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The insurance industry has traditionally been one of the slowest adopters of outsourcing, but in the past few years the market has changed as a result of shrinking margins, higher claims disbursement and increasing competitions, international consultancy firm KPMG said in a report.
The size of the industry, with over 1,500 property and casualty insurance companies and 1,300 health insurance firms in the US alone, makes insurance outsourcing an attractive market, KPMG said.
While noting Indian offshoring industry is particularly strong in this sector, KPMG said total estimated revenues from offshore insurance BPO services from India were expected to rise from $790 million in 2007 to about $2 billion by 2010.
"Employment in the Indian insurance offshoring sector is likely to increase from 41,600 to 100,500 in 2010," it added.
Among several benefits as a leading insurance outsourcing destination, India provides a low-cost advantage and is an established destination for outsourcing. Besides, Indian IT outsourcing firms can leverage their existing relationships with large insurers.
Though growth is constant in the insurance industry, insurers are expected to consistently deliver double-digit revenue growth to become or remain a major player.
"Mergers and acquisitions, geographic expansion, product development, cross-selling and client retention are all vital strategies. Insurers are expanding into emerging markets such as Central and Eastern Europe (CEE), Russia and India, which are generally underinsured but increasingly affluent," KPMG said.
In mature markets, demographic changes are driving new product development as insurance firms adjust to the changing needs of their core domestic client base.
As insurance services mature and more high-end processes like analytics, actuarial and underwriting services move to India, the BPO industry is expected to grow further. Another growth area is claims and policy administration, the report said.
By 2010, a large number of Indian vendors are expected to evolve into mature, end-to-end service providers, competing with multinational outsourcing companies. Players such as WNS, Genpact and EXL Services, as well as BPO offshoots of IT companies like IBM, TCS, Infosys (Progeon) and Wipro, are expected to emerge as competitive global players, it said.
According to the report, the insurance outsourcing was likely to touch $790 million this year from an estimated $367 million in 2003, a compound annual growth rate of 21 per cent.
The industry is expected to get more business out of the European market, which is likely to increase from the present 24 per cent to 36 per cent by 2010, it noted.