The insurance outsourcing industry is moving at a fast pace in response to the need for rapid deployment of digital platforms and offerings, as well as advancements in new distribution models that are emerging via ‘insurtech’ start-ups. Here I take a look at some of the key trends driving the insurance BPS market in 2017, both in terms of delivery and transformation, and by individual service line.

New distribution models, analytics & automation

Health insurance start-ups (Oscar Health, Clover Health, Bright Health, etc.) have been flourishing, followed by property & casualty insurance (Lemonade, Verifly, Metromile, Wrisk, etc.) and life & annuities insurance (Ladder, League, InforcePro, etc.), who are also seeing an increasing amount of investment. Outsourcing vendors will be actively looking to partner with, or potentially acquire, such companies in order to leverage their capabilities on an add-on basis, or using a completely transformative approach. And the insurance start-ups that will be most targeted by vendors are those investing in new distribution models.

Insurtech developments will bring more regulations at federal level in the U.S., as the application of new operational models will overtake the current state-level regulation framework of insurance companies. It is also possible that the new regulations will allow for the fostering of further innovation compared to current state regulatory frameworks.

Big data and analytics in insurance will see further growth, stemming from the vast amounts of data stored by insurance carriers. Vendors will either develop offerings to leverage such information, or will acquire companies in order to do so. It is still commonplace to find old-school insurers who are unable to analyze and leverage their clients’ and prospective clients’ data.

In terms of operating systems, vendors will continue to optimize legacy platforms with add-on proprietary or third party software, as well as retire dysfunctional and costly systems for newer ones that have modern distribution model capabilities. Digital transformation will increase among insurers, with larger numbers of insurance carriers shifting their operational model towards emerging market segments (millennials, middle-market consumers, etc.).

In the area of automation, the insurance sector has been at the forefront of RPA adoption to date, and this will continue in 2017. Meanwhile, AI technology is taking small steps towards greater adoption within insurance offerings, mostly in policyholder-facing applications. Policyholders will continue to request better, more personalized, engagement by their carriers through omni-channels, with a digital approach, with the policyholder engagement market segment seeing growth of more than 10% per annum.

Elsewhere, wider application of telematics offerings among passenger vehicles and industrial devices will allow for more accurate and individualized calculation of premiums.

Trends for 2017 by insurance service line

Property & Casualty BPS trends include:

• Launching new digital products and services in untapped markets for traditional insurers
• Emergence of fully digitally-operating carriers with a Bermuda-style regulatory framework, backed by PE/VC firms
• Emergence of new products for traditional insurers (drone insurance, on demand insurance, etc.)
• Wider application of analytics for process improvement and trend identification among policyholders.

Life & Annuity BPS trends include:

• Insurers outsourcing more responsibility to vendors that are able to provide specialized actuarial and predictive analytics services targeting customer retention
• Insurers requiring guidance on regulatory product adjustment from Solvency II implementations
• The middle-income and millennials market in the U.S. will see increased growth, as investments in digital channel communications expand
• Vendors will continue to improve customer service levels, CSAT scores and customer retention rates.

Healthcare Payer BPS trends include:

• The future of Obamacare and health insurance exchanges in the U.S. is uncertain after the Trump election. There will definitely be changes in the ACA care models and payers will most probably bear some of this cost of change in healthcare policy
• Consolidation among lower-tier healthcare payers will continue its momentum in 2017, creating opportunities for legacy platform retirements and updates from outsourcing vendors, eliminating disparate assets in newly-formed organizations
• Population health management and wellness programs through innovative delivery and distribution models will see significant growth, as well as engaging with patients through omni-channels, improving retention and satisfaction
• Applying analytics that identify opportunities for process improvement, as well as reducing fraud, waste, and abuse will be a top priority for payers
• Distant monitoring of patients and telemedicine will also see increased growth
• Preventive care and wellness offerings, in conjunction with traditional healthcare insurance, will see a rise in demand.

We now turn our attention to Dell Services, which has adopted an automation focus across its life and healthcare insurance BPS processes.

Focusing on healthcare payer & provider and life insurance process automation

In 2016, life insurance accounts for around 30% of Dell Services’ overall BPS revenues and healthcare payer accounts for approximately 35%, with healthcare provider making up the balance. Dell Services takes a platform-led approach to its BPS:

1. It has its own LifeSys platform for life insurance, on to which it migrates a client’s book of business and provides administration services in its own environment; or

2. It partners with a third party supplier for platform capability and tailors it to fit the needs of the book of business, from which it can then provide services, e.g. Dell Services uses partner ikaSystems for its healthcare payer platform needs, on top of which it layers its Dell Business Process Management Suite (DBPMS) tools. The tools include:

