Insurance BPO Survey

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Insurance BPO Market Survey

WI L L T HE WA T C H E D P O T E V E R B O I L ?
www.celent.com
AUGUST 2004
Craig Weber
cweber@celent.com TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................. 3

KEY FINDINGS .............................................. 3
INTRODUCTION .......................................... 5
GOALS ......................................................... 5
SCOPE ......................................................... 5
PROVIDERS .................................................. 6
METHODOLOGY ............................................. 7
LIMITATIONS ................................................ 8
Celent Communications BPO OVERVIEW ......................................... 9

745 Boylston Street, Suite 502
THE MARKET ................................................. 9
Boston, Massachusetts 02116
USA MARKET SIZE ............................................ 10
PROVIDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tel.: +1.617.262.3120
Fax: +1.617.262.3121
Email: info@celent.com D E T A I L E D A N A L Y S I S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
D E A L S B Y C L I E N T L O C A T I O N . . . . . . . . . . . . . . . . . . . . . . . . . 14
www.celent.com
DEALS BY BUSINESS META-PROCESS . . . . . . . . . . . . . 14
DEALS BY DETAILED BUSINESS PROCESS . . . . . . . 18
DEALS BY LONGEVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
D E A L S B Y C L I E N T T Y P E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
DEALS BY CLIENT SIZE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
DEAL SIZE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CATEGORY LEADERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
KEY FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
OBJECTIVITY & METHODOLOGY . . . . . . . . . . . . . . . . . . . 28
A B O U T C E L E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
© 2004, Celent Communications. Any reproduction of this report by any means is strictly prohibited.
Insurance BPO Market Survey: Will the Watched Pot Ever Boil? AUGUST 2004
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EXECUTIVE SUMMARY
Few recent business trends have generated more interest among insurance carriers than
business process outsourcing. The combination of unrelenting pressure on expenses, vast
improvements in networking and communication technology, and an increased appreciation
of highly flexible business models has caused virtually all insurance carriers to explore non-
traditional options for running their businesses.
But adoption of BPO for core insurance services is progressing more slowly than most
predicted. Despite widespread successful use of related approaches, such as ITO and BPO
for non-core services like human resources and benefits administration, carriers are wary of
expanding their efforts. Will the proverbial watched pot ever boil?
To answer this question, Celent invited about 30 BPO providers to participate in a survey
detailing their existing BPO deals. Fourteen of those firms accepted and provided data about
286 BPO deals, including 194 deals based in North America. Follow-up interviews with both
providers and users of BPO services provided additional insight.
K E Y F I N D I N G S
Celent’s interviews with BPO providers and insurance executives revealed several key findings
regarding insurance BPO:
• There is significant BPO activity for core insurance services.
• Celent estimates that total core insurance BPO (excluding non-core

BPO services such as HR, benefits, and payroll) will total more than
US$2.5 billion in 2004. Further, we expect the market to grow to
almost US$3 billion by 2006.
• There are two basic groups of external providers of BPO for core
insurance services: third-party administrators (TPAs) and a growing
assortment of consultants, IT developers and integrators, and BPO
specialists.
• The two key insurance BPO markets are closed books of business and
discrete business processes.
© 2004 Celent Communications. Reproduction prohibited. www.celent.com

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An analysis of survey data further defines key aspects of the current insurance BPO market in
North America:
• Systems-related activities (e.g., hosting of policy administration

systems, complete management of a carrier’s IT) are common types of
services provided as part of BPO deals.
• Most insurance BPO deals are currently limited in scope. Forty-three

percent of all deals reported were for less than US$1 million in annual
revenue.
• Newer BPO providers are not displacing TPAs, particularly in their

traditional areas of strength—such as claims management and
adjudication for health insurance and property/casualty insurance.
• Celent believes that most carriers with BPO in place today are
considering ways to expand those efforts.
• Computer Sciences Corporation (CSC) is a clear leader in terms of

providing BPO to North American carriers. It is among the top
providers in terms of estimated BPO full-time equivalents (FTEs),
and also in terms of estimated BPO revenue.
• Other prominent players in North American insurance include EDS,

ACS, IBM, and First Notice.

