Attracted by reduced running costs, UK insurers are rushing to move jobs to India. Jonathan Russell reports
The dam holding general insurance jobs within the UK has burst.Norwich Union (NU), Allianz Cornhill, Royal and SunAlliance (R&SA) and AXA are generating a flood of work going east, as they scramble to gain or maintain competitive advantage.Until recently, the trickle of jobs to places like Delhi and Bangalore was enough to give insurers experience of operating offshore, but not enough to generate the kind of savings that win market share.All that has changed.By next year nearly 20% of NU's general insurance staff will be India-based, each one saving the company up to £10,000 in employment costs alone. Add to this the productivity and service level gains to be had from staffing back office and call centre facilities with highly qualified graduates and NU and its parent Aviva will be well placed to turn the screw on its competitors. Aviva's offshore programme director John Hodgson said: "Undoubtedly the move to India will put cost pressures on the entire industry. Though how companies use the savings, whether they chase market share or increase profitability remains to be seen."The rest of the market is following in NU's footsteps. Allianz Cornhill, R&SA and AXA are all in the process of increasing their presence offshore.Allianz is moving 400 jobs to a new centre in India, cutting its UK workforce by 10%. R&SA has two programmes running in parallel, one to move 50% of its IT operation to India by 2007, the other to pilot a back office facility for its More Th
Global strategyGuardian Royal Exchange, now part of AXA, and Willis were two of the first companies in the general insurance sector to move functions to India. Willis, which operates a global strategy working out of Nashville, Ipswich and Mumbai, started the trend in 1993. It now has over 600 people in India. Guardian Royal Exchange set up a small 30-person facility dealing with back office functions in 1997. Over the following years, progress was slow as the traditionally conservative insurance industry looked to other sectors to see how offshoring would develop.Deloitte director of research Chris Gentle said: "We are still at the thin edge of the wedge. There is still a long way to go for the insurance sector. "You are looking at 10 to 20 years for the full impact to be felt, when it is possible you may see more than 50% of a company's workforce offshore."Gentle uses the American manufacturing industry as a model to understand the process, highlighting Levi's move out of the US.He said: "These things do not happen overnight. Levi was making all its jeans in the US in the 1970s when they started moving offshore, but it was only two months ago they closed their last two factories in the US."Size and function will determine what will go and what will stay, with only the biggest operators able to set up their own captive operators. Small companies looking to offshore will be forced to work with third party operators.
Retaining controlThis remains one of the debating points within offshoring: to set up a wholly owned operation and retain control of the business operation or farm out the work to a third party.Worryingly for the UK job market Aviva lent towards retaining control of its workforce, with a build, operate, transfer model. The option allows for far more offshoring than a third party deal.Gentle said: "The question is whether to buy a service or build your own capability. Only the biggest operators will be able to set up their own captive centres, but this certainly gives more control over the operation."
Local partnersAviva's build, operate, transfer model is a hybrid system. The company will work with local partners to set up the operation, and then transfer control back to the parent when it is running smoothly.The level of sophistication of the Aviva model is the proof that the driver for offshoring is not purely economic. The company sees major gains to be had in customer service levels and productivity.Hodgson said: "The jobs we are creating in India are really sought after, meaning we can recruit people from the top quartile of the population. You get a huge up-skilling in terms of the quality of the workforce."This then is the crux of the offshoring debate and where the government's view that high quality work will always stay in the UK diverges. The early evidence suggests it is the high quality, rather than the low cost, of the workforce available offshore that could be the final nail in the general insurance employment coffin.