Revenues from offshore insurance business process outsourcing (BPO) services in India are slated to touch $2 billion while the employee base of insurance BPO firms is expected to exceed one lakh by calendar 2010, notes a recent KPMG publication.“The sector currently has 41,600 people on its payrolls and generates an estimated revenue of $790 million,” KPMG global head of sourcing advisory Pradeep Udhas told ET. Traditionally, insurance companies have been among the slowest to adopt outsourcing/ offshoring. But in the past few years, market dynamics have changed as a result of shrinking margins, higher claims disbursement and increasing competition, especially since September 11, 2001. India is likely to be one of the major beneficiaries.

According to the KPMG publication, christened ‘Frontiers in finance: Financial services for decision makers in financial services’, a large number of Indian vendors are expected to evolve into mature, end-to-end service providers, competing with multinational outsourcing companies by 2010. Currently, players like Aviva, Prudential Inc and AXA are among the larger players operating in India. “However, players like Genpact, WNS and EXL Services, as well as BPO offshoots of IT companies such as IBM, TCS, Infosys (Progeon) and Wipro are expected to emerge as competitive global players in the segment,” KPMG India executive director Sanjay Aggarwal said.

As insurance services mature and more high-end processes like analytics, actuarial and underwriting services move to India, the BPO industry is expected to grow further, the study suggests. “Another growth area is claims and policy administration. Providers include large, mid-size and small service companies. The larger BPO companies are likely to continue dominating the landscape in the next two to three years,” said Mr Aggarwal.

The size of the US insurance industry, with over 1,500 property and casualty insurance companies and 1,300 health cover entities in the US alone, makes insurance outsourcing an attractive market. To cash in on the growth potential, several niche providers with relevant expertise are investing and encouraging insurance companies to outsource more value-added services.

Some of the key drivers of insurance offshoring are stringent insurance regulation and statutory documentation in the US along with deregulation of insurance markets in America.“This is prompting health maintenance organisations to move their processes offshore which has tallied with availability of credible service providers. Moreover, insurers in the US are looking at minimising risk through multiple delivery locations,” Mr Aggarwal said.

KPMG also suggested that India offers several benefits as a leading insurance outsourcing destination. These includes low cost advantage, established destination for outsourcing, Indian companies offer near-shore services. Though growth is constant in the insurance industry, insurers are expected to consistently deliver double-digit revenue growth to become or remain a major player.

“Mergers and acquisitions, geographic expansion, product development, cross-selling and client retention are all vital strategies. Insurers are expanding into emerging markets such as Central and Eastern Europe, Russia and India, which are generally underinsured but increasingly affluent,” KPMG said. According to the report, insurance outsourcing was likely to touch $790 million this year from an estimated $367 million in 2003, at an annual growth rate of 21%. Going ahead, there would be more business out of Europe, which is likely to increase from the present 24% to 36% by 2010, it added.