created due to cloud computing.

In June and July of 2012, Gartner conducted a survey of 556 organizations across 10 countries and within four regions (North and South America, Europe and Asia/Pacific) which highlighted 71 percent of organizations have been using SaaS for less than three years. According to the survey, investments in SaaS are expected to increase across all regions. Seventy-seven percent of respondents expected to increase spending on SaaS, while 17 percent plan to keep spending the same. More than 80 percent of respondents in Brazil and Asia/Pacific indicated more spending on SaaS applications over the next two years. The U.S. and European countries were not far behind with 73 percent of U.S. respondents and 71 percent of European respondents intending to increase spending on SaaS. Gartner Research vice president Charles Eschinger said despite the fact that adoption of on-demand deployment model by business organizations has begun more than a decade ago, but SaaS popularity has increased significantly within the past five years. This rise in adoption in the past few years is because the development of the SaaS technology and maturity of the SaaS business and computing models that led to diminishing of business concerns related to security, response time and service availability.

Gartner survey also highlighted that customer relationship management (CRM) and enterprise content management (ECM) as the applications most often being newly deployed. Supply chain management (SCM), Web conferencing, teaming platforms and social were the applications picked most as replacements for on-premises solutions. But the business decision to migrate to SaaS depends on business criticality of the application/solution along with other critical factors like geography, business agility, usage scenario and IT architecture and few organizations will completely migrate to SaaS but with a mix of SaaS and traditional on-premises application deployment models, according to Gartner’s Eschinger. Another fact is that integrating SaaS tools to existing IT infrastructure is both costly and complex and IT departments have to work closely with SaaS vendors in terms of planning and migration to SaaS platforms. But overall SaaS adoption by business organization even by large organizations will continue to rise and is one of the key revenue generators for Independent Software Vendors for the next few years.  

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Healthcare BPO – Medical Coding, Billing and Transcription India 2012

The total value of the U.S. healthcare business process outsourcing market is about $38 billion, according to Sutherland. According to industry data, demand for healthcare outsourcing services has been growing at a pace of about 25-35 per cent every year over the last few years. Healthcare provider outsourcing has the highest growth rate of 31.9% from 2013 to 2018 because of the conversion from ICD-9 coding system to ICD-10 coding system to be implemented by October 2014 in the US. Provider outsourcing capabilities are Medical billing, Medical coding and Medical transcription. Medical Billing is the major process outsourced by the providers from the US market and Claims processing is the dominating outsourcing process for the Payor market. U.S. is the largest source of outsourcing, followed by Europe. The most preferred destination is India in payer and provider outsourcing. Philippines is an upcoming destination making its mark in payer and provider outsourcing. Medical Transcription is a US$ 18 billion industry growing at 15% every year and is expected to reach US$ 20-25 billion in next five years.

India has advantages when compared to the other outsourcing destinations such as has availability of high number of healthcare professionals, affordable cost of living, large patient pool, and decreased time and cost of recruitment. The skill sets for this sector demands graduates in Life Sciences with a specialization in biology, microbiology, physical therapy, biochemistry and nursing for the medical coding space. The data entry segment looks for not just typing skills but candidates with analytical abilities. The voice based assignments call for graduates with excellent communication skills.  India has now established itself as an outsourcing destination of choice for the medical coding work, which is a complicated process. Over the last two years, more and more of the in-patient coding work is being outsourced to India and is by far the most complex coding work. Medical Billing & Coding is the process of submitting and following up on claims to insurance companies in order to receive payment for services rendered by a healthcare provider. Medical transcription, also known as MT, is an allied health profession, which deals in the process of transcription, or converting voice-recorded reports as dictated by physicians or other healthcare professionals, into text format. (Source: Wikipedia)

Medical Coding and Billing have evolved into complex process due to the change from ICD-9 coding to ICD-10 coding mechanism which is much more detailed in its Code-sets, stresses the need for clinical documentation to be precise in order to get accurate payments. Many Providers also recognized the extent of revenue loss incurred due to poor documentation based on the past claims data and poor documentation also created problems during audits which led to revenue losses too. The next few years there is good opportunity for growth in this segment and large Indian players too are looking at this segment but this segment is predominantly dominated by small specialist players only. Medical Transcription outsourcing projects to India started nearly 15 years ago and many companies have been successful in servicing the US clients with the availability of the skilled talent pool and labor arbitrage as the cost is very less in India. Most of the Indian BPO vendors offer the medical coding and transcription services and are also looking to acquire companies in this segment as evident with M&A activity in Healthcare BPO segment.

