IT Application Outsourcing (AO) in Insurance - Navigating Business Challenges through Technology

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INTRODUCTION

The BFSI industry continues to be the largest adopter of the IT Application Outsourcing services. However, the industry dynamics changed significantly over the last 12-24 months. BFSI buyers are facing increasing pressure to drive top-line growth, manage complexity arising out of wide-scale regulatory reforms, and improve profitability by driving greater cost efficiencies. To achieve this, buyers are focusing on optimizing their portfolios of AO service providers.

At the same time, service providers in the BFSI-AO space also ramped up their capabilities, built up scale, and invested in developing and acquiring IP/proprietary solutions. They also formed alliances, which allow them to undertake and deliver on large-sized, annuity AO engagements. The competitive intensity in the BFSI AO services space is at an all-time high. As a result, it is becoming difficult to differentiate service providers purely based on delivery capability. It is, therefore, critical to have a comprehensive, well-rounded, and f act-based assessment of service providers’ BFSI AO value proposition.

In this research, we analyze the current trends and the future outlook for large, multi-year application outsourcing relationships for the global insurance sector. We focus on

  • Market trends and activity for large insurance AO relationships
  • Drivers for change and future outlook for insurance AO
  • Implications for insurance buyers and service providers

The focus in 2012 is also to capture the key movements in volumes/values of insurance AO transactions, evolving trends, market dynamics and emerging priorities of buyers in the last 12 months.

SCOPE

  • Industry: Insurance (life, annuities and pensions; property and casualty insurance); excludes banking, capital markets, and healthcare payers
  • Services: Large (TCV >US$25 million), multi-year (>3 years), annuity-based applications outsourcing
  • Geography: Global
  • Sourcing model: Third-party AO deals; excludes shared services or captive

CONTENTS

This report is structured into three key sections, each containing insights on application outsourcing in BFSI and the insurance sector, with a specific focus on large-sized contracts:

  • BFSI ITO market overview: Analysis of the overall BFSI IT Outsourcing (ITO) market and transaction trends:
    • Market size and growth
    • Adoption drivers
    • Transaction characteristics (e.g., transaction volumes, value, frequency, scope)
    • Market activity and adoption trends (e.g., by geography, sub-verticals, functions)

    BFSI_Sept2012_Ins_Region

  • Insurance AO market overview: Analysis specific to the insurance AO market with a focus on large transactions:
    • Transactions activity and growth trends
    • Demand characteristics for insurance AO services by geography, line of business, AO sub-functions, and buyer size
    • Offshore leverage
    • Global delivery locations
    • Renewal activity

    BFSI_Sept2012_Ins_Transactions_by_Vertical

  • Emerging themes and implications: Analysis of emerging trends and their influence on the future of insurance AO:
    • Factors altering the demand profile for insurance AO
    • Major technology investment in the insurance sector
    • Implications for key stakeholders – buyers and service providers

Some of the findings in this report, among others, are:

  • The global IT outsourcing industry continued to register less than 5% growth in 2011, given the tentative economic environment across North America and Europe
  • BFSI is among the largest adopters of the IT outsourcing services; accounting for 15% of the overall industry
  • The total number of BFSI IT outsourcing contracts declined in 2011 (over 2010); while the total value of contracts remained almost flat
  • Insurance segment registered a decline in the number of ITO deals; while the capital markets experienced a significant surge in outsourcing deals in 2011
  • Average contract duration for insurance deals increased in 2011
  • Total number of large AO deals (with TCV greater than US$25 million) within the insurance segment increased, while the total contract value of these deals fell in 2011 versus 2010
  • Activity in the P&C segment registered a drop in 2011, while activity in the life, annuities, and pensions segment remained comparable to last year
  • Unlike the banking sector, European insurers commanded a higher share of TCV while North American companies constituted the majority share of transaction signings

 

 
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