NEAT EVALUATION FOR TCS: Life, Annuities and Pensions BPO Market Segment: Overall This document presents TCS with the NelsonHall NEAT vendor evaluation for Life, Annuities and Pensions BPO (Overall market segment). It contains the NEAT graph of vendor performance, the latest market analysis summary for Life, Annuities and Pensions BPO, and a summary vendor analysis of TCS in Life, Annuities and Pensions BPO. An explanation of the NEAT methodology is included at the end of the document. The vendors researched are: Capita, Dell, EXL Service, Genpact, IBM, IFDS, Infosys, Serco, Tata Consultancy Services (TCS) and WNS Global Services. NEAT Evaluation: Life, Annuities and Pensions BPO (Overall) NelsonHall 2013 1 Licensed for distribution December 2013
Life, Annuities and Pensions BPO: Market Summary Buy-Side Dynamics Key challenges shaping the LA&P BPO industry include: Changing consumer demands: specifically an increase in ageing population and changing communication channels Poor investment returns: lower equity yields increasing the size of the run-off market, especially in the U.K. Changes to regulation: specifically Solvency II and RDR. Overall drivers for LA&P BPO include: The challenges presented by regulatory change, which will force insurers to become more stringent with regards to their capital reserves and document handling and processing This will increase the need for a reduction in core administration costs and improvements to overall operational processes; achieved through platform consolidation and technology upgrades The opportunity to develop robust underwriting processes and roll-out new products will allow insurers to compete more effectively in the life insurance market. Market Size & Growth The LA&P BPO market has an estimated global value of $2.6bn and is expected to grow at a rate of 9.2% CAAGR through to 2017: Growth out of the U.K. is expected to slow as the market continues to mature (the closed-block market is particularly mature at this point, making the 'legacy policy cost reduction' segment by far the largest) EMEA (non-u.k.), particularly Eastern Europe, will see an increase in LA&P activity, along with APAC and LATAM. NelsonHall 2013 2 Licensed for distribution December 2013
Success Factors The critical success factors for LA&P BPO are: The greatest challenge for LA&P BPO vendors is to reduce operating costs by at least 25%, while improving customer service and retaining clients in the 'legacy policy cost reduction' segment Ability to integrate global delivery network, leveraging offshore and nearshore centers where possible or practicable, in order to maximize cost or capability advantages of the vendor Changing customer culture within the industry to use multiple contact points, and integration of these new channels to enable customers to have a seamless customer experience. Outlook Over the next few years: Take-up of LA&P BPO in Continental Europe will grow at ~13.9% CAAGR, particularly by European insurers who have adopted BPO in U.K. operations and have the ability to leverage nearshore delivery centers Use of BI, analytics and customer portals will increase to give customers greater choice and scope of products available There will be greater pressure on IT and technology effectiveness to deliver services, not only from a cost optimization perspective, but also to keep customer service quality high and up-to-date. NelsonHall 2013 3 Licensed for distribution December 2013
Vendor Analysis Summary for TCS Overview TCS serves eleven significant L&A clients globally. It provides services in support of each of the following L&A process areas, with the majority of its activity in policy administration services: Policy administration (including servicing and claims) Policy new business Policy renewal Indexing Claims support Policy underwriting. TCS services approximately 9 million policies on the L&A side, as well as ~60,000 retirement plans and around 6 million participants. TCS has 15 global delivery sites for BPO services, 10 of which deliver life BPO services. Delivery centers are chosen based on customer location and requirements. TCS has ~6,200 insurance BPO associates, 5,500 of which are life insurance associates. The U.K. is one of TCS's largest onshore insurance delivery centers. Due to regulatory requirements and local skill sets, the majority of life insurance services are currently provided onshore. The location of associates, by geography, for life BPO is: U.K.: ~3,800 FTEs India/Mexico: ~1,600 FTEs Ecuador: ~100 FTEs In terms of target geographies, TCS sees the U.S. as a considerable growth market, and is looking to target organizations seeking platform play end-to-end services. The company is also looking to offer niche services such as policy servicing and claims management. Financials BPO revenue share for FY 2012 was $1.1bn, approximately 11% of overall revenue. Industry-specific services make up 65% of the group's BPO business, and NelsonHall estimates that insurance BPO accounts for 20% of this (approximately $225m). This is split as follows: Life: 54% ($121.5m) Retirement: 29% ($65.25m) NelsonHall 2013 4 Licensed for distribution December 2013
P&C: 14% ($31.5m) Health: 3% ($6.75m). Strengths Largest Indian BPO player in BFSI space Provides services to a number of major 'Blue Chip' life insurance players Early in developing platform-based BPO offerings with proven experience in transferring policies to the TCS BaNCS platform Ahead of other tier-1 Indian vendors in developing L&A BPO offshore capabilities Strong U.K. market position and potential to develop in Continental Europe Strong closed-block capability. Challenges Breaking into the continental European market will present significant challenges in terms of labor management and fulfilling language requirements Improving the TCS BaNCS platform to become U.S. compliant for closed-book customers will be a lengthy process and TCS is in competition with other key players who are also looking to offer this service. Strategic Direction TCS is aiming to develop its Life and Annuity BPO capability by: Growing its analytics and insight capability Enhancing the TCS BaNCS platform to provide U.S. life insurance closed-book services Pricing and operating models: TCS will be focusing on increasing the number of contracts that operate from a variable pricing mechanism. Approximately 70% of contracts are currently variably priced, but TCS is looking to increase this over the next few quarters From a locations perspective, TCS will add additional delivery centers, as required on a customer basis; however, TCS perceives its most recent center openings to be sufficient in terms of skill level for the time being. TCS is happy to work out of customers' existing locations in order to reduce infrastructure and new platform costs for the customer NelsonHall 2013 5 Licensed for distribution December 2013