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Major Outcome based pricing deal by Top Indian Outsourcing Vendors till 2012

TCS started to use outcome based pricing in 2006 during which it signed some deals but the major deal it did was in 2008, when it won a project from Ministry of External Affairs to automate passports and is paid a combination of project fee and an outcome fee based on number of applications it process. In 2007, TCS signed a $1.2 billion deal with Nielsen, provider of consumer and media information services spread over 10 years and as soon as the finance and the HRO processes are centralized onto the new platforms, TCS has an option to review the deal and move to outcome-based pricing. TCS has used outcome-based pricing models in its BPO deal with Pearl Insurance in the UK and in the $250m IT infrastructure management deal with Tata Teleservices in 2005. TCS' British BPO subsidiary, Diligenta, will be taking over the IT and customer services functions of the UK business of Friends Life earlier known as Friends Provident, for 15 years and the deal is worth $2.2 billion. It is outcome-based pricing and TCS will charge per policy to the client.

In December 2008, AstraZeneca has awarded Infosys a five year, multi-million dollar global sourcing deal Infosys is delivering the services through a global shared-services model that offers fixed price for outcome-based deliverables, and flexible, unit pricing for managing changes in the base scope of the engagement. Infosys signed three-year Services agreement to manage Microsoft's Internal IT Services in April 2010 and the deal includes IT Help Desk, Desk Side Services, and IT Infrastructure and Applications Support and the engagement is delivered based on outcome based pricing model, enabling Microsoft to associate and manage IT costs directly to business variables and demand. Infosys highlighted that outcome-based model was at the core of its new strategic vision 'Infosys 3.0' and the main vehicle for the new model was the firm's 'Infosys Edge portfolio of platforms. “Each of the Infosys Edge platforms guarantees a business outcome to our clients - it either contributes to clients' revenues or it contributes to profitability by driving efficiency. This is a strong differentiator for us," the firm said.Infosys' result-oriented model provides clients with "outcome-based", "transaction-based" or "function-based" pricing and CEO Shibulal highlighted the increasing acceptance of customers for Infosys’ new engagement model based on variable pricing. The model is based on the number of transactions, events, maintenance tickets or devices.

Cognizant’s earliest projects based on outcome were with pharmaceutical company AstraZeneca. For 3M too, Cognizant used an outcome-based, managed service engagement model with productivity benefits over the long term. In its partnership with Sanofi Pasteur, there was an increase in effectiveness as measured by time. This reduced process hiccups in bringing the drug maker’s vaccines to the market. One area where PAC (a privately held research & consulting firm for the software and ICT services market) believes Cognizant has a particularly strong story is in moving towards outcome-based pricing models. In the F&A space, Cognizant is looking beyond taking out cost and hitting SLAs, to committing to targets that increase its client’s revenue and working capital, or improve compliance and control. In life sciences, the vendor is talking about moving towards being charged per study for handling clinical trials, while in the area of mortgage administration, it is looking at charging lenders for only processing the loans that are signed rather than the quotes they provide for customers. Recently Cognizant signed a deal with Royal Philips Electronics for services like consulting and application services on a global basis. As per the terms of the multiyear engagement, Cognizant will allow Philips to switch the IT organization to a platform and output-based managed services model across multiple business lines and corporate functions.