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INTRODUCTION
Few recent business trends have generated more interest among insurance carriers than
business process outsourcing (BPO). The combination of unrelenting pressure on expenses,
vast improvements in networking and communication technology, and an increased
appreciation for highly flexible business models has caused virtually all insurance carriers to
explore non-traditional options for running their businesses. Farming out core business
processes to third parties—which was once unthinkable—is now on the table for many
carriers.
But adoption of BPO by insurers for core insurance services is progressing more slowly than
most predicted. Despite widespread successful use of related approaches, such as information
technology outsourcing (ITO) and BPO for non-core services like HR and benefits
administration, carriers are wary of expanding their efforts. Delegating core insurance
functions to outside parties is perceived as a risky move in an industry keenly aware of risk.
There also is pressure from a skeptical public for carriers to keep things as they are, largely to
protect local jobs.
Will the proverbial watched pot of insurance BPO ever boil? Celent believes that it will. The
public debate about BPO for core insurance services will continue, and carriers will continue
their experimentation for the foreseeable future.
This report is designed to provide context for discussion by describing the current uses of
BPO for core insurance services, based on input from the companies that provide BPO
services to carriers and on interviews with carriers themselves.
G O A L S
Celent conducted this study of the insurance BPO market to address two major goals. First,
we wanted to determine the current level of BPO use by North American insurers. We also
aimed to determine which core insurance processes are currently being outsourced.
S C O P E
Insurance BPO can be broken down into non-core services and core insurance services.
Non-core services include areas such as HR and benefits administration, as well as enterprise
services like property management and purchasing. Core insurance services are industry-
specific operational areas such as underwriting, policyholder and agent services, and claims.

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Although there has been significant BPO activity in non-core services, this report focuses on
BPO for core insurance services. Some of the BPO providers who participated in the Celent
survey provide non-core BPO, but their focus is on core insurance services. There is little
debate over the efficacy of BPO for non-core services, while BPO for core services is a highly
charged issue for several reasons.
P R O V I D E R S
There are two basic groups of external BPO providers for core insurance services. (A handful
of carriers have created their own, captive BPO centers in an attempt to reap the benefits of
BPO without taking on the risks of involving third parties. These companies may be the topic
of a future Celent report.)
The first is third party-administrators (TPAs), of which there are hundreds in North
America. They are “stealth” BPO providers: They have quietly been providing a range of
services around claims, billing, and auditing for a number of years, mostly for property/
casualty and health carriers.
The second group is comprised of consultants, IT developers and integrators, and BPO
specialists. This eclectic assortment of providers is growing rapidly, as many firms are
seeking ways to expand beyond their traditional areas of focus. These companies typically
provide BPO services related to software that they own or have developed (e.g., a policy
administration or claims system), or are focused on a particular business function (e.g., call
centers or imaging).
This report is focused on providers in the second group. Table 1 lists the providers who
participated in Celent’s survey.
Table 1: Participating North American Insurance BPO Providers

Total
Company Headquarters Employees
Revenue
IBM Armonk, NY $92,800,000 319,000
EDS Plano, TX $21,800,000 132,000
Xerox Stamford, CT $15,700,000 61,000
Computer Sciences El Segundo, CA $15,000,000 90,000

Corporation (CSC)
Accenture Hamilton, Bermuda $11,800,000 95,000
Unisys Blue Bell, PA $5,900,000 37,300
ACS Dallas, TX $4,100,000 40,000
Source: Celent analysis of publicly available information. Revenue = trailing 12-month, in

US$ thousands.

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Table 1: Participating North American Insurance BPO Providers

Total
Company Headquarters Employees
Revenue
CGI Montreal, Canada $2,350,000 14,600
Wipro Bangalore, India $1,400,000 32,000
Keane Boston, MA $844,000 7,400
HCL Technologies New Dehli, India $583,000 n/a
WNS Mumbai, India $97,000 3,000
Connextions Orlando, FL n/a n/a
First Notice Systems Boston, MA n/a n/a
Source: Celent analysis of publicly available information. Revenue = trailing 12-month, in

US$ thousands.
M E T H O D O L O G Y
To gauge the current impact of insurance BPO deals on the industry, Celent invited
approximately 30 firms— all of which offer BPO and other services to insurance carriers—to
participate in a survey. Among the firms that accepted were major systems integrators,
software manufacturers, and consultancies with a significant presence in North America.
Providers that were invited but did not participate are Hewlett Packard, Infosys, Polaris,
Syntel, TCS, Mphasis, ICICI Infotech, Patni, Hitachi, ADP, Convergys Corp., Insurity,
Kanbay, Sapiens, Towers Perrin, and Satyam.
Firms were asked to provide client-level details about current BPO deals, including lines of
business covered, annual value of the deals, number of full-time equivalents (FTEs)
represented, and specific business processes performed by the vendor on each client’s behalf.
Fourteen firms completed the survey, including almost all the companies that Celent believes
constitute the top tier of insurance BPO providers. Celent also conducted follow-up
interviews with a half dozen key vendors to validate the findings from the raw data.
Detailed data were received for a total of 286 insurance BPO deals, including 194 deals for
which the provider indicated that the client was based in North America. (Much of the
analysis in this study is based on the 194 North American deals. Instances where all deals are
included are noted.)
For the purposes of this study, Celent defined BPO as true process outsourcing, in which the
vendor provides staff to do the actual work, perhaps in addition to providing software, IT
development, and technical support. This was done to contrast BPO from ITO, which is a
more established service for most vendors. (For more on ITO, see the Celent report “Raising
the Bar on Offshore IT in Insurance,” August 2003.)