Outlook TCS will continue to be a major player in the U.K. closed- and open-block life BPO market, and is well positioned to succeed in continental Europe, once initial entrance to the market is gained. Contract wins here are likely to cascade once the first contract is awarded. TCS's strategy will be to target the following mix of client sizes and geographies: Large global insurers: TCS will position here as a domain-led, full services player with multi-location delivery for risk mitigation, and will place a strong focus on analytics and insight SMB Players: here TCS will focus on its domain and vertical-led delivery capabilities and position itself as offering solutions that are both rapid and scalable Associations and intermediaries: this segment requires nearshore options for greater control and TCS will target with shared services from near onshore/offshore centers. TCS can expect a further increase in market acceptance of offshore IT services delivery in regions beyond the U.K. and the U.S., which will stimulate further growth. NelsonHall 2013 6 Licensed for distribution December 2013
NEAT Evaluations for Life, Annuities and Pensions BPO NelsonHall s (vendor) Evaluation & Assessment Tool (NEAT) is a method by which strategic sourcing managers can evaluate outsourcing vendors and is part of NelsonHall's Speed-to- Source initiative. The NEAT tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their ability to deliver immediate benefit to buy-side organizations and their ability to meet client future requirements. The latter axis is a pragmatic assessment of the vendor's ability to take clients on an innovation journey over the lifetime of their next contract. The ability to deliver immediate benefit for the Life, Annuities and Pensions BPO NEAT assessment is based on the criteria shown in Exhibit 1, typically reflecting the current maturity of the vendor s offerings, delivery capability, benefits achievement on behalf of clients, and customer presence. The ability to meet client future requirements assessment is based on the criteria shown in Exhibit 2, and provides a measure of the extent to which the supplier is well-positioned to support the customer journey over the life of a contract. This includes criteria such as the level of partnership established with clients, the mechanisms in place to drive innovation, the level of investment in the service, and the financial stability of the vendor. The vendors covered in NelsonHall NEAT projects are typically the leaders in their fields. However, within this context, the categorization of vendors within NelsonHall NEAT projects is as follows: Leaders: vendors that exhibit both a high ability relative to their peers to deliver immediate benefit and a high capability relative to their peers to meet client future requirements High Achievers: vendors that exhibit a high ability relative to their peers to deliver immediate benefit but have scope to enhance their ability to meet client future requirements Innovators: vendors that exhibit a high capability relative to their peers to meet client future requirements but have scope to enhance their ability to deliver immediate benefit Major Players: other significant vendors for this service type. The scoring of the vendors is based on a combination of analyst assessment, principally around measurements of the ability to deliver immediate benefit; and feedback from interviewing of vendor clients, principally in support of measurements of levels of partnership and ability to meet future client requirements. NelsonHall 2013 7 Licensed for distribution December 2013
Exhibit 1: Ability to deliver immediate benefit : Assessment criteria Assessment Category Life BPO Offerings Life BPO Delivery Life BPO Customer Presence LA&P BPO Benefits Achieved Assessment Criteria Range of processes Range of LA&P products supported Application of analytics to LA&P Delivery capability in support of U.S. LA&P Delivery capability in support of U.K. LA&P Delivery capability in support of Continental Europe. LA&P Willingness to take over client operations Ability to benchmark processes and offer roadmap Use of multi-channel support and reengineering of paper-based processes Application of insurance platform technology Use of low cost locations for labor arbitrage Scale of LA&P BPO operations: Overall Scale of LA&P BPO operations: Closed Block Scale of LA&P BPO operations: Open Block Scale of LA&P BPO operations: U.S. presence Scale of LA&P BPO operations: U.K. presence Scale of LA&P BPO operations: Continental Europe presence Scale of LA&P BPO operations: Rest of the World presence Level of cost savings achieved Ability to deliver on-going and one-off process improvement Proportion of policies priced on an outcome basis Perception of T&C's and value for money NelsonHall 2013 8 Licensed for distribution December 2013
Exhibit 2: Ability to meet client future requirements : Assessment criteria Assessment Category Assessment Criteria Risk Factors Suitability to Deliver Future Benefit Suitability as a strategic partner Rating according to NelsonHall 'Ones-to- Watch' Financial Performance Index Commitment to LA&P BPO Commitment to service innovation Perceived impact as process change agent Perceived ability to support expansion into new geographies Mechanisms for innovation Perceived impact of innovation mechanisms and ability to meet future requirements Suitability as key partner NelsonHall 2013 9 Licensed for distribution December 2013
This is one of four separate NEAT market segment evaluations for Life, Annuities and Pensions BPO, which are: Overall Customer service enhancement Legacy policy cost reduction Speed to market For more information on these and other NEAT evaluations, please contact one of the NelsonHall relationship managers listed below. www.nelson-hall.com Sales Inquiries NelsonHall will be pleased to discuss how we can bring benefit to your organization. You can contact us via the following relationship managers: Buy-Side Inquiries: Paul Connolly at paul.connolly@nelson-hall.com Guy Saunders at guy.saunders@nelson-hall.com Vendor Inquiries: Guy Saunders at guy.saunders@nelson-hall.com Paul Connolly at paul.connolly@nelson-hall.com Important Notice Copyright 2013 by NelsonHall. All rights reserved. Printed in the United Kingdom. This document has been licensed for distribution subject to the Terms & Conditions of the NelsonHall NEAT Agreement. NelsonHall exercises its best efforts in preparation of the information provided in this report and believes the information contained herein to be accurate. However, NelsonHall shall have no liability for any loss or expense that may result from incompleteness or inaccuracy of the information provided. NelsonHall 2013 10 Licensed for distribution December 2013