Outsourcing, Offshoring, and Importing Actuarial Talent

Transcription

1 Outsourcing, Offshoring, and Importing Actuarial Talent Jim Rowland, FCAS, MAAA Sr. Actuary, Allstate Insurance Company CAS Annual Meeting, Seattle, WA November 17, 2008

2 Outsourcing/Offshoring Among P&C Carriers Actuarial Human Resources Data Warehousing All Data Processing Specific Claims Processing Investment Portfolio Management Pension Adminstration % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent Currently Outsourcing Planning to Outsource by the End of 2006 No Plans to Outsource by the End of

3 Outsourcing and Offshoring Is there a difference? 3

4 Outsourcing The transfer of specific processes or workstreams from one organization to a third party. The work product of that third party is then relied upon to further the business objectives of the outsourcing company 4

5 Offshoring The transfer of specific processes or workstreams to a captive operation in another country Retention of responsibility for the methodologies used in producing the work product (the how ) and the management of the human resources 5

6 Motivation for Pursuing (Offshoring Perspective) Cost and labor arbitrage Additional sources of talent Larger talent pool Access to unique skill sets Exposure to different thought patterns Potential opportunity to inject a larger P/C focus at in-country educational institutions Transition current resources to new skill sets May result in higher value workstreams domestically Communication is key - Expect some degree of skepticism or resistance Readily available infrastructure Does your organization have an offshore captive for IT or other business process offshoring? If not, expect longer timeline to coming online 6

7 How can you determine if offshoring may be appropriate? 7

8 Opportunity Assessment Tool Example 1 Ease of Knowledge Transfer Example 2 Degree of Process Dynamism Example 3 Need for Additional Flexibility 8

9 Example 1: Ease of Knowledge Transfer Less Suited for Offshoring Increasing Propensity to Offshore More Suited for Offshoring Complex requires training, shadowing and licensing Challenging requires training and several months of work shadowing Difficult requires some training to understand company specific procedures Moderate some processspecific training required Simple process is mostly generic 9

10 Example 1: Ease of Knowledge Transfer Example: Rate Level Indications Extensive training required in actuarial methodologies: Trend selections Loss development Identification and resolution of data anomalies Definition of actuarial work product An organization with strong training capabilities could potentially overcome these obstacles 10

11 Opportunity Assessment Tool Example 1 Ease of Knowledge Transfer Example 2 Degree of Process Dynamism Example 3 Need for Additional Flexibility 11

12 Example 1: Degree of Process Dynamism Less Suited for Offshoring Increasing Propensity to Offshore More Suited for Offshoring External change often required (from customers or regulators) Internal Change occasionally required (marketing or product driven) Potential for required change is minimal 12

13 Example 2: Degree of Process Dynamism Examples States or lines of business that typically involve a lower level of regulatory intervention may be acceptable candidates Developing, filing, and negotiating a Homeowners filing in the state of Florida may not be a good candidate! 13

14 Opportunity Assessment Tool Example 1 Ease of Knowledge Transfer Example 2 Degree of Process Dynamism Example 3 Need for Additional Flexibility 14

15 Example 3: Need for Additional Flexibility Less Suited for Offshoring Increasing Propensity to Offshore More Suited for Offshoring Unpredictable changes in demand requiring fully flexible / variable staffing model Highly cyclical process with ramp-ups and ramp-downs requiring expected staffing changes Predictable and steady transaction volumes supporting fixed staffing model 15

16 Example 3: Need for Additional Flexibility Example Expected or planned rating plan analyses on a state or CW basis may be acceptable workstreams 16

17 Opportunity Assessment Tool Less Suited for Offshoring Increasing Propensity to Offshore More Suited for Offshoring Knowledge Intensiveness Domain expertise Policies and guidelines Decision/Response Data entry or standard, Pure data entry; required to make frame decision/response based on strictly defined automated response with standard, automated decision/response (interpretation required) rules (no interpretation low-level data validation response required) necessary Ease of Knowledge Complex requires Challenging requires Difficult requires some Moderate some Simple process is Transfer training, shadowing and training and several training to understand process-specific training mostly generic licensing months of work company specific required shadowing procedures Nature of Customer External customer high-external customer not Internal Internal N/A little customer Interaction value and/or strategically high-value customer/business customer/business interaction important partner supporting an partner for internal use external stakeholder (e.g., HR transactions) (e.g., agent support) Level of Customer Requiring frequent Requiring less frequent Regular exception-based Episodic exception- None Interaction ongoing customer ongoing customer based interaction interaction (daily/constantly) (weekly/monthly) Customer Proximity Remote interaction With process changes, Remote interaction impossible requires remote interaction possible for most face-to-face possible for most transactions today transactions through through phone, fax and phone, fax and Severity of Process Major direct customer Moderate direct Minor customer Minor customer/ financial No customer loss/fin. Breakdown loss/financial impact customer loss/financial loss/financial impact loss possible but impact possible (non- impact addressable core function) Ease of Data Transfer 100% paper-based; will Mix of paper-based and Mix of paper-based and Over 80% data imaged / All critical data imaged require imaging or electronic, but data electronic but data digitized from one and digitized from one mailing documents arrives from many arrives from fewer source, yet in different source with standardized different sources sources formats format Process Complexity Complex process Complex process Complex process Fully simplified process Inherently simple (handoffs, level of simplification impossible simplification possible some simplification existing in current state process exceptions, degree of implemented automation / manual processes) Degree of Process Process, inputs and Process, inputs, and Process, inputs and Stability outputs not well defined outputs well defined outputs all well defined ad hoc data some variation in data consistent data sources requirements sources Fragmentation Intensity Process in more than 5 locations >10-20 staff per location Degree of Process External change (from Dynamism customers or regulators) often required Process in multiple locations but 80% of work in 2-3 locations Internal change (marketing or product driven) occasionally required Process consolidated in a single location Seldom history or potential for required change Level of Performance No formal process Process documentation Process flows, roles, Process completely Process completely Management documentation or in place (responsibilities work practices, and documented Targets documented formal measures and job descriptions) procedures in place set vs. benchmarks performance SLAs in costs measured and efficiency metrics in place tracked place but few quality metrics Labor vs. Capital Capital-intensive process Capital-intensive process Mix between capital and Labor-intensive process Labor-intensive process Requirement / Decision- with highly centralized with decision authority labor intensive with highly centralized with decision authority Making Decentralization decision rights that must granted at levels closest decision rights that must granted at levels closest remain inside company to the customer remain inside company to the customer Need for Additional Unpredictable changes Highly cyclical process Predictable and steady Flexibility in demand requiring fully with ramp-ups and ramp- transaction volumes flexible / variable staffing downs requiring supporting fixed staffing model expected staffing model changes Degree of High degree of Some interaction with Self-contained, discrete Interconnection interaction with other onshore activities, but process (more time needed to develop linkage processes) functions, processes and systems easily addressable with upfront planning 17

18 Risks Cost advantages may erode over time Wage inflation in developing nations Phase out of government subsidies First-mover benefits can be dampened by herd mentality Availability of staff to effectively manage a remote operation Level of current employee buy-in 18

19 ????????? Questions? 19