3. An enterprise dashboard: including KPI tracking and trend analysis for SLA metrics

4. Client extranet: including an issues log

5. Queue management: including skill-set based routing and priority allocation.

Automation Ideation led by BPS delivery teams

Unlike other providers, who tend to be led by their clients with respect to automation, the process at Dell  Services starts with an internal ‘ideas generation’ stage, achieved either through Dell’s ‘LEAP’ (Listen, Engage, Act, Progress) portal where agents are able to log ideas, together with perceived benefits (and are rewarded if their ideas are selected) or via the Business Process Improvement (BPI) team who carry out a ‘click study’ to identify ways in which the process could be re-engineered or automated. In line with its peers, an internal concern about increasing automation was the inevitable change in job composition; for this reason, the LEAP portal is considered particularly important to ensure employees are involved and engaged in driving the initiative forward. In addition, supervisors are targeted with an annual 5%-15% AFTE target. Once an idea has been selected, a feasibility study takes place before the idea is tested and bots are deployed by the central AFTE automation team. Bot management is then passed to the operations team while the bots are monitored through the central bot command center.

Balancing AFTEs with FTEs

In line with the market, Dell Services has concentrated its efforts on applying automation to high volume processes, which account for ~30% to 35% of its overall book of business. To achieve this, it is targeting the introduction of ~300-400 AFTEs year on year, though this is not a static number since clients are on-boarded throughout the year. The overall aim is to achieve around 6% productivity improvement per annum.

Although Dell Services does use third-party RPA platforms, it has developed its own “AFTE” platform incorporated within the Dell Business Process Management Platform. AFTE bots rather than third-party bots are typically deployed where the Dell BPMS platform is already being used or is to be used.

High volume processes (in which AFTEs are being used to varying extents) within each of Dell Services’ insurance services include:

• Life insurance:
  • Data entry and indexing: freeing up FTEs to carry out other activities such as policy holder services where less work is typically carried out by AFTEs – though this is something that Dell is looking to change and where Dell is investing in automation initiatives
  • Policy issuing: currently, the work is handled 50% by FTEs and 50% by AFTEs, with Dell seeking greater tool maturity before it is able to drive greater automation here
  • Premium accounting
• Healthcare payer:
  • In-bound calls: FTE-led
  • Adjustments: FTE-led
  • Adjudication: 50% AFTE, 50% FTE
  • Claim processing: FTE-led
  • Member enrolment: FTE-led
  • Provider maintenance: 50% AFTE, 50% FTE
• Healthcare provider:
  • File download: exclusively AFTE
  • Medical coding: 50% AFTE, 50% FTE
  • Change entry: FTE-led
  • Payment posting: AFTE-led
  • Credit balancing: 50% AFTE, 50% FTE
  • Accounts receivables: FTE-led

A simple example to illustrate some of the quantifiable benefits that have been achieved through automation can be seen through the work that took place to automate call center operations at one of Dell’s life insurance clients. Prior to the introduction of automation, call center agents were required to use a number of screens to capture customer information, which often resulted in comparatively low accuracy, and a high handling time. The system was not user-friendly and baseline training typically took around 10 weeks. Ultimately SLAs were being missed. To address this, Dell condensed the numerous screens into one screen and introduced rule-based processes to ensure no manual calculations were required to complete the form, unlike previously, where up to six manual calculations were required. As a result, AHT fell from 471 seconds to 374 and training took ~7 weeks, as opposed to 10. The quality of data capture increased from 88% to 95% and the average time taken to update notes fell from 110 seconds to 15 seconds¸ because the system was largely able to perform updates itself.

Plans to Implement Machine Learning within Dell BPM Platform

Over the last four years, Dell has extended its capabilities from simple script based-processing, to the development of AFTEs, including an associated AFTE command center. Going forward, the intention is to incorporate a self-learning capability, implement technologies such as NLP and machine learning within the Dell BPMS platform, and to secure end-to-end automation in the processes that are already largely being carried out by AFTEs, e.g. indexing.

HPS' 2015 revenues were $223m. It has achieved a CAAGR of 38% in the last three years, driven both from adding new healthcare payers and from the increase in individuals or groups eligible for first-time insurance coverage due to the ACA initiations; the company now supports ~20% of Individual health plans in the U.S.

The acquisition will be a major boost to Wipro’s ambitions in healthcare and specifically healthcare payer BPS, an area where the company had made modest at best progress since its acquisition of Infocrossing, and the Infocrossing Healthcare Services, Inc. unit in 2007. Wipro Infocrossing currently has healthcare payer BPS contracts with two State Medicaid agencies, including Missouri’s Department of Social Services.

The acquisition of HPS will enable Wipro to move beyond support for the Over 65 market in the form of Medicaid and Medicare, and to address the growing market for individual plans in the Under 65 B2C market. It will provide Wipro with a more modern building block around which to position its healthcare payer BPS business. Such is the importance attached to this building block by Wipro that it is conducting a reverse integration of its healthcare & life sciences business into HPS, with the overall unit being led by HPS' President and CEO Jeff W. Bak.

