BY STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
No candidate in the 2008 presidential slugfest could go wrong by denouncing the evils of those offshoring and outsourcing employers hell-bent on taking jobs away from hardworking U.S. citizens.
And as the purported recovery of 2010 picks up steam in all the numbers except the jobless rate, the anger will in all likelihood remain unabated.
Insurance brokerages have not been immune from the trend of looking for a better, cheaper way to do certain tasks offshore, but here the story has a different twist.
For the top tier of U.S. insurance brokerages, the trend really has nothing to do with difficult economic times, nor does it have much to do with the soft property/casualty market. Rather, it is a function of the consolidation that took place in the 1990s that left the big agencies with the task of putting operations under one roof in the most cost-effective manner possible.
"People have a tendency to look at offshoring as just a labor arbitrage, and I think that is a big mistake," said Joe Propati, managing principal for Aon Risk Services
Central. "We look at it as a way to maximize our business, in that we have services now that we were never able to provide before in the United States, because we did not have the resources or money to do it."
As a brokerage based in London but incorporated in Ireland, Willis might even view the entire U.S. operation as offshore. They have the oldest such business processing operation, which actually began in 1975 when the fax machine was still a gleam in some techie's eye.
Today, the Willis site in Ipswich, just north of London, employs about 1,100 people and serves the U.K. market, while a similar facility in Nashville, Tenn., that opened 16 years later serves the North American market.
Willis opened a facility in Mumbai, India in 1992 that in a sense serves the Ipswich and Nashville centers, and acts more like an offshore operation as those are traditionally viewed.
Willis's Ipswich-based Ian Gale, CEO of Global Service Centers, said that since all the operations are owned and operated by Willis, outsourcing is really an irrelevant term.
"The people within our service centers are part of a business unit. So if you are in Willis North America you are part of the Willis North America family whether you are in a local office, the Nashville center or in Mumbai."
Smaller agencies have not avoided the trend as they employ the services of companies such as the Walnut Creek, Calif.-based Patra Corp. Founded in 2005, Patra now has about 180 employees stateside. In its facility in Visakhapatnam, India the company performs tasks such as issuing certificates of insurance, checking policies, ordering loss runs and completing direct-bill reconciliations.
"The kind of business processes we do are customer facing, although we don't talk to the customer," said Patra President Dan Easterlin, one of its founders.
For example, an insured whose policy is about to expire would get the traditional letter asking if there are any changes that took place over the past year. Those changes appear to be faxed out of the broker's office but actually were composed thousands of miles away.
Easterlin said brokerages from the smallest operations to USI, the tenth largest in the nation, use his company's services.
Frank Sentner, director of strategic technology for the Washington, D.C.-based Council of Insurance Agents and Brokers, said a surplus of educated and inexpensive labor in emerging markets has fueled this trend.
It started with the late 1990s dot-com boom that funded a new global network of broadband telephone and Internet communications infrastructure. "When the bust came, most of these ventures failed and their assets were acquired by more established firms for pennies on the dollar," he said.
A consensus has arisen that the outsourcing trend has not resulted in a significant loss of jobs stateside.
Mike Heffernan, president of Heffernan Insurance Brokers, also based in Walnut Creek, said that when he started the outsourcing process several years ago, some employees expressed concern about the impact on their jobs. "I knew we were growing at a fairly rapid pace, so there would be no need to lay anyone off. In fact I don't think we laid one person off," he said.
While a step removed from the process, Easterlin said he was surprised at how "forward-thinking" brokerage managers were able to use the time saved from outsourcing by improving service, working on proposals, and talking to customers rather than just cutting jobs.
For Aon, it all started nine years ago with consolidation of the units that now make up the Aon empire followed by a standardization of procedures that led to automation, which Propati for the most part equates with offshoring.
"That is the way we look at it," he said. "There are others out there who have not centralized. They just said let's move work offshore. I will tell you that where I have seen people do something like that and just try and find a cheaper marketplace to do work, they inevitably fail and end up bringing stuff back."
