Layoffs.
For many, that's the first thing that comes to mind at the mention of offshore outsourcing.
Advancing staff responsibilities and duties. For most, probably the last thing on their mind at the mention of offshore outsourcing.
So is it "A," "B" or "all of the above?"
Try "B." While companies often turn to outsourcing to reduce overhead costs, insurance brokerages are finding that shipping certain tasks overseas can improve employee retention and service, all while lowering overhead.
That's been the case at Heffernan Insurance Brokers, based in Walnut Creek, Calif., which has contracted with the outsourcing firm Patra Corp. to issue certificates of insurance, check policies,order loss runs and complete direct-bill reconciliations.
Patra, started by a couple of Silicon Valley entrepreneurs in 2005, has corporate offices in San Carlos, Calif., but its subsidiary in Visakhapatnam, India, handles back-office processes for insurance brokerages. (In March, The Council of Insurance Agents & Brokers established a partnership with Patra, and in return, Patra discounts fees to Council members.)
Outsourcing back-office work to Patra "has helped us from a turnover standpoint," says CEO Mike Heffernan, explaining that people would get "burnt out" working on tedious tasks. "We felt we could bring people along further faster in our firm if they weren't doing some of the duties Patra could perform," he says.
Employees who previously spent most of their time issuing certificates, checking policies or ordering loss runs now do more complicated work that requires greater insurance knowledge.
"It's been easier to keep people, to tell you the truth,"Heffernan says. "People now have more exciting jobs, and they move up in the organization."
Working with Patra has yielded other benefits. Depending on the office or division, the company has reduced servicing costs by 0.75% to 1.5%. And there are fewer mistakes."We didn't realize that so many certificates were coming back as incorrect," Heffernan says.
Outsourcing of insurance-related services to India is a growing trend. Revenues from offshore insurance business-process outsourcing services from India are expected to increase from $790 million in 2007 to about $2 billion in 2010, according to KPMG. While primary insurance carriers are the dominant customers, KPMG suggests both reinsurers and insurance intermediaries will increasingly turn to offshore outsourcing.
"The biggest advantage in India is cost, plain and simple," says Patra co-founder and CEO John Simpson. "The other nice advantage is the 24-hour capability. You can do 24 hours here, but you pay a lot more for it. In big metro areas, it's very costly, even if you had a person with a high school education doing it, and in India we get people with master's degrees."
Simpson—who previously co-founded and then sold Cyber bills, the innovative Internet bill payment company—says Patra's customers place a great deal of importance on the fact that the company has its corporate headquarters in the U.S. "It's critical to have a company here that is driving the whole business," he says.
But an equally important aspect in the success of Patra's model has been the relationships that develop between the staff in India and the agencies in the U.S. "We built our company so that everyone in India feels part of the U.S. company," says Patra president Dan Easterlin. "It's important to their motivation. We bring them over to meet their customers, and that is abonding experience that drives up the level of trust."
Heffernan agrees that the relationships improve the outsourcing experience. "They are like part of our company, but they happen to work somewhere else," he says of the Patra employees.
Heffernan Insurance is one of about a dozen Council member firms that currently contract with Patra to issue certificates of insurance and provide other back-office services, and at least two other offshore outsourcing companies are courting insurance brokerages.
Exdion, a division of Cross domain Solutions based in Bangalore,India, serves carriers, brokerages and third party administrators in the U.S. and U.K. "We call ourselves the back office for policy life cycle management,"says Santosh Naik, head of global sales. "We manage every process across the life cycle of a policy, though we get to manage more of those that require less interaction with the agent or broker's customer."
Exdion's insurance services evolved after its finance, accounting and other back-office services began attracting insurance industry customers in 2000. To increase its appeal to middle-market and smaller brokerages, Exdion has launched several on-demand or pay-per-use services for issuing certificates and policy checking. "On-demand services make access to offshore [outsourcing] much easier for small and medium brokers," he says.
