Insurers are sticking to their offshoring model despite several studies concluding that customer service levels have fallen as a result. Andrew Holt reports
With the sacking of 4,000 Norwich Union (NU) staff and the insurer moving around 1,000 staff offshore, the emotive issue of offshoring is back in the news.
Since the first insurance call centre staff moved to India a few years ago there has been much debate, often heated, around the validity of doing such a move. Stories having abounded regarding the inability of foreign call centre staff to speak understandable English and whether the customer service at these offshore centres was up to scratch.
A recent survey conducted by Blue Prism and Sheffield Hallam University revealed that 60% of contact centre customers experienced problems with offshore call centre operatives' lack of understanding of their issues, accent and culture.
Customer service staff were seen as being inadequately trained to deal with complaints, or as unable to provide the levels of service expected by today's customers.
In a provocative survey consultancy firm CM Insight went one step further stating many insurers were offshoring for cost savings and were willing to take the hit of poor customer service as an acceptable trade-off.
CM Insight says that service quality levels dip by 75% with offshore operations. Mike Havard, managing director of CM Insight, says: "It seems there is an accepted trade-off as long as the business keeps growing, the dip in quality customer service is worth the compromise. But this is a time-bomb for companies to deal with and the clock is already ticking."
Interestingly, Havard notes almost 60% of customers said they were willing to pay more to deal with UK based staff. "With these offshoring operations there is no focus on customer behaviour. Service quality fails compared to onshore operations, but this is often ignored," he warns.
And Havard says the lack of customer dissatisfaction and defection revealed in the CM Insight survey is an area of concern, given that across the board call quality, customer satisfaction, transaction accuracy and results of mystery shopping exercises have been below par with UK operations.
"We are concerned by the discrepancy between the positive picture of customer acceptance painted by the companies in our survey and the results of other recent consumer research," says Havard. "With service levels falling demonstrably below UK levels we expect to see increasing levels of customer discontent and disaffection."
Furthermore, the survey conducted by Blue Prism and Sheffield Hallam University shows that 30% of customers see offshoring as adversely affecting an organisation's brand or image. With 54% of those surveyed stating that their buying preference would be affected by where a company is located.
Ian Hughes, from Consumer Intelligence, (CI) backs up the 'offshore equals poor customer service' argument.
In CI's research consumers were asked to call different insurers and rate what they thought the call was going to be like before the call - based on things like brand perception. After the call, they were asked to rate the actual quality of the calls to each company and their propensity to call them again.
"Their conclusions said overseas call centres stink and they won't be calling them again." And, he adds: "Consumers' trust and confidence in a company falls dramatically if they feel that they are being 'handled' by an offshore call centre. They feel that there is a lack of empathy and they worry about whether they are being understood.
"Consumers know when they have been offshored and they don't like it. It's not a xenophobic thing, it's a confidence thing. One brand was destroyed in one swift 10-minute phone call and it could never be rebuilt."
This reinforces CM Insight's analysis that offshore call centres can have a negative impact on long-term customer care. "The question has to be asked if there is so little empathy between a consumer and the front-of-house representative then the company would have great difficulty proving that it had treated its customers fairly as required ' ' by the FSA," warns Hughes.
Graham Gibson, claims director at Groupama, says consumers know when they are dealing with offshore call centres. "You know when you are talking to a call centre, the accent, the time delay, the inability of the person to recognise simple place names all stand out."
Out of opposition to offshore centres Groupama has all its employees in the UK. "Claims handling is such an important part of our service, we could never imagine to outsource it to an offshore centre. Offshore call centres simply do not offer the same standard of service as UK-based service centres."
And as a broker-only insurer, Groupama knows what brokers want. "Brokers don't want to deal with offshore call centres, they want to deal with someone who knows what they are talking about," says Gibson.
Adam Boakes, UK development manager for broker-only SME insurer Evergreen, agrees that brokers don't want offshore call centres. "An increasing amount of service-related jobs are being transfered offshore, just at the time when brokers need dedicated support from an insurer in terms of 'back office' service in order to help brokers meet contract certainty requirements.
"It has become apparent over the past 18 months that brokers are looking for efficient solutions to ease their administration burdens. The attitude is that they would rather absorb the administration process in house and guarantee prompt, correct documentation as opposed to placing reliance on the ever reducing administration department of an insurer."
Nick Bowyer, director of marketing, at high-street broker Swinton, reinforces the view that customers do not want offshore call centres. "Our customers tell us that they are not always keen on dealing with call centres and prefer a close professional approach, providing empathy and a high level of service.
"The problem at the moment is that you have voices in different parts of the world dealing with solving different problems. This stops it being a customer experience and makes it a transaction, which in turn makes it hard to relate to the company."
Bowyer argues that, as a result, in Swinton branches the conversion and retention rates are therefore better than most call centres. "Although Swinton's customers don't necessarily always come into the shops, they know that they can if they want to, and can have a relationship with the staff. In the shops we have small teams that are multi-skilled, and the average time they have been with the company is several years.
"With a call centre, you are lucky if people stay for 18 months. This means for us that the same staff are available to talk to in the next five minutes, five weeks, five months or even five years, as staff retention is good. This makes for a more cohesive and personal customer and staff experience.
"This model creates a virtuous circle, which might seem old fashioned to some, but is actually highly valued on both sides of the fence. In the long term, parts of the market will move back to this approach, as a time will come where the alternatives become too depersonalised."