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L I M I TA T I O N S
Celent believes that this study provides valuable insights into current thinking on insurance
BPO. However, readers are encouraged to consider these results in the following contexts:
Provider sensitivity about BPO. BPO providers are aggressively ramping up for this
business, and competition for market share is fierce. As a result, some providers said that the
information requested was too sensitive to make public. However, we believe the firms that
did participate are the major ones currently active in North America. In addition, our broad
market estimates are adjusted to reflect the fact that not all invited providers participated.
Public sensitivity about BPO. BPO clients and prospects face mounting public criticism
about outsourcing. This makes many carriers unwilling to disclose details of their BPO plans,
and most appear to be unwilling to be named as references by their BPO providers.
The use of self-reporting by vendors. Participants in the study were asked to indicate
which processes they perform for their clients, in addition to providing generic information
about each client. While this information was supplemented with publicly available
information where possible, Celent did not confirm the details of all 286 deals with the
carriers themselves. As a result, it seems likely that some providers painted an overly
optimistic picture of their BPO activities, perhaps blurring the line between their BPO and
ITO successes.

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BPO OVERVIEW
T H E M A R K E T
Celent’s review of the deals submitted for this study and discussion with key BPO providers
suggest that there are two key markets within core insurance services. Many of the largest
BPO deals to date have been for closed books of business, in which a carrier offloads
support functions for a business line that is no longer writing new business. In the life/
pension market particularly, these books of business are expected to linger for decades, so
outsourcing support for them is one way to transition from a fixed expense model to a
variable expense model.
The other key BPO market is for discrete business processes that are easily transitioned to
outside providers.
Our discussions also suggested that BPO providers and prospects typically evaluate BPO
opportunities using a handful of key criteria. Processes that are good candidates for BPO
generally have one or more of the attributes described in Table 2 below.
Table 2: Key Characteristics of BPO-Friendly Insurance Processes

Attribute Description Advantage Example
Processes that rely on More “portable” than Data entry of imaged

images or other electronic processes that require applications
Easily Digitized
data. physical handoffs of
documents.
Processes that have only Easier to manage Property/casualty

one owner, involve few transition and execution. claims
Self-Contained
systems, and have relatively
few participants.
Processes in which Allows for staffing by less First notice of loss

Technology-
technology is a viable expensive and less (FNOL) call center
Facilitated
substitute for staff expertise. knowledgeable staff.
Processes that do not Eliminates complexities of Agent service center

Post-Sale involve sales activities and sales practices oversight,
other regulated functions. licensing.
Processes that are already Easier to outsource Network help desk

supported via application processes if systems are
Technology- service provider (ASP) already outsourced.
Outsourced model, or processes in
which technology vendors
already play key roles.
Source: Celent Communications

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Table 2: Key Characteristics of BPO-Friendly Insurance Processes

Attribute Description Advantage Example
Processes that are done Easy to make business Health claims

repetitively, usually in high case. Also easier to
Transactional
volumes. monitor, staff for, and
track.
M A R K E T S I Z E
There is little question that the market for core insurance BPO services is significant and
growing. Celent estimates that total core insurance BPO (excluding non-core BPO services)
will total more than US$2.5 billion in 2004. Further, we expect that market to grow to almost
US$3 billion by 2006.
Key drivers of this growth will include continued pressure on expenses, improvements in
technology, and increased acceptance of outsourcing strategies by once-skeptical carriers.
Figure 1: Core Insurance BPO Spending in North America
$4,000,000
BPO/ITO Providers TPAs
$3,500,000
$2,951,285
$3,000,000
$2,699,481
$2,540,027
$2,419,073
$2,500,000
US$ thousands
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
2003 2004 2005 2006

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P R O V I D E R S
A key aspect of insurance BPO—though it is sometimes overlooked—is that this space has
several players, each of which brings a slightly different perspective.
Much of the press (both good and bad) goes to the major providers of onshore and offshore
information technology outsourcing (ITO), including all the firms with a strong presence in
India. Celent believes these companies are well positioned to build out their BPO capabilities
for several reasons. First, they are experienced at managing outsourced projects and typically
have rigorous project management practices in place to ensure that projects are well
documented, communicated, and executed. Second, they have an inexpensive labor pool that
can help drive cost efficiency, especially for projects that fit the offshore model. Finally, they
are already intimately involved in the development, maintenance, and integration of core
insurance systems, so they understand at least the basic insurance processes that those
systems support. Celent believes this is a real advantage that helps these firms transition to
providing process support and not just ITO.
The downside for these firms—particularly for the India-centric firms—is that it has proved
difficult for them to obtain much-needed vertical expertise in insurance. Helping carriers
conquer cultural issues and making them view providers as more than a body shop for IT was
the first challenge. Convincing them that the providers can contribute value-added business
oversight and direction is the next.
TPAs are another major provider of core insurance BPO services. These companies provide a
broad range of back-office support for insurance and employee benefits, primarily to self-
insured corporations and insurance carriers of property/casualty products. TPAs have been
providing BPO services for many years and have strong ties to both carriers and reinsurers.
Some have strong ties to carriers (see Table 3).
TPAs are generally below the radar in the public debate about the negative consequences of
outsourcing. One reason is that TPAs typically have a local feel, even though many of them
have a national reach. TPAs are licensed by most states and typically make limited use of
offshore resources, if they use them at all. Thus, they are not typically viewed as taking jobs
from their local economies. Leading TPAs are summarized in Table 3.
Table 3: Leading TPAs Providing Insurance Carrier BPO

