Outsourcing to India is flavour of the month for insurers. Can it work for brokers too?
Ian Ritchie reports
When BT announced last month that it was developing call centres in India, it joined a long and illustrious list of firms beating a path to the subcontinent. And the financial services industry is at the forefront. Prudential, HSBC, Capita, R&SA, Willis and Zurich are among the companies which have announced intentions to develop or expand activities in India.
Well, that's all very well for global companies, operating in a global marketplace, but surely not high on the agenda of the provincial broker, you might think.
However, the problems that labour outsourcing solve are as valid for brokers as they are for insurers. All brokers have a number of routine tasks that have to be performed, and within the small to medium sized broker, these are often absorbed with other duties. And as medium-sized brokers grow - as they are likely to do at an unprecedented rate over the next year or so - routine tasks are taken on by specialist support staff.
The UK is a high cost economy in terms of salary (although many readers may disagree) and ancillary employment costs. This month's rise in national insurance contributions augment the other, sometimes hidden, costs of maintaining a workforce in this country. Factors such as maternity and paternity leave, an increase in `stress-related' absenteeism and employers' liability claims, are costs that have to be absorbed by all companies.
Routine processes have to be carried out somewhere. In our sector that often means accounts reconciliation, and claims process management. These tasks are labour intensive, and require staff with some financial, insurance or accounts training and knowledge. While these are vital, it can be argued that neither contributes directly to bottom-line profit. They are cost centres that need to be managed, but with an underlying demand that the tasks are performed on time and are right first time.
Productivity is also improved. Service standards can be agreed, and delivery of these further enhances the effectiveness of the outsourcing proposition.
How do the numbers stack up? Realistically, companies that spend more on the processes to be outsourced will save more. That does not mean the concept is the province of the multinationals. Far from it. A medium-sized broker employing half a dozen people in accounts reconciliation could show a significant saving.
Mark Atkins, managing director of outsourcing firm Compass Connections, says a company with a salary spend of £120,000 in the accounts function, could expect to save around £40,000 in a year. He says: "In addition to salary savings, a number of overheads are also lost. Staff acquisition costs, telephone, postage, light and heat, and the cost of using the office space are all areas where savings are made.
"For an expanding firm, it could mean a relocation could be avoided or deferred, simply by outsourcing the accounts function".
For larger companies, the savings are even greater. A firm with an accounts staff of 16 plus a management structure, which may have an overhead cost in excess of £400,000 could show a saving approaching 50%, he claims. That figure takes into account the management time still needed to oversee the outsourced function, and to liaise with the service provider.
The kneejerk reaction to outsourcing is that jobs will be lost. However, in the right environment, there can be the opportunity to redeploy experienced and trained staff into more productive areas of the business, allowing the outsourcing company to handle routine repetitive tasks.
Expensive office space can be used for productive work, all of which leads to an improved margin. This, in turn, can lead to investment confidence, so that ultimately a firm can grow, and possibly increase the productive workforce in the UK.
The most popular operating base for outsourcing companies is India. This is because India offers a highly trained and motivated workforce, at a cost considerably lower than the UK equivalent. We are not talking here about sweat-shop conditions and exploitation of local labour - many call centre staff in India earn more than they would in alternative employment. The UK has become a very high cost centre for the employment of staff.
Similarly, qualified staff on the Indian sub continent are in plentiful supply, and bona fide outsourcing companies attract and recruit such staff on salaries that, while in the top quartile locally, are considerably less than the UK equivalent.
Companies that provide an outsourcing service to UK firms include Trinity, Town & Country, Compass Connections and ICICI.
Atkins says: "We would not be successful unless we're able to offer a professional resource to our UK clients. We see ourselves as an extension of our clients' businesses, and are able to be flexible in the numbers of staff we allocate to a client. In that sense, we see ourselves almost as a temporary recruitment agency, able to augment core requirements as and when necessary."
Outsourcing can make a saving, not only to the payroll, but also in other areas. Any company that has difficulty in recruiting and uses agencies to find staff, will immediately eliminate this cost from the annual budget. In addition to salaries, any other costs employers incur, such as pension contributions, private health and the like, are also avoided.
Outsourcing does not mean walking away from the process. For the proposition to succeed, the management needs to work closely with the outsourcing team, both in the planning stage, and after implementation. An allocation of management time needs to be made, to ensure that all runs smoothly, and the desired savings and improved efficiencies are delivered.
A good outsourcing company will ensure great emphasis is placed on the planning stage, and specific costings will be given, to ensure that the proposed savings can be made. If the company and its processes are not suitable for transfer to an outsourced basis, the planning stage will identify this and avoid disappointment later.
Outsourcing is not this year's dotcom boom. Brokers of a reasonable size, as well as insurers who have already tested the water, can take advantage of the savings that are available.