The price of going offshore - Timestwo Outsourcing

Much is made about the need for integrity in insurance. At the CII Conference in September, the great and the good of the industry spoke eloquently about winning back the trust of the public and about securing their respect.

The consensus was that, for insurers to enjoy a healthy reputation, they must demonstrate their reliability at every opportunity and impress a largely sceptical audience with their desire to serve them better.

Common sense, you'd think. So why do so many financial services companies (including insurers) tend to fudge the issue when it comes to talking openly about things that really matter to their policyholders?

A point of concern is outsourcing/offshoring and the process whereby customer service and (in particular) claims operations in the UK are shipped out to other countries such as India and South Africa.

Let us leave aside the merits or otherwise of exporting UK jobs to other economies. The problem is the way such activities are represented to and perceived by UK consumers.

If a business announces its offshoring intentions, it might cite, as its principal motive, improved customer service. It may describe how it is more able to recruit enthusiastic, highly qualified staff overseas. It may also promise that operationally it will now be quicker, slicker and generally better able to improve the customer experience.

But surely this is really little more than sugar-coating? The main reason companies go offshore is simply to save money. They are motivated by the potential cost-savings that can be won by paying people in these countries a fraction of what they would have to pay someone in the UK.

There is nothing wrong with saving money. The market is ultra competitive, and anything that helps sharpen the edge is worth considering. But (taking claims handling as an example) if cost is a cake, is it right to focus on the modest slice that is generated by servicing customers? Why not put the emphasis on the much more substantial piece represented by claims themselves?

And why should insurance companies feel awkward about disclosing their true motives anyway? If they feel there is a genuine connection between the cost of running a call centre and the price they charge to policies, why not trumpet the fact that they are doing all they can to save their clients' money?

This argument always seems to go down well with the bean counters. It might not wash with genuine insurance types. But if the company is more concerned with selling price than quality, then why not at least have the courage of its convictions and say so?

If we agree that cost is a universal enemy, we should also accept the thesis that cutting costs should not compromise customer service. And there is a growing sense that, while offshoring might help companies save money in the short term, it will lose them credibility and even customers in the long run.

There may even be a regulatory perspective. The FSA requires us to treat customers fairly. It doesn't say in precise terms what it wants us to do, but a company which fogs the issue on the motivation for an important corporate action like off-shoring might just cross the line in terms of treating customers fairly (TCF)compliance?

TCF precepts
Think of the all-embracing nature of TCF as it has been revealed over recent months. It pervades every aspect of a company's operations, from product design, through marketing, to distribution, servicing and claims.

Senior managers have to consider every facet of their firm's operations and gauge performance against TCF precepts.

So maybe the enthusiastic offshorers might want to review their statements on the subject?

But leaving aside the ethics of how a move offshore is presented, what about the service quality argument?

Much of the evidence for the actual weakness of offshore service provision is anecdotal, but anecdotal evidence is important, especially when you are dealing with something as intangible and fragile as sectoral reputation.

There probably isn't a reader who hasn't had a conversation about shoddy service from a call centre of some description. The topic is a mainstay for stand-up comics and newspaper columnists.

Those who provide offshore services resist arguments about language problems, echoey phone lines and the sort of misunderstandings that can arise when people from different cultures discuss something as particular as insurance.

They point out that they encourage their staff to watch Coronation Street and East Enders so they can develop their grasp of what makes us tick here in dear old Blighty.

Does that sound like a solid base for high quality customer communications to you?

Ask yourself a question: when you call a service provider, do you want to talk to someone working on the Indian sub-continent or someone operating here in the UK? On an instinctive level, which makes you feel more comfortable? Now think about what your customers might prefer.

Of course, there is no guarantee the UK based contact will be better, but it might at least have a clear understanding of basic geography and probably does not need to work quite so hard to counter these negative perceptions.

Risk management
And all this to attack a cost centre - claims servicing - that accounts for maybe 3% of premium. Why not focus the efforts on risk management and the claims costs themselves and have a much bigger and more valuable target to aim at?

Something that might actually do the business and its customers a bit of good?

There are a couple of other issues that must be factored into the debate on offshoring of claims handling. The first is security.

Earlier this year we heard about identity theft and other instances of fraud in an offshore financial facility. This may be an isolated incident, or it may be the tip of an iceberg.

Again, it is a matter of perception. Rightly or wrongly, people have doubts about the integrity of offshore services. So are we treating them fairly if we oblige them to partake of it?

The other point is more prosaic but nonetheless important: we have seen instances of severe flooding in India during the monsoon season, which raises all sorts of issues in terms of sustained communications and physical record-keeping.

The argument about offshoring boils down to a couple of simple questions: are companies willing to risk a loss in quality and reputation (we are after all, talking about brand here) to secure a wafer of cost-savings?

Or would the time and energy be better spent on genuine insurance management concerns that might deliver meaningful benefits, not only to the company but to its customers too? IT

' Graham Gibson is claims director of Groupama Insurances