Approx.
Company Carrier Involvement
Employees
Crawford & Co. 4,000
Constitution State Services Travelers 4,000
GAB Robins North America 3,800
Source: Public data, Business Insurance magazine

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Table 3: Leading TPAs Providing Insurance Carrier BPO

Approx.
Company Carrier Involvement
Employees
Fiserv Health 3,400
Broadspire 3,200
AIG Claim Services Inc. American International Group 2,400
ESIS, Inc. ACE USA 1,600
The Frank Gates Cos. 1,400
The Principal Financial Group The Principal Financial Group 1,300
Berkley Risk Administrators Co. W.R. Berkley Corp. 800
GatesMcDonald Nationwide 800
Risk Enterprise Management Ltd. Zurich Financial 800
Keenan & Associates 600
York Insurance Services Group 500
Ward North America Inc. 400
Helmsman Management Services Liberty Mutual Insurance Co. 300
The ASU Group 300
Hertz Claim Management 300
Fleming & Hall Administrators Inc. 200
Chubb Services Corp. Chubb Group 100
Source: Public data, Business Insurance magazine
Celent estimates that TPAs generate almost 60 percent of the total core insurance BPO
revenue, although by FTE count they constitute only 45 percent of the outsourced workforce
used by carriers. We believe this is so because TPAs do somewhat higher level work for
carriers (including claims adjudication and medical bill review). Moreover, the ITO and BPO
players have a significant number of workers in lower-wage countries and continue to increase
their use of resources in these nations, in some cases without even informing their carrier
clients that the work is being sent offshore.
None of the TPAs Celent interviewed for this report currently use offshore resources in work
done for carrier clients, although several said they were considering this possibility. It seems
likely that over time TPAs will form partnerships with other BPO providers to achieve the
benefits of the offshore and near-shore models while maintaining their solid local
relationships with carrier clients.

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Figure 2: Insurance BPO Market Segments
Market Share by 2003 Revenue

(US$2.4 Billion)
ITO/BPO
Players
40%
TPAs
60%
Market Share by FTEs Provided to Carriers

(31,000 FTEs)
TPAs
45%
ITO/BPO
Players
55%

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DETAILED ANALYSIS
D E AL S B Y C L I E NT L O C A T I O N
The primary focus of this study was BPO providers that are active in North America. So it is
not surprising that 68 percent of all the BPO deals for which Celent received data were for
North American carriers see Figure 3). However, conversations with several providers
suggest that North American carriers may lag their European peers in terms of willingness to
outsource business processes.
Figure 3: Location of BPO Deals
Other
9%
North America
68%
Europe
23%
Analysis in this section is based on the details behind the 194 North American BPO deals
provided by the 14 participants in this study.
D E AL S B Y B U S I N E S S M E TA - P R O C E S S
Once a carrier has decided to pursue BPO, the most common question is what processes are
the best fit for the approach. The broad framework outlined in Table 2 (page 9) is a good
place to start the conversation, but many carriers seem keenly interested in how their
competition has answered the question.

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Provider responses to all the detailed process questions in the Celent survey were integrated
into eight meta-processes to illustrate the major areas in which BPO is taking place today. See
Table 4.
Table 4: Meta-Processes and Components

Meta-Process Components
Policy Administration Policy admin hosting and tech

Policy issue/delivery
Rate and product updates
Correspondence
Management reporting
Policy administration/policyholder services
Prospectus/statement issue/delivery
General Systems Managing network

Managing entire IT function
Managing e-business application
Managing new software development
Managing data warehouse
Managing CRM application
Managing ERP application
Call Center Policyholder customer service

Internal technical help desk
Agent service
Agent technical help desk
Claims first notice of loss only
Policyholder technical help desk
Tele-underwriting
Billing Payment processing

Print and mail bills
Billing dispute resolution
E-Billing application
Claims Claims document imaging

Disbursements
Full claims adjusting/adjudication
Underwriting Requirements gathering

Managing underwriting process
Application imaging
Underwriting requirements imaging
Support Functions Accounting

