annuities industry after the economic tsunami

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1 Busiess Process Outsourcig: A survival tool for the life isurace ad auities idustry after the ecoomic tsuami

2 Busiess Process Outsourcig: A survival tool for the life isurace ad auities idustry after the ecoomic tsuami While ecoomic idicators are startig to sigal a slight recovery, the treacherous waters i which the life isurace ad auities idustry has bee treadig have far from receded. Recet third-party expert statemets pait a sober picture Erst & Youg s 2009 Isurace Outlook for the U.S. Life Isurace market posted to the Isurace Law Ceter o April 21, 2009 oted that U.S. life isurers will be dealig with the multiple ligerig side-effects of the global fiacial crisis ad deepeig recessio for some time to come. The implicatios of the curret ecoomic crisis may take moths or perhaps years, to fully evaluate. Oce the immediate crisis passes, isurers will have to adjust to a eviromet that has fudametally chaged both for them ad for the cosumer. Accordig to Laura Bazer, vice presidet, Moody s, Risig ivestmet losses, fallig equity markets, ad weakeig ecoomic coditios will pressure the profitability, fiacial flexibility ad capital adequacy of [life] isurers over the ext 12 to 18 moths. (Source: Resource magazie, February 2009.) A February 27, 2009 article o StreetIsider.com said, After the close, Stadard & Poor's lowered its couterparty credit ad fiacial stregth ratigs o 10 groups of U.S. life isurers ad its couterparty credit ratigs o 7 U.S. life isurace holdig compaies. Stadard & Poor cited higher loss assumptios. The firm said, "Today's ratig actios primarily reflect the icorporatio of these icremetal asset stress factors ito our capital adequacy aalysis as well as the effects of severe equity market declies ad volatility o earigs ad capital adequacy. We expect that the effect of these factors will challege life compaies' competitive stregths ad ability to geerate profitable busiess. Over the past few weeks, we also took ratig actios o several other life compaies because of related issues." These statemets reflect a wider view that there is clear ad preset dager for the idustry. But there is a life raft available for this highly riskaverse sector. BPO to the rescue for life isurace ad auities compaies Busiess process outsourcig (BPO) represets a strategic ad efficiet optio for compaies lookig to thrive i these tumultuous times. If implemeted properly, BPO ca be a fast ad simple solutio to rapidly reduce costs, help orgaizatios survive the ecoomic dowtur ad set the stage for future growth ad expasio after the ecoomic tidal wave subsides. Rapid cost reductio is madatory for compaies tryig to survive i the most challegig ecoomic climate i over 60 years. But BPO delivers beefits which exted far beyod cost savigs. While isurace compaies already outsource highly trasactioal processes such as claims ad paymets, ew busiess processig ad uderwritig support, they ca gai sigificat additioal value by leveragig BPO for other processes. For example, outsourcig research ad aalytics for actuarial support ca optimize pricig ad more accurate premium calculatios helpig the compay target additioal cosumers based o demographics, groups ad risk profiles. A BPO provider with deep domai experiece ca support customer retetio, cross sell ad up sell iitiatives ad exploit ew sales chaels ad etry ito ew geographies. ws.com 1

3 A area that ca provide immediate busiess beefits ad cost efficiecy is policy servicig. For example, experiece suggests that it costs isurace compaies betwee $200 - $350 per year to service a U.S. life policy. A BPO provider with deep domai ad customer support expertise ca service the same policy for approximately $100 per year, represetig aual savigs of at least 50 percet. Let s look at several case studies which demostrate BPO s value to isurace compaies today. Auities admiistratio for a global isurace compay As a result of its partial offshorig of simple auities admiistratio-related tasks, oe of the world s largest isurace groups was experiecig sigificat error rates ad loger respose times which led to ed-customer dissatisfactio. As a result, the compay chartered WNS with deliverig all activities related to its auities admiistratio, ragig from simple tasks such as chage of bak details ad issuig tax certificates to highly complex processes icludig reissuig retaied paymets to customers ad performig audit work o the guarateed miimum pesio quotes built for the customer at the start of the auity. Leveragig its deep kowledge of the isurace idustry ad its experieced team, WNS was able to achieve: Icrease i customer satisfactio from 76 percet to 88 percet Cosistet tur aroud time of more tha 98 percet 8 percet improvemet i accuracy ad 50 percet reductio i errors reported by customers Zero customer complaits for more tha a year Clearig the decks for success - Eight simple rules for life isurace ad auities compaies 1. Esure BPO is a CEO priority I ucertai times, sposorship for critical iitiatives such as BPO must come from the very top of the orgaizatio. Oly the CEO ca deliver the message that there are o other optios for the busiess. If the commitmet is ot there, the the juior maagemet sees implemetatio as optioal, easily fidig ways to opt out with spurious argumets. The prevaricatio of juior staff ad their desire to protect their jobs ca delay the delivery of savigs, ad jeopardize the success of the busiess. Whe the CEO takes a positive decisio ad makes outsourcig a priority, sigificat success ca be attaied. For example, the CEO of a re-isurace compay that was acquirig a closed books busiess madated the outsourcig of all its operatios. By doig so, the compay was able to complete six coversios of policies to its ew, sigle system withi six moths, ad icrease its policies uder maagemet by $6 billio i five years. 2. Approach outsourcig with a ope mid Merely thikig policy reewals or rules-based trasactios limits the extet to which BPO ca be used as a survive ad thrive tool for isurace compaies. Smart isurace orgaizatios have bee outsourcig these types of processes for years. But the BPO idustry has moved well beyod volume-based voice ad data work ito highly complex idustry ad isight processes thik research ad aalytics for actuarial pricig support, idetifyig customers proclivity to pay premiums or buy ew policies i differet geographies ad socio-ecoomic categories, sales support for customer retetio, cross sell ad up sell, or assistig fiacial advisors prepare portfolio aalysis. Smart isurace compaies collaborate with providers to ws.com 2