Wipro said that it has numerous clients whose billing/payments are intimately linked to the client's business. "Some of our clients, like airports, pay us based on the number of boarding passes or the baggage tags issued," said Suresh Senapaty, Wipro's chief financial officer. In December 2011, as part of the five year strategic relationship, Wipro will be supporting both systems and processes to enhance efficiency of Premier Foods’ supply chain. Wipro’s strong partnership with SAP, global SAP consultant base, end to end implementation coverage, delivery innovation, and outcome based service models and competencies in cloud based services will be leveraged for this engagement. In June 2011 Wipro won an outcome-based deal from Chaucer Syndicates, a specialist insurer at Lloyd’s, to develop an end-to-end regulatory compliance solution that would generate better analytics and improved management reporting for the client In 2009, Wiprohas won a new application development and support contract with long-time client, UK insurer Friends Provident. The ‘fixed price, outcome-based’ deal runs for three years with a two-year extension option. Wipro says that if they get the full 5-years, it will be worth £40m over the period. TK Kurien, CEO, Wipro Technologies told FE: “We are seeing a great uptick in outcome-based pricing. There is a clear increase in outcome-based models among customers, who want to have their business outcome linked to the actual work done. Most of them love to go for long-term, but you are not sure of the long-term perspective. Not all of them are going for long term.”

HCL Technologies, India's fourth largest IT outsourcer, claimed that it had actually "pioneered the outcome-based pricing model in the mid-2000s". "We have many active client engagements based on outcome-based pricing models," a spokesperson for the firm said, citing its multi-million dollar contract with aircraft-maker Boeing where it works on a "risk-reward sharing model". In July 2008, HCL BPO acquired UK-based Liberata Financial with revenues of $80 million, which is to life insurance and pensions and US-based Control Point Solutions, a provider of voice, data and wireless telecom expense management services with revenues of $37 million and both the companies helped the company to increase its outcome based pricing revenues. HCL BPO is offering platform-based offering, a combination of software platforms and services such as administering payroll for a client and charging the client based on transaction or outcomes. HCL Tech, which acquired Axon, an SAP consulting company in 2008 which has significant capability in terms of outcome based pricing models. “We have worked with number of companies on business outcomes based on our outsourcing work and this is an area that we will continue to build on,” says Shami Khorana, President, HCL America. However, he added that the company will look at a combination of regular outsourcing and outcomes-based outsourcing, in the future.

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Indian BPO Industry losing its sheen & continue to face tough challenges in 2013

Source: NASSCOM . FY2012-13 estimated is self estimate.

With diminishing cost arbitrage and margins, Indian BPO players are struggling to keep up the growth and last four years (2008-2012), CAGR for the BPO sector has been slow at 12.47% compared to  India’s IT services exports, which posted a 17.23% growth during the same period. With reducing client spends and IT budgets Indian BPO industry is further expected to face tougher year in 2013. Another important reason is that India’s cost advantage as an offshoring destination has dropped by 30-40% and also with high attrition rate (40%-50%) as companies are finding it difficult to hold on to employees who were earlier attracted to the industry but presently resenting the BPOs due to the lack of career growth opportunities and falling compensation, perks, bonuses and benefits, industry is facing problems in fueling growth. There has been significant pressure on the margins too due to wage inflation where in the salaries of the employees have risen fast, foreign exchange losses as most of the revenues are dollar revenues and companies failed to hedge the currency risks and the Indian rupee had been very volatile ranging from `43 to `57.15. Companies like general motors who initially outsourced majority of their business processes and IT processes to India have recently announced to move back the outsourced jobs back to United States.

According to The Hackett Group, offshoring of jobs to India will be declining from 2014, and will reach the end of its lifecycle in eight years, as the traditional model of US and European companies moving finance, IT, and other business services jobs offshore will reach its maturity and there will not be many jobs left out with the companies to outsource to India. According to Nasscom, software services are the fastest-growing segment with 19% growth in FY12, while BPO exports grew at 12% over last year. “Gone are the days of over 30% growth for the BPO sector, going forward it will be in low single-digit,” says TPI’s Pai. The rise of other low cost destinations like Philippines and near shore destinations like Brazil, Argentina for United States and Poland for Europe have been successful in attracting outsourcing business through quicker response time, better technical support and near-shore advantages. Despite the low cost advantages these low cost locations cannot match India in terms of economies of scale, large pools of skilled talent and workers, experience and technical knowhow and ability to deliver large scale projects. But most of the Indian BPO vendors are not agreeing with the Hackett Group view that Indian BPO will be reaching maturity and they are focusing on improving their product and service offerings and move up the value chain.