Training
Imaging/workflow
New product launch services
Conversion services
HR/staffing
Benefits
Purchasing
Facilities management
Illustration services
Payroll
Distribution Commissions
Training
Licensing/appointments

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The most significant finding by meta-process is that systems-related activities (e.g.,

hosting of policy administration systems, complete management of a carrier’s IT) are
common types of services provided as part of BPO deals. In fact, virtually every BPO
deal detailed in Celent’s study included some systems components.
Celent believes this reflects the pedigree of the major BPO providers. Many gained their place
in insurance as systems consultants and developers, including both domestic-based firms and
the India-centric firms that have dominated the offshore IT market. These firms have
developed business process awareness (though in most cases, not deep process expertise,
according to naysayers) as they have supported software development and integration efforts.
BPO providers clearly are trying to convert their existing relationships, in which they provide
mostly IT support, to higher-value relationships whereby they provide staff to support
business processes. This is a better long-term strategy because it is harder to displace people
doing work than it is to replace a system vendor.
Call centers are another area of heavy activity, in keeping with the conventional wisdom that
call centers by their nature are relatively easy to outsource. From the carrier’s perspective,
outsourced call centers can provide flexibility to meet varied call volumes, and the technology
to help call center reps navigate through calls consistently is often already in place.
It is also interesting to note that the top areas of activity are consistent across industry
segments.
In the policy administration, general systems, and call center categories, deal volumes are
similar for life/health and property/casualty carriers. See Figure 4.
The three exceptions to this trend are claims, support function, and distribution, where the
majority of deals were for life/health carriers. But considering that most property/casualty

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carriers have a long history of using TPAs for at least some of these functions, this seems
logical.
Figure 4: North American BPO Deals by Meta-Process and Carrier Type
Policy A dministration 35 13 68
Call Center 33 12 55
General Systems 37 7 46
Billing 33 10 38
Underw riting 23 5 45
Claims 56 11 4
Support Function 21 1
L/H Multi-line P/C
Distribution 11 5 3
0 20 40 60 80 100 120 140

Number of Deals Involving Each Category
Celent believes that the newer BPO providers will not displace TPAs in their traditional areas
of strength—particularly claims management and adjudication—because of the TPAs’
vertical expertise and strong carrier relationships.

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For comparison’s sake, Figure 5 shows the breakdown of non-North American deals by meta-
process. General trends are similar to those for North American deals, with systems-related
activities playing a prominent role and call centers close behind.
Figure 5: European, Asian, Latin American BPO Deals by Meta-Process and Carrier Type
General Sy stems 43 20 9
Polic y A dministration 42 18 10
Call Center 28 20 10
Billing 39 11 3
Support Func tion 35 2 4
Claims 17 10 5
Dis tribution 24 22
L/H Multi-line P/C
Underw riting 9 7 2
0 10 20 30 40 50 60 70 80
D E AL S B Y D E TA I L E D B U S I N ES S P R O C E SS
A detailed view of survey responses by business process is shown in Figure 6. It reinforces the
key finding in the previous section: Two of the five most popular types of BPO are related to
managing IT.
BPO of closed books of business represents a fair number of the deals in Celent’s survey, and
for closed books, the BPO vendor almost always manages both IT and policyholder services.
But even for deals not involving closed books of business, IT management is a commonly
provided function. Again, this reflects both the background of the BPO providers covered in
this study and the nature of insurance BPO. Most providers have strong IT backgrounds, and
it usually makes sense to keep the servicing of the business and its IT together.

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Figure 6: BPO Deals by Detailed Process and Carrier Type
Policy Admin Hosting 76 21 45
Payment Processing 62 18 39
Managing Network 53 13 44
Policyholder Customer Service 48 21 36

Managing Entire IT Function 58 1 40
Policy Issue/Delivery (paper or electronic) 34 17 43
Internal Technical Help Desk 53 11 28
Print and Mail Bills 39 9 39
Billing Dispute Resolution 41 8 36
Rate and Product Updates 30 14 40
Correspondence 39 10 29
Requirements Gathering 24 12 39
Claims Document Imaging 55 14 3
Agent Service 22 10 38
Managing Underwriting Process 19 8 40

Managing E-Business Application 32 16 19
Agent Technical Help Desk 16 10 38
Accounting 55 1
Application Imaging 18 11 26
Managing New Software Dev. 31 14 8
Underwriting Rqmts. Imaging 13 7 29
Disbursements 33 8 6
Other (besides call center-related) 37 81
Full Claims Adjusting/Adjudication 32 6 4
Management Reporting 37 5
Policy Administration/Policyholder Services 37 4
Claims First Notice of Loss Only 5 7 21
Commissions 20 6 4
Policyholder Technical Help Desk 16 9 4
E-Billing Application 5 8 15
Claims Other 10 9 5
Managing Datawarehouse 4 15 2
Imaging/Worfkflow 19
14 1 L/H Multi-line P/C
Prospectus/Statement Issue/Delivery
Other (besides call center-related) 6 4 4
Managing CRM Application 4 8
New Product Launch Services 10 1
0 30 60 90 120 150

