By MADDY BOWLING, a principal of Maddy Bowling Consulting Inc., and
DAVID HUTH, a senior partner in the Chicago-based consulting firm
In an article in the November 2006 edition of Risk & Insurance®, "Core Values Revealed," we presented the results of the first industrywide survey to identify trends in claims-process outsourcing, in particular claims-process offshoring.
We wanted to determine whether the workers' compensation and disability claims industry was adopting outsourcing and offshoring strategies. With nearly 400 industry leaders responding, the findings suggested that, while the workers' comp and disability industry was skeptical of offshoring efforts, there was a growing interest in attempts to offshore specific components of the claims process.
Based on increasing anecdotal accounts of companies moving claims functions overseas, we decided to see if, or how, industry attitudes toward outsourcing and offshoring had changed by the summer of 2008. Wherever possible, the same wording from questions used in 2006 was duplicated in the recent update to facilitate meaningful trending comparisons.
Once again, e-mail invitations were sent to industry leaders, both by Risk & Insurance® and Maddy Bowling Consulting, asking them to complete the brief online survey. As illustrated in Chart 1, the number of the respondents and their demographics remained remarkably consistent across both survey periods.
While the nature of the respondents has not changed dramatically since 2006, their attitudes have appeared to shift, with notably increased willingness across our industry to consider offshoring some of claims processes and claim positions. For example, when asked which claims processes they thought could be successfully offshored, respondents demonstrated an almost universal increase in willingness to offshore components (See Chart 2).
Of the 20 claims processes identified, only three showed a decreased enthusiasm for offshoring: underwriting, loss control and surveillance/investigation. Respondents were more willing to offshore every other claims process (by an average of five percentage points) with the greatest increases in processing simple medical-only claims, software development, policy processing, medical bill review and paper conversion.
The same trend was found in the responses to a similar question that asked which "typical claim positions" could successfully be sent offshore. Of the 11 positions mentioned, only one, medical case manager, demonstrated a decrease in respondent willingness to offshore the work. The positions with the greatest jump in willingness to offshore were claims billing/finance clerk and claims assistant (data-entry clerk).
The updated survey results confirmed our suspicions that the offshoring of various claims processes now appears to be a more viable option as the industry makes decisions about future strategic direction. There has been a similar shift in thinking and growing confidence in the benefits offshoring can provide. Results in Chart 4 (top graph) indicate an increasing belief that offshoring can benefit parts of the claims process. Whereas only a quarter of respondents in 2006 felt that the claims industry could definitely benefit from offshoring, 35 percent of the current respondents responded that offshoring could be beneficial.
The growing belief that offshoring programs can benefit the claims industry was especially surprising because it appears as if payers are also now less likely to have difficulty finding experienced claims staff. In 2006, 40 percent of the respondents indicated that they had experienced a "shortage of experienced claims staff"; however, that figure declined to only 27 percent of 2008 respondents. The key actions that appeared to have alleviated this staffing shortage are increased college recruiting efforts and enhancing system automation to improve productivity.
It is also interesting that optimism for offshoring appears to be growing even while satisfaction with outsourced programs is declining. The results in Chart 4 (middle and bottom graphs) suggest that, while respondents are still slightly more satisfied with the results of domestic outsourcing programs than with offshore alternatives, their satisfaction with both types of programs has declined significantly since 2006.
If payers are no longer as challenged by adjuster staffing issues and are generally less satisfied with the performance of their existing outsourcing programs, what can explain the growing interest in offshoring programs? One possible explanation is the simple economic gains of offshoring.
When asked to identify the top potential benefits of offshoring, respondents overwhelmingly selected "Reducing Cost" as the primary benefit. In fact, the top five benefits identified in 2008 did not vary from the 2006 results: reducing cost, increasing operational capacity, improving productivity, supporting clients' international operations and transferring risk to the vendor.
Two of these benefits actually increased in popularity in 2008--improving productivity and transferring risk to the vendor--as did two other benefits: access to high-caliber labor and access to best practices or new technology.
While perceived benefits of offshoring did not change over the last two years, several top-five identified barriers appear to have become slightly less of an issue. Fewer respondents expressed concern over customer-service issues, loss of control and hidden costs (See Chart 3).
Two years of additional experience, along with the growth/maturation of vendor options, seem to have reduced the skepticism and objections to the use of offshoring in the claims process. However, as claims-payers begin to explore their offshoring options more fully, it is critical to be aware of and avoid the most common outsourcing mistakes listed by Lisa DiCarlo in a recent article in Forbes:
1. Underestimating the cost and complexity of managing the outsourcing relationship.
2. Overestimating the overall cost savings.
3. Selecting a country before understanding objectives.
4. Failure to develop an effective communication program for employees.
5. Selecting a single-source provider.
6. Failure to put retention plans in place for talented people.
November 1, 2008
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