Hemmed in by regulatory changes and a potential squeeze in profitability, insurance companies are now increasingly looking to outsource many of their non-core functions to cut costs and remain competitive.
ICICI Prudential, Max New York Life and HDFC Standard Life are among those who have initiated discussions to outsource some of their activities as focus shifts to cost control and consolidation.
Claims administration, analytics, customer care, policy administration, sales and distribution and even product development, are some of the areas that insurance companies are looking to outsource to specialist firms.
This is a departure from the past when insurance companies’ corporate strategies largely revolved around growth in policy sales and premium collection.
Max New York Life has engaged consulting firm McKinsey to carry out a comprehensive cost-benefit analysis across verticals.
“We are looking at ways to reduce costs and one of the options could be to outsource certain areas but we need to see what exactly the impact would be,” a senior official at a Mumbai-based private insurance company, who did not wish to be identified, told Hindustan Times.
Insurance companies are desperately seeking options to cut costs after sector watchdog Insurance Regulatory Development Authority (IRDA) enforced a new set of norms from this month for the controversial Unit Linked Insurance Products (ULIPs).
ULIPs — a hybrid product where a part of the money is invested in equities and the balance is set aside as premium and charges and fees — accounts for more than half of the life insurance firms’ total business.
The new norms have capped surrender charges of policies, slashed agent commissions and seek to make charges more transparent to prevent mis-selling. This will reduce profitability of companies but also help consumers by making their investments more transparent.
Business process outsourcing companies expect a major jump in their insurance related services in India in the coming months.
“We are in healthy discussions with many of the insurance companies in India for providing specialist services across all sub-verticals,” said Keshav R Murugesh, Group CEO of WNS, a leading global business process outsourcing company.