Today Aon operates centers in Morocco, India, Romania, and the Philippines, which gives the brokerage a "follow-the-sun" capability so "that we can have resources in the middle of the night that we need done during the day here and ultimately deliver more effectively to our clients," said Propati.
He discounted the notion that these centers perform so-called mundane tasks. "Some of our folks in India do some complex analytics, which is a real strength for them," he said. "These are all things we wanted to do but never had the amount of resources we wanted to do."
Willis' Ipswich and Nashville operations conduct virtually all brokerage activities, including policy placement, said Gale. "It is allowing the people in the local offices to focus on the immediate client needs."
As for placement Gale said "there is no reason why you can't pick up the phone in Ipswich and call an underwriter just like you would out of Phoenix or Miami."
No, there isn't. But just because a brokerage business model looks good on paper doesn't mean the client is always well served. Risk managers often approach offshoring more gingerly than do the insurance brokers because they recall incidents in which offshoring workers' comp claims ended in communication breakdowns, error-prone form filings and unexpected expenses.
In some cases, tasks sent offshore have even been brought back stateside after breakdowns in the offshore models, according to executives with third-party administrators, who spoke at an annual gathering of experts attending the Annual National Workers' Compensation and Disability ConferenceŽ & Expo several years ago.
Willis' Mumbai operation started with some of the most menial tasks. With the talent pool now available, many associates there are involved in complex tasks such as sales research, preparation of renewal packs and catastrophe modeling.
While Indian M.B.A.'s may have strong complex analytical skills, Easterlin said the challenge in setting up the operation nearly five years ago stemmed in part from how some insurance concepts are alien to the culture in India, beyond of course the obvious one of believers in reincarnation being skeptical about paying life insurance claims.
"The native population over there has very little familiarity with insurance concepts such as liability and workers' compensation because they are antithetical to even deeper beliefs they have about causality, such as things that happen to you because of your behavior in a past life," he said.
While there may be some truth to that, it is growing less and less relevant with each new generation of candidates for the workforce, said Propati.
What Propati calls the "near-shore, offshore" capabilities could have the operation in Morocco, for example, performing functions for the French brokerage business, while the Romanian center does the same for the German and Italian brokerage operations. This happens at the same time the India center performs complex analytics for a brokerage office in, say, Indianapolis.
Aon uses centers that they own and operate, and the services of business process outsourcers (BPO) as well, depending on the functions needed at any given time. "A lot of services now done are very reactive to industry changes and regulatory changes," he said.
Activities conducted in Aon centers involve proprietary information that Aon wouldn't want to fall into the hands of competitors, Propati added. "It is very difficult to maintain some of these captive operations in these locations because we are competing for resources against some of these BPO-type places," he said.
He shied away from calling the tasks that are sent offshore "mundane." "There are a whole host of decisions we are going to make as to whether we will perform a task offshore," he said. "I could find someone who could do data entry in the Philippines or field phone calls better than anyone else so that is where I am going to get them."
Propati preferred the term "repetitive" for certain tasks that might be sent offshore. "But let me make the point that there are some very repetitive things I do right now in Glenview, Ill., because it would just not work to do it in another environment."
Each organization within Aon, whether located in France or Germany, or whether organized by line of business such as reinsurance, will set up their own unique mix of tasks that can be accomplished offshore, he added.
It was less than 30 years ago that angry autoworkers in Michigan took to smashing Japanese cars in protest for the lost jobs that they represented. Today, those purported villains operate plants throughout the South, making the offshoring/outsourcing debate complex and not describable in easy slogans.
Sentner said BPO outsourcing, together with the opportunity to sell insurance in emerging markets, is a major contributor to the U.S. economy. "Without these services, the consequences would be severe," he said. "I'm afraid this genie cannot be put back in the bottle."
April 1, 2010
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