The issue of offshore staff retention is supported by Havard. "Our study reveals that companies are experiencing dramatically higher rates of absenteeism and attrition than they expected.
"One third of all respondents say they are experiencing attrition rates that are between 30% and 50% higher than in their onshore operations. We know from experience that, in some Indian contact centres attrition rates are as high as 90%. Over two thirds of respondents report levels of employee absenteeism that are 20% higher than in their onshore centres."
CM Insight believes these increases in attrition and absenteeism will damage offshore's long-term viability. "The difficulty of hiring and holding on to staff will lead to wage escalation as offshore markets mature," says Havard. "We have already seen significant wage increases in India. In addition, quality and customer satisfaction will suffer further as a result of fast changing, inexperienced front line staff."
Howard Hughes, head of marketing at health insurer BCWA, says moving operations offshore goes against the principle of offering the customer a quality service
"We would never dream of doing it. Having a good relationship with the customer is the most important thing an insurer can have, so why hand it over to a third party? Customers can be stressed when they call and they need understanding and empathy. How can they get that if the person they are talking to is 3,000 miles away?
"It's about having good values when dealing with customers. Offshoring is just too short-termist. NU is looking more after its shareholders."
Simon Burgess, managing director, of British Insurance agrees. He says: "By going offshore NU raises the question of why buy British. Offshore call centres are notably inferior to UK-based centres. And why should NU customers have any loyalty to NU when it is saying it is the cheapest option that is most important for it - that can be the case for NU customers.
"Why not just buy insurance straight from India and take NU out of the picture and kick it into touch," says Burgess. "The whole approach lacks any concern for its employees. It causes misery and destroys people's lives. If you are over 50 for example, the prospect is you will not get another job."
NU's move of 1,000 roles offshore is all part on an on-going plan that will see 7,800 roles to be located offshore by the end of 2007.
Patrick Snowball, NU executive chairman, used the usual 'cost saving, it's a competive market argument' when justfying the move. "We have to ensure that Norwich Union remains a highly efficient and effective company in what is an increasingly competitive and dynamic environment. Customers' buying habits are changing rapidly as technology becomes more accessible."
And David McMillan, NU's general insurance customer services director, disputes the view that offshoring results in inferior customer service. He says: "Moving services offshore, we expect the customer service levels to be the same or even better than the UK and that has been our experience.
"The level of customer service is at the level we would expect in the UK in terms of customer satisfaction and turn around times. All the feedback we get from customers when we do surveys of the service is very positive and our customers are happy with the service. If it didn't work we wouldn't do it."
This is a fair point. If the offshoring option didn't work for NU why would it stick with it?
McMillan also says many factors come under consideration when deciding the offshore strategy and it isn't just about appeasing shareholders. "We have done it because the market is so competitive, as a strategy what we are doing offshore does deliver to our shareholders, but also to our customers. It is a strategy that succeeds on all fronts."
NU has no plans to increase its offshore presence beyond the 7,800 cited. McMillan says that the UK NU workforce still accounts for 75%-80% of those employed by the company and this percentage is not going to change.
One third of NU's 7,800 offshore staff are call centre workers with the rest made up of back office non-customer facing roles.
John Barber, operations director, at process specialist OEE, says the distinction between what jobs can be done offshore should be made. "When you look at offshoring there are certain aspects you may and may not be able to do.
"There is a debate about inbound and outbound call centres. Taking inbound calls, I would say is OK, if the individual has all the information they need, but selling and pitching in outbound calls is a different matter and skill set."
Although there is an element of seeing offshoring as a panacea to all cost problems, warns Barber. "When looking at a capability and business process you it should be asked how process 'A' can be made cheaper and streamlined before looking at just moving it overseas to meet the cost savings requirements. So a serious analysis of savings and service should be undertaken before it is outsourced as this makes the whole process transportable," he says.
But recent findings by analyst group Gartner predicts that by the end of 2007, 80% of offshored projects will fail to meet their cost reduction targets. The report says that the risk of customers defecting and hidden costs in leaving the UK are cancelling out savings from lower wage bills.
Alastair Bathgate, managing director of Blue Prism, says: "Offshoring contact centre operations are costing far more than many companies anticipated and we're seeing a number of organisations moving back to the UK. Controlling costs remains a priority for all businesses and there are many cost-effective ways in which call centre efficiencies can be made, resulting in fast return on investment and significant bottom-line savings. Offshoring isn't the only option"
There is the political concern of what does the UK do now as an economy? As a once great manufacturing economy has been stripped way to be a service economy, but even the service side is being taken away and shipped abroad. So what will we be left with?
Richard Griffiths, director of Hays Insurance and Financial Services, says the picture is complicated "Offshoring is taking away jobs from the UK labour market, and as a service based economy. This is obviously a concern."
He says some companies will follow suit but a lot will not. "The UK is still a nation of small businesses and the majority of those working in the UK do so for smaller employers that wouldn't have the critical mass to make it worthwhile to utilise offshoring.
"It is not NU that determines the offshoring strategy per se, it's the likes of you and me who, as consumers, demand the lowest prices possible for our insurances. We complain that we want service, but really we view insurance at this level as a commodity and compare price. Poor service is our trade-off for lower prices."
Ian Hughes has an interesting take on the impact of offshoring jobs and where it will lead. "It should be noted that offshoring is just a beta test. Within a decade, jobs that have been offshored should be re-engineered and replaced with computers, leaving jobs in the UK that are high value and high paying."
Even if this is really the outcome in years to come, there is still more blood to be spilt in the whole offshoring debate. IT