Andrew Holt says insurance companies need to acknowledge their poor performance

' Offshoring doesn't work. At least not in the way those who embrace it want it to.

It doesn't cut costs as expected. Instead it involves considerable hidden costs.

Customer dissatisfaction is rife. But those involved in offshoring don't care - as long as business keeps booming. The trade-off of dissatisfied customers is seen as a price worth paying as long as the business grows.

This was the stark message from consultancy firm CM Insight in Prague two weeks ago. A damning indictment of all the propaganda spouted by those who promote offshoring as a business panacea.

The message is you can save wads of cash by offshoring to cheap labour call centres but at a price of alienating your customers.

Nobody involved in offshoring escapes this judgment. CM Insight covered all types of financial services and all types of offshoring/ outsourcing models, and the negative customer feedback was the same in all scenarios.

CM Insight's managing director Mike Havard points out that insurers and other financial service firms offshoring are sitting on a time bomb if they think they can continue focusing on business growth at the expense of growing customer dissatisfaction.

You have been warned.

So what can be done? Should offshoring be dispatched to the dustbin of history?

The problem here is that too many insurance companies are committed to offshoring because the cost savings it produces have already been factored into future operational costs.

So the issue is clearly to improve customer service at these operations immediately.

Insurers have a big part to play in this. They cannot sit back and accept such appalling levels of service. CM Insight said that, on average, 3% of customers were lost because of a basic lack of cultural understanding from offshored call centre staff when dealing with customers.

Havard also revealed that almost 60% of customers said they were willing to pay more to deal with UK-based staff.

Surely this undermines any rationale for offshoring when customers are willing to pay more?

The irony is that it looks like offshoring is here to stay. As well as too many companies embracing it, there are now too many domiciles promoting themselves as offshore/outsourced centres for it to be dismissed as a passing fad.

The implication being that if you have a Muppet organisation dealing with your operation, you can ditch Kermit and move to another more culturally disposed customer service centre.

But the issue of delivering proper customer service levels remains. It has to be dealt with now. The clock is ticking. IT