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D E AL S B Y L O N G E V I T Y
Two-thirds of the deals described in this study were more than two years old, while 13 percent
were one to two years old and 20 percent were initiated in the last 12 months (see Figure 7).
This is a somewhat surprising finding, given the rising noise surrounding insurance BPO, and
it suggests that fewer new BPO deals are being created because the aggressive first movers
within insurance have already started their BPO programs. Celent does not take this to mean
that BPO use is on the decline—if anything, we think carriers with BPO in place today are
considering ways to expand those efforts.
Figure 7: Age of BPO Deals
More than 2 1 year or less

years 20%
67%
One to to years
13%
D E AL S B Y C L I E NT TY P E
BPO deals appear to be spread fairly evenly across various insurance segments, as shown in
Figure 8. Most providers that participated in this study reported having clients in multiple
product lines.

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The two lines that appear to be under-represented are commercial property/casualty and
worker’s comp, which accounted for only 8 percent and 3 percent of total deals, respectively.
However, it is clear that these two lines are prominent in the BPO services provided by TPAs.
Figure 8: Insurance BPO Deals by Line of Business
Worker's Comp
Group L/H 3%
8%
Multi-line P/C
8% Personal P/C
29%
Commercial P/C
8%
Individual L/H
12%
Multi-line L/H
Multi-line 18%
14%
Source: Celent analysis
D E AL S B Y C L I E NT S I Z E
Celent groups carriers into three financial tiers. Tier 1 carriers have premiums of more than
US$1 billion, while Tier 2 carriers have premiums between US$100 million and US$1 billion;
Tier 3 carriers have premiums of less than US$100 million.

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The BPO deals highlighted in this study are spread evenly across the three tiers as shown
below.
Figure 9: Insurance BPO Deals by Carrier Size
Tier 3
27%
Tier 1
34%
Tier 2
39%
D E AL S I Z E
The largest deal size category in the study included deals under US$1 million—43 percent of
all deals reported (see Figure 10). If one considers that a deal generating US$1 million in
annual revenue probably represents the work of eight to 12 FTEs, this suggests that a good
number of BPO deals are very narrowly defined, at least currently. Over time, Celent expects

23
that many of these deals will expand as carrier comfort levels grow. But for now, many
carriers appear to be dabbling in BPO.
Figure 10: Size of BPO Deals
$6 mn to $10
mn
$1 mn to $5 mn
26%
30%
More than $10

mn
1%
Under $1 mn
43%
Deal Size by Client Size
Under $1 mn 6 4 19
$1 mn to $5 mn 2 8 11
$6 mn to $10 mn 2 12 4
More than $10 mn 1 Tier 1 Tier 2 Tier 3
0 5 10 15 20 25 30 35
Deals
This finding also means that in many cases, providers must be able to aggregate smaller deals
to achieve efficiency. A good example of this might be a first notice of loss call center, which
could provide a large number of clients with relatively few FTEs each, creating a flexible and
still profitable call center environment.

24
Not surprisingly, the larger deals are often generated by larger carriers. Sixteen of the 19 deals
in the top two categories (more than US$6 million annually) were orchestrated by Tier 1 and
Tier 2 carriers. In contrast, 30 of the 50 deals in the smallest two categories (under US$6
million annually) were done by Tier 3 carriers.
C A T E G O R Y L E A D E R S
Among the 14 participating providers in this study, Computer Sciences Corporation (CSC)
is the clear leader in providing BPO to North American carriers. The firm is among the top
providers both in terms of estimated BPO FTEs and estimated BPO revenue. CSC also is the
category leader in seven out of the eight meta-processes by number of deals (see Table 5).
EDS is also a prominent provider—it finished second to CSC in four meta-process

categories. While EDS did not provide revenue estimates for its BPO deals, Celent’s analysis
of publicly available data shows that EDS is a major insurance BPO provider.
ACS is a leader in terms of estimated BPO revenue, based on data it submitted for 48 total
BPO deals. It also ranked ahead of CSC in the claims category by number of deals. ACS says
the majority of its claims-related deals are based on imaging and indexing services it provides,
while a growing number include some aspects of claims adjudication.
Table 5: Top Insurance BPO Leaders by Meta-Process

Top North American Providers
Meta-Process
(in descending order)
Policy Administration Computer Sciences Corporation (CSC)

EDS
General Systems CSC

EDS
Call Center CSC

EDS, First Notice (tie)
Billing CSC
Claims ACS
CSC
Underwriting CSC
ACS
Support Functions CSC
Distribution CSC
EDS