4 Busiess Process Outsourcig: A survival tool for the life isurace ad auities idustry after the ecoomic tsuami 24 processes for a U.S. top 10 fiacial plaig, asset maagemet ad isurace compay determie the art of the possible. They begi by determiig what is core ad o-core to their busiess. A premier fiacial plaig, asset maagemet ad isurace compay with more tha $450 billio i assets uder maagemet had just completed oe of the largest spi-offs i U.S. history ad eeded to focus o its core product developmet ad marketig. The compay decided to tur to a BPO provider to deliver its servicig fuctios, requirig 1) the ability to trasitio the work of approximately 350 FTEs i six moths 2) to maitai ad sigificatly improve operatioal performace to bolster the cofidece of the sales force distressed about the loss of the icoic brad ame of the paret orgaizatio 3) to desig a efficiet program capable of hadlig 24 fragmeted processes with sigificat variability ad cyclical volumes 4) to develop a pricig structure with optimum cliet beefit which also icetivized the provider to drive cotiuous improvemet; 5) to provide a robust security eviromet 6) to provide busiess cotiuity plaig. I its three year partership, WNS has delivered 50 percet cost savigs across all operatios outsourced to WNS Effective maagemet of volume variability with ehaced service outcomes, eablig the compay to elimiate overhead cost durig lea times Accuracy improvemets of 78 percet across all processes A FINRA-licesed team to esure compliace with U.S. securities regulatios I the isurace idustry, core processes iclude product developmet, sales/agecy admiistratio ad regulatory compliace. But beyod these, most SG&A ad highly complex processes ca be seamlessly trasitioed ad successfully outsourced to a provider with a prove track record ad substatial isurace idustry expertise. 3. Keep it simple Speed to cost reductio with o dimiutio of quality should be the first ad foremost objective of BPO as a survival tool. This is ot the time to radically trasform busiess processes, implemet ew eterprise techology, or put i the latest bells ad whistles. It s time to get the cost out, ad fast. For example, i the isurace idustry, istead of tryig to itegrate multiple policy admiistratio or claims systems overight, compaies should outsource the operatios of some of these systems both IT ad busiess processes to a service provider ad move to a sigle system over a period of time. There may eve be opportuity to moetize some of these assets by eterig ito a right cotract ad fiacial model with a BPO service provider. Keepig it simple also meas avoidig a wholesale overhaul of the busiess model at oce. This does ot mea that chages i workflow, or stadardizatio of processes which ca be accomplished durig trasitio or shortly thereafter should be off the table. Keepig it simple meas beig realistic about the aspiratios for the program i times of ecoomic ucertaity, focusig oly o obtaiig the beefits that truly matter. 4. Move fast Compaies ca move fast o their outsourcig program by madatig aggressive timelies across the board. Truth is, there is o chage without urgecy. This is the time for isurace compaies to quickly take a look at their ws.com 3