The birth of another outsourcing firm for insurance brokerages was more serendipitous. ReSource Pro LLC was formed by Distinguished Programs Group, a New York-based MGA that specializes in real estate programs. When Kemper Insurance was disintegrating, Distinguished had to move13,000 accounts to a new carrier within 10 weeks. When employees estimated that it would take13 months to do the job while still getting their own work done, Distinguished turned to former employee Matthew Bruno, who had moved to China. Working with a few computers in a small office, Bruno and a small staff finished the job in the required time. "That set the light bulbs flashing, "says ReSource Pro CEO Dan Epstein.
Distinguished asked employees for the two or three tasks that they hated most, and Bruno developed workflow procedures to transfer the work to the team in China. The average account manager, Epstein says, spends more than 50% of his or her time doing processing work that the client never sees and 20% on the phone dealing directly with client. "If we can halve the processing time and double the client facing time, what kind of impact will that have?"
ReSource Pro now has 600 employees in China serving 75 clients,of which 55% are retail agencies and 40% are MGAs, with a few carriers as well. "A key challenge is that people hear outsourcing and think downsizing," he says."Our clients don't downsize. We see ourselves as a way to make their current people substantially more productive."
Part of Your Firm
Some of the largest brokerages in the U.S. have been outsourcing insurance services for more than 10 years, but advances in technology and real-time communications enable agencies of all sizes to take advantage of overseas staffing, according to Patra.
Patra performs its work on the agency management system, so there are no new systems required. Employees in India write and read English well, allowing easy communication via email and instant messaging. American managers, working with team members from India, gather process requirements at the broker's office and then train workers in India so that, even as a process becomes standardized, it can be customized to reflect the way the brokerage does it.
Easterlin has found that, even within a single firm, individuals often have their own way of doing things. By standardizing processes and documenting the trail of work that was done, brokers produce fewer errors and make themselves less vulnerable to errors and omissions claims.
Before co-founding Patra Corporation, Easterlin spent nearly 25 years developing, marketing, selling and supporting enterprise and Internet software and services for high-tech companies and in corporate information services. With degrees in mathematics, philosophy, computer engineering and computer science, Easterlin sounds as much like a sociologist and psychologist as an entrepreneur when discussing this outsourcing venture. It intrigued him how workers in India tend to learn differently from U.S. counterparts—by memorizing example after example, rather than applying a set of concepts to different situations.
"When we got that, our method of training changed and became more effective," he says. They also take tremendous pride in the very same work that staff in the U.S. brokerage firms find so tedious. "People are assigned to handle a specific task for an agency. They love it that way because they become highly efficient and don't mind, as we would, the repetitiveness," Easterlin says. "They take extreme pride in doing it better and better every day with fewer and fewer mistakes."
A Different Mindset
Easterlin says that it's not hard to convince the CEO of an insurance brokerage of the benefits of offshore outsourcing and that, when fearful employees understand that outsourcing frees them to do more interesting work, they're sold, too.
"The thing that drives acceptance is not the management mandate," Easterlin says. "What drives acceptance is convincing the people whose work you are taking."
Steven Brockmeyer, president and CEO of Bolton & Co., relies on Patra to issue thousands of certificates of insurance each month. "From the outset, it has worked really well and very smoothly," he says. "It's not only decreased our cost in getting those issued, but we've been very pleased with their knowledge and the turnaround time, which is 24hours or better. The error rate is as good or better than what we were doing in house."
Between 80% and 90% of Bolton's requests for certificates of insurance go directly to Patra. Easterlin says that when Patra handles our quest for insurance and delivers it to the client, it looks as though it came directly from the brokerage.
Bolton & Co. also outsources some direct-bill reconciliation to Patra, and Brockmeyer says he's considering the possibility of outsourcing policy checking.
The employees at Bolton & Co. who previously handled those tasks are moving on to bigger and better things.
"We really didn't look at this as a way to eliminate jobs,"Brockmeyer says. "This enables our assistant account managers who were doing that work all day to grow their knowledge in other areas and advance. It was a matter of moving the people we have into bigger and broader responsibilities."
Hann is Managing Editor.