25
Breaking down the deals by client count for several major insurance categories produces
similar results (see Table 6). CSC and EDS are top providers for both property/casualty
and life/health segments, in addition to being top providers for carriers in all tiers.
While ACS is a top life/health provider by client count, as noted above they have a relatively
narrow focus compared to CSC and EDS. IBM appears to have a strong presence in
providing BPO support to Tier 1 carriers, which may be related to its traditional strength as
an IT services organization.
Table 6: Insurance BPO Leaders by Client Count

Category Providers
Top 3 Property/Casualty Providers CSC

EDS
First Notice
Top 3 Life/Health Providers ACS

CSC
EDS
Top 3 Providers to Tier 1 Carriers CSC

EDS
IBM
Top 3 Providers to Tier 2 and CSC

Tier 3 Carriers ACS
EDS

26
CONCLUSIONS
Results of this study and interviews with BPO providers and users support the hypothesis
that use of BPO for core insurance services is growing. Despite strong concerns about loss of
control over key business functions, disenfranchised employees, and possible political fallout
resulting from loss of local jobs, most carriers have not ruled out use (or expanded use) of
BPO.
K E Y F I N D I N G S
The following summarizes the insurance BPO market:
• There is significant BPO activity for core insurance services.

Growth has not been explosive to date, but Celent expects growth to
continue despite concern over potential negative effects. Celent
estimates that total core insurance BPO (excluding non-core
BPO services such as HR, benefits, and payroll) will total more
than US$2.5 billion in 2004. Further, we expect the market to grow
to almost US$3 billion by 2006.
• There are two basic groups of external providers of BPO for core
insurance services: TPAs and a growing assortment of consultants,
IT developers and integrators, and BPO specialists. Celent
estimates that TPAs generate almost 60 percent of the total core
insurance services BPO revenue.
• There are two key insurance BPO markets. Many of the largest BPO
deals to date have been for closed books of business, in which a
carrier offloads support functions for a business line, typically to
transition from a fixed expense model to a variable expense model.
But discrete business processes that are easily transitioned to
outside providers are now candidates for BPO as well.
Celent’s analysis of survey data further defines key aspects of the current insurance BPO
market in North America:
• Systems-related activities (e.g., hosting of policy administration

systems, complete management of a carrier’s IT) are commonly
provided as part of BPO deals. In fact, virtually every BPO deal
detailed in Celent’s study included some systems components.

27
• Most insurance BPO deals are limited in scope. The largest

category in terms of deal size was deals under US$1 million, which
accounted for 43 percent of all deals reported.
• Newer BPO providers are not displacing TPAs, particularly in

their traditional areas of strength such as claims management
and adjudication. Celent believes that TPAs will continue to
dominate these areas because of their vertical expertise and strong
carrier relationships.
• Celent believes that most carriers with BPO in place today are
considering ways to expand those efforts. Even so, 67 percent of
deals described in this study were more than two years old, while 13
percent were 1–2 years old and 20 percent were initiated in the last
year. See Figure 7 on page 20.
• Computer Sciences Corporation is a clear leader in terms of

providing BPO to North American carriers. It is among the top
providers both in terms of estimated BPO FTEs and estimated BPO
revenue. CSC is also the category leader in seven of the eight meta-
processes by total number of deals (see Table 5, page 24).
• Other prominent players in North American insurance include EDS,

ACS, IBM, and First Notice.
Celent believes that virtually all insurance carriers can benefit from assessing their operations
for possible BPO applications. Clearly, BPO use offers potential cost benefits. But just as
importantly, effectively managing business processes requires a clear understanding of how
those processes work, how they fit together, and how information technology supports them.
An organizational review for BPO often helps carriers by creating process discipline and
awareness that may be lacking.

28
OBJECTIVITY & METHODOLOGY
Objectivity. Celent is an independent, privately owned research and consulting firm that
provides technology and business strategy advice to the financial services industry. Celent
provides unbiased insight into industry trends, competitors in the market, and market sizes.
Celent’s research reports are written by in-house analysts with extensive experience at a
variety of top global financial services firms, technology vendors, and consultancies.
Celent’s research clients include financial institutions, vendors, and consulting firms.
Occasionally, our reports evaluate clients who are solution providers, along with providers
with whom Celent does not have a relationship. Celent evaluates all vendors using the same
criteria, whether or not they use our research and advisory services. Vendors and financial
institutions profiled in our reports are given the opportunity to correct factual errors prior to
publication, but cannot influence Celent’s analysis or opinions of the products, solutions, or
strategies we are evaluating. Firms may not purchase or influence positive exposure.
Methodology. The findings and analyses in Celent’s reports reflect our analysts’ considered
opinions and research of market trends, sizes, and participants. Celent analysts use the
research methodology detailed below.
Research Phase Production Phase