5 closed book of busiess, ope book busiess ruig o older legacy systems, ad claims ad paymets associated with older policies ad systems that do ot have cross sell or up sell opportuities ad outsource these operatios to a BPO service provider to reduce costs. But fast is the key word here. If movig quickly to implemet BPO is ot see as vital to the basic survival of the compay, it will ot produce the desired results. Imposig deadlies for the developmet ad Protectio, chages, premiums ad paymets services for a global isurace compay The cliet was experiecig challeges with its legacy systems ad had o flexibility i how it serviced its protectio policy holders. It also had uequal amout of work allocated to its paymets team due to surreders ad switches, which led to quality, team performace ad service level issues. I the protectio policies process, WNS has achieved for the cliet A versatility icrease from 80 percet to 320 percet agaist the umber of staff required per work type A overall versatility improvemet from eight percet to 30.5 percet agaist maximum possible versatility Sigificatly icreased accuracy ad reduced errors reported by customers I chages, premiums ad paymets which are maaged across three teams WNS has: Maitaied versatility at 130 percet across the three teams; sigificatly icreased accuracy levels i premiums ad paymets; Cotiuously met all critical ad key SLAs Maitaied ed-to-ed WNS-cotrolled tur aroud time at 99 percet implemetatio of a roadmap, icludig scope, provider selectio ad trasitio will mobilize the orgaizatio. 5. Empower a iteral outsourcig champio, ad put top talet o the case Survival programs are always led from the top ad ceter. As evidece of executive commitmet, the appoitmet of a outsourcig Champio / program maagemet leader with the right level of resposibility ad authority is critical to success. This must be someoe who is fully accoutable for ad committed to the success of the program, has orgaizatioal respect, kows how to exercise authority, is ot distracted by other resposibilities, is a good politicia ad has a persoal icetive to succeed. For example, whe a large isurace compay decided to make its first foray ito outsourcig its uderwritig ad claims processes, it assiged its CIO the role of outsourcig czar as the orgaizatio had already successfully outsourced IT processes uder the guidace ad leadership of this executive who well uderstood the challeges ad complexities of outsourcig. It also appoited highly kowledgeable busiess owers to oversee the processes, ad these busiess owers report ito the CIO who holds ultimate resposibility for the success of the uderwritig ad claims processig outsourcig iitiative. 6. Develop a realistic deploymet pla Eve whe outsourcig is beig implemeted for cost, a measured, tightly sequeced but ratioal program that meets milestoes ad is ot disruptive to the busiess has a much greater chace of success tha a all hadso, sprit-to-the-fiish program. I their haste to cut out more cost, compaies at times push for or buy ito a urealistic trasitio roadmap. Whe the first failure occurs because processes caot be documeted thoroughly, the etwork is ot ready or work shadowig is isufficiet, the aysayers come out i force. A deploymet strategy that builds up steam over time after the success of iitial phases is far more likely to meet objectives. ws.com 4

6 Busiess Process Outsourcig: A survival tool for the life isurace ad auities idustry after the ecoomic tsuami For example, whe choosig to outsource policy chages processes, it is best to begi with simple products like term life isurace to eable the provider to quickly ramp-up i terms of both offered products ad the cliet s iteral workig style ad culture. After that program is successful, other more complex processes, such as actuarial, uderwritig ad policy trasactios, ca be trasitioed to the provider. 7. Isist o aligmet Outsourcig ca mea a massive dislocatio of culture, resultig i a tug of war betwee cliet ad provider. Whe ew people ad processes are itroduced ito the equatio, dissoace aturally occurs. I the isurace idustry, there are four key aligmet poits. First ad foremost, the provider must uderstad what values are importat to the cliet ad adjust its workig style accordigly. Secod, the provider must desig its deliverables to support the cliet s eeds. Third, the provider must have solid ad prove isurace domai expertise such as a requiremet that all team members are LOMAor other idustry body-certified i order to effectively desig ad deliver the program. Ad fourth, all operatios, processes ad expectatios must be documeted to esure the provider has full uderstadig of, ad isights ito, the various state, federal ad compliace regulatios to which the cliet must adhere to. 8. Debit budgets i advace This little trick obtais commitmet where it couts - i the budget process. Buildig BPO savigs ito the curret year's budget i advace esures maagers have o excuse but to be committed to the implemetatio of the BPO program or fid some other way to get the cost out fast. Truth be told, short of cuttig staff to the boe, there is rarely aother way. This is particularly true i cost ceter fuctios such as uderwritig support, policy chages, claims ad fiace ad accoutig. A BPO provider with isurace domai expertise kows the types of cost savigs which ca be attaied per outsourced process, ad ca work with the cliet to craft a cotract specifically desiged to attai them. For example, a experieced service provider may well commit upfrot to savigs of 50 percet or more i policy servicig, ad 20 percet year o year productivity gais i uderwritig support. Advatages life ad auities isurace compaies gai by movig to a BPO model today I geeral Stadardized busiess processes Cosolidatig busiess processes offshore i a effort to reduce cost has a positive by-product levels of stadardizatio that are difficult to achieve through icremetal efforts such as process reegieerig whe times are easier. With stadardizatio, the orgaizatio is wellpositioed to take the ext step to trasform processes through techology ad quality, takig them to the ext level of efficiecy. Ratioalized delivery model The greatest challege i movig to a shared service, or horizotal structure, is overcomig miscoceptios ad fears about dimiutio of service levels, risk ad performace. By wrechig processes out of the busiess lies i the ame of corporate survival, the objectios which delay or derail cosolidatio ad cetralizatio are, i effect, overcome. ws.com 5