Indian BPO vendors like Genpact, WNS, Infosys BPO, TCS BPO, HCL Tech BPO, Aegis, etc. are struggling to keep up their revenues and margins. Industry leader Genpact had a very bad Q32012 (despite 14.3% increase in revenues net profit impacted by "foreign exchange re-measurement loss and expenses related to special cash dividend") and the company highlighted the volatile economic conditions and clients cutting down budgets but still indicated that it will expect full-year revenues of $1.86- $1.90 billion, and adjusted operating income margin of 16-16.5% in 2012. WNS which earlier had tough time in keeping up growth was able to attain a 6-7% organic growth and guided double digit growth for 2013 as the company has verticalized their services in domain and have adopted technology-enabled non-linear model for their service offerings. Not only WNS but most of the BPO players in India like Genpact, etc. are moving up the value chain by focusing on Analytics, Social Media, Consulting, Mobility and Cloud computing to boost up margins. Products and Platform based offerings are being developed and aggressively marketed to clients as the Indian BPO vendors are looking to increase nonlinear revenues that are revenues independent of headcount rise. Outcome based pricing models are also being adopted too by Indian BPO vendors despite significant risks and most of the BPOs are targeting 30% revenues from Nonlinear outcome based models in next five years.

Generally BPO is not a high value work mostly clerical type of work which is monotonous and repetitive. BPO is an intense operational game and there is severe competition between the Indian vendors and the multinational vendors like IBM, Accenture, etc. which has led to significant pricing where vendors cannot afford to rise prices and are facing severe margin pressures. There is minimum difference between the service offerings of the various vendors both Indian and Multinational, and the Indian BPO vendors could not expand their service offerings sticking with the low end work and not moving up the value chain to more high end work where they can charge more prices and increase their margins and the Indian BPO industry could not scale up its size. “Today none of the standalone BPO firms are of significant size. They are mostly in the $350-million range, expect for one or two like Genpact,” Sid Pai, partner and MD, TPI India. But the Indian BPO vendors have realized this fact and they have been investing significantly over the past few years in the development of products, platforms, new service offerings, and emerging technologies like cloud computing, mobility, analytics and social media. Multinational BPO players like IBM, Accenture, Dell, Xerox, Cap Gemini, etc. are expanding their BPO operations in India and other Low cost destinations like Philippines, Poland, etc. to offer more services to their clients and reduce costs.

“BPO business has become a big-guy game. Smaller players with niche competencies will get acquired. Like in analytics space, every day you hear firms getting acquired by larger firms. It is a very consolidated game and a big player’s market,” says Genpact’s senior VP Shantanu Ghosh. Accordingly there has been consolidation in the Indian BPO industry like Firstsource Solutions being acquired by Kolkata-based power utility company CESC for about R640 crore. According to industry reports, the Essar Group backed Aegis and WNS are looking for PE funds to scale their businesses. Recently, PE major Bain Capital picked up a 30% stake in Genpact for $1billion. Infosys bought Australia based sourcing and category management services firm - Portland Group Pty Ltd for $37Mn.  Indian BPO has moved beyond “bread and butter” voice and transaction processing and is increasingly looking for higher value-adding activities like KPO (Knowledge Process Outsourcing), which comprises legal research, advisory and consulting services among other offerings.

Genpact acquired Triumph Engineering, which provides engineering and technical services to aviation, energy, and oil & gas industries, Atyati Technologies, a technology platform provider for the rural banking sector in the country, and Accounting Plaza, a provider of finance and accounting, human resources services and ERP services in 2012. WNS has acquired South Africa-based Fusion Outsourcing Services in 2012 for £10 million Fusion provides outsourcing services including contact centre, customer care and business continuity services to both South African and international clients and would look at acquisitions of $5-20 million this year.This clearly shows the Indian BPO vendors are acquiring companies for both the revenue growth and for adding skills and capabilities to increase their service offerings. Most of the Indian vendors are sitting huge cash reserves which they can utilize for acquisitions. Overall there is tough year ahead for the Indian BPO vendors in 2013 and they need to prepare themselves for this by aggressively improving their products and services offerings and also look for increasing their nonlinear and outcome based revenues thus moving up the value chain. 

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