Research Phase Production Phase
• Analyst • Regulatory • Vendor • Verification • Market • Publication
experience studies demos & of data analysis of report
• Client • Academic briefings • Follow-up • Vendor • Client
feedback studies • Interviews interviews evaluations feedback
• Conferences • Industry with financial • Analysis of • Spending • Continual
organization institutions survey data analysis coverage and
studies • Interviews • Case studies updating
• Third-party with other
commercial contacts, e.g.,
information regulators,
sources academics
• Surveys
Topic
Topic Secondary
Secondary Primary
Primary Report
Report Feedback
Feedback
Synthesis
Synthesis
Identification
Identification Research
Research Research
Research Generation
Generation &
& Updates
Updates
When citing third-party data or opinions, Celent provides source information. When citing
formal survey results, Celent provides as much information as possible about survey
methodology and participants, within the limits of confidentiality. All other material
appearing in Celent’s reports is created by the analysts and is derived from the sources listed
above and from Celent’s experience. Figures and charts based on this analysis cite Celent as
their source.

29
ABOUT CELENT
Celent Communications is a research and advisory firm dedicated to helping financial

institutions formulate comprehensive business and technology strategies. Celent publishes
reports identifying trends and best practices in financial services technology, and conducts
consulting engagements for financial institutions looking to use technology to enhance
existing business processes or launch new business strategies. With a team of internationally
experienced analysts, Celent is uniquely positioned to offer strategic advice and market
insights on a global basis.
Celent’s research services cover the following six sectors of financial services: Retail Banking,
Wholesale Banking, Retail Securities and Investments, Institutional Securities and
Investments, Life/Health Insurance, and Property/Casualty Insurance.
For inquiries, please visit www.celent.com, email info@celent.com, or contact:
Headquarters:
745 Boylston Street, Suite 502 Wall Street Plaza
Boston, Massachusetts 02116 88 Pine Street, 31st Floor
USA New York, New York 10005
Tel.: +1.617.262.3120 USA
Fax: +1.617.262.3121 Tel.: +1.212.269.7540
Fax: +1.212.269.7541
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1

Insurance BPO Market Survey

EXECUTIVE SUMMARY ................................. 3

Celent Communications BPO OVERVIEW ......................................... 9

OBJECTIVITY & METHODOLOGY . . . . . . . . . . . . . . . . . . . 28

• There is significant BPO activity for core insurance services.

• Celent estimates that total core insurance BPO (excluding non-core

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

• Systems-related activities (e.g., hosting of policy administration

• Most insurance BPO deals are currently limited in scope. Forty-three

• Newer BPO providers are not displacing TPAs, particularly in their

• Computer Sciences Corporation (CSC) is a clear leader in terms of

• Other prominent players in North American insurance include EDS,

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

Table 1: Participating North American Insurance BPO Providers

IBM Armonk, NY $92,800,000 319,000

EDS Plano, TX $21,800,000 132,000

Xerox Stamford, CT $15,700,000 61,000

Computer Sciences El Segundo, CA $15,000,000 90,000

Accenture Hamilton, Bermuda $11,800,000 95,000

Unisys Blue Bell, PA $5,900,000 37,300

ACS Dallas, TX $4,100,000 40,000

Source: Celent analysis of publicly available information. Revenue = trailing 12-month, in

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

Table 1: Participating North American Insurance BPO Providers

CGI Montreal, Canada $2,350,000 14,600

Wipro Bangalore, India $1,400,000 32,000

Keane Boston, MA $844,000 7,400

HCL Technologies New Dehli, India $583,000 n/a

WNS Mumbai, India $97,000 3,000

Connextions Orlando, FL n/a n/a

First Notice Systems Boston, MA n/a n/a

Source: Celent analysis of publicly available information. Revenue = trailing 12-month, in

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

Table 2: Key Characteristics of BPO-Friendly Insurance Processes

Processes that rely on More “portable” than Data entry of imaged

Processes that have only Easier to manage Property/casualty

Processes in which Allows for staffing by less First notice of loss

Processes that do not Eliminates complexities of Agent service center

Processes that are already Easier to outsource Network help desk

Source: Celent Communications

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

Table 2: Key Characteristics of BPO-Friendly Insurance Processes

Processes that are done Easy to make business Health claims

Source: Celent Communications

Figure 1: Core Insurance BPO Spending in North America

Source: Celent Communications

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

Table 3: Leading TPAs Providing Insurance Carrier BPO

Crawford & Co. 4,000

Constitution State Services Travelers 4,000

GAB Robins North America 3,800

Source: Public data, Business Insurance magazine

© 2004 Celent Communications. Reproduction prohibited. www.celent.com

Table 3: Leading TPAs Providing Insurance Carrier BPO

Fiserv Health 3,400

AIG Claim Services Inc. American International Group 2,400

ESIS, Inc. ACE USA 1,600

The Frank Gates Cos. 1,400

The Principal Financial Group The Principal Financial Group 1,300

Berkley Risk Administrators Co. W.R. Berkley Corp. 800

GatesMcDonald Nationwide 800