7 Commercialized approach to operatios Most compaies caot put a price o the cost of payig a bill, collectig a receivable or iteractig with a customer. Imposig the disciplie of a BPO cotract replete with uit cost, tur aroud times, ad customer satisfactio levels makes the orgaizatio thik differetly about cosumptio ad service levels, makig the actual cost to sell a product or service, trasparet. Support for rapid global market etry Oe of the major differeces betwee this ecoomic crisis ad past recessios is the extet to which fiacial markets ad ecoomies are ow itegrated ad globalized. Survivor compaies will have to move rapidly to serve global markets, focusig much of their resources to compete. This meas havig the flexibility to quickly scale back, middle ad plummetig. Leveragig outsourced research ad aalytics ca help isurace compaies attai the ivestmet icome required to stay afloat. Outsourced research ad aalytics for actuarial support ca proactively optimize pricig. Ad research ad aalytics experts ca successfully take isurace compaies raw data ad tur it ito highly valuable iformatio ad isights which assist i all areas, especially sales ad marketig campaigs. Customer retetio ad sales iitiatives With rampat job losses, reduced icome ad fear of o-essetial expeditures, isurace cosumers have bee reducig coverage ehacemets ad eve abadoig payig reewal premiums. Outsourcig customer retetio ad sales fuctios is a cost-effective strategy to aggressively reach out to customers, offer alterate plas ad cross sell or up sell additioal life isurace ad auity products. Ad a service provider with deep isurace idustry domai kowledge possesses the isights eeded to sell appropriate products to idividual cosumers by doig a i-depth aalysis o each customer ad suggestig the most suitable alterate products, riders ad policies. Further, a isurace idustry savvy services provider ca help isurace compaies exted their sales efforts through alterate chaels such as baks ad supermarkets. frot offices processes. BPO provides that scale, expertise ad flexibility. Providers ca rapidly tap ito talet pools globally to deliver busiess processes; with coectivity, savvy compaies will become agostic as to delivery locatio, just as easily cosolidatig geeral ledgers i Maila as i Milwaukee or Machester. Of particular ad vital relevace to the isurace idustry Critical data-based isights via research ad aalytics Life isurace ad auity compaies heavily deped o the returs they ca geerate by ivestig premiums collected. But give the state of the ecoomy, ivestmet icomes are Systems ad techology optimizatio As a result of growth by mergers ad acquisitios, most isurace compaies utilize a wide array of disparate policy ad claims systems across their eterprise. This is iefficiet, expesive ad potetially fraught with error. Cosolidatig systems ad techology platforms ito oe or two systems operated by a BPO provider ca result i improved customer service, greater productivity ad efficiecy, ad lower cost. Reduced compliace costs Fiduciary reportig ad compliace is extremely costly ad time cosumig. A outsourcig services provider who uderstads the itricacies ad imperatives of compliace ca sigificatly reduce both the time ad expese associated with the strict regulatios to which isurace compaies must adhere. ws.com 6

8 Busiess Process Outsourcig: A survival tool for the life isurace ad auities idustry after the ecoomic tsuami Which life ad auities isurace processes are ripe for busiess process outsourcig? New busiess support Policy admiistratio Premium admiistratio Sales Coversio Quote acceptace Cross-sellig ad up-sellig Customer equiries Actuarial services Exposure assessmet New busiess data etry Rules-based uderwritig Maual remittace exceptio processig Policy beefits Policy reistatemets ad quotes Policy chages Iboud customer service Edorsemets Reewals Fud applicatios Refuds Billig Premium mode chages Bak iformatio chages Premium audits Claims Claim setup Policy issuace Examiatio Review Settlemet Correspodece Tax compliace Policyholder ad broker claim equiries Claim assessmet Settlemet ws.com 7

9 WNS Global Services North America 420 Lexigto Aveue Suite 2515 New York, NY Uited Kigdom The Lodge Harmodsworth Lae West Drayto, Middlesex UB7 0AB Idia Gate No. 4, Plat 10 Godrej & Boyce Complex Pirojshaagar Vikhroli (West) Mumbai ws.com 8

10 Copyright 2010 WNS Global Services About WNS WNS is a leadig global busiess process outsourcig compay. Deep idustry ad busiess process kowledge, a partership approach, comprehesive service offerig ad a prove track record eables WNS to deliver busiess value to some of the leadig compaies i the world. WNS is passioate about buildig a market-leadig compay valued by our cliets, employees, busiess parters, ivestors ad commuities. To lear more, please write to us at marketig@ws.com or visit ws.com