The Individual policy market is currently a small part of the overall health plan policy base, but it is one that has been showing double-digit growth with the ongoing extension of health insurance coverage in the U.S. Looking at the future dynamics of this market, Wipro expects that the Individual plan member base will continue to grow for the next three years as health insurance coverage of the population continues to expand and will then stabilize. By this point, Wipro perceives that there will be a secondary growth driver for exchanges with health insurance exchange markets becoming attractive to employers as a mechanism for providing health plans to certain groups of employees such as part-time staff.

HPS currently serves ~35 healthcare payers, with its top ten clients accounting for ~80% of its revenues. Its client list includes Ameritas, Allstate, Assurant Health, Beazley, Cigna, Foresters, Humana, Kaiser Permanente, Starmark, UnitedHealthOne, unum, and vsp. HPS’ niche is in assisting healthcare payers to enter and control their costs around state-based and Federal exchanges; it is focused on the ‘individual’/B2C health plan market. HPS has a platform to support healthcare payers across the Individual policy lifecycle and views the typical journey with a healthcare payer in four steps:

• Helping them to connect with private & public exchanges (using its ExchangeLink platform)
• Assisting them in policy administration & member services (ServiceLink platform)
• Helping them with member acquisition through its licensed agents (SalesLink)
• Assisting them in member retention & loyalty (LoyaltyLink).

With these services, HPS can connect healthcare payers to 40 public exchanges and 150 private health insurance exchanges; and the HPS Insurance Agency connects to a network of ~100k nsurance agents. HPS aims to help payers move beyond medical insurance and offer servicing around digital products in other areas such as dental insurance and even life insurance.

HPS has ~2k employees, all onshore U.S. It offers both SaaS and BPaaS services. Clearly the BPaaS element is extremely attractive to Wipro and in line with its strategy for developing its BPS service. HPS will also give Wipro access to a wider client base among commercial healthcare payers and an opportunity to cross-sell wider services such as offshore-centric claims processing while adding credibility to the company’s onshore presence in the U.S. The non-FTE pricing models used by HPS (such as per member per month for member servicing and on a share of premium/commission for new business) will also be attractive to Wipro

Overall, this acquisition will give Wipro both a leadership position in BPS in the Individual healthcare payer market and also the potential for a fresh start in healthcare payer BPS overall, including opportunities to leverage its services around digital and analytics and to start to move into complementary areas such as population health management, patient monitoring, and ACO support. Possible synergies with other analytics offerings should not be excluded, such as with Wipro’s Marvel CX, in order to further enhance customer experience.

Wipro is on a bit of an acquisition spree at the moment: this will be its fourth acquisition so far in FY 16, following those of:

• Designit, which has enhanced the capabilities of Wipro Digital (part of the Change strategy)
• cellent AG, bringing in scale and local relationships in the key European market of Germany
• Viteos Group, bring in BPaaS capabilities in the financial services sector.

Including HPS, Wipro will be making an overall investment of ~$750m in these acquisitions, all of which are strategic, rather than bolt-on, acquisitions. Like Viteos, HPS will afford Wipro the opportunity to build a ​BPaaS business in one of its principal target sectors.

Footnote: NelsonHall prediction was spot on!

In our January blog on the announcement of the appointment of Abid Neemuchwala as the new Wipro CEO (see here), we said an acquisition like this was highly likely. And in our December 2015 Key Vendor Assessment on Wipro (which will be updated later this week) NelsonHall anticipated that the acquisition spree in FY16 was not finished with Viteos.

If you would like to know more about NelsonHall's extensive coverage of Wipro in our Key Vendor Assessment or any of our IT Services or BPS programs, please contact [email protected]

Telecoms and media, Firstsource’s dominant sector (44% of revenues this quarter, around $56m), was the slowest growing vertical. The fastest growing was healthcare, with 15.8% y/y growth to ~$41m. This vertical was a contributor to the 17% growth in the U.S. Growth in the U.K. (15.3%) has been fuelled by the BFSI sector.

Attrition has decreased considerably in offshore centers in India and the Philippines (49.2% from 57.3% in Q2 FY 2014) and especially in onshore centers in the U.S. and Europe (33.8% from 47.4% in Q2 FY 2014); although these figures are still dramatically higher than its European and U.S. based peers. Attrition in its domestic serving centers continues to be a concern (92.8% from 85.6% in Q2 FY 2014).

Guidance for full FY 2014 remains upbeat:

• Moderate revenue growth fuelled by expansions from current customer management contracts, continued growth in the healthcare vertical and expected ramp up in BFSI collections
• Operating margin expansion of 150 to 200 bps, due to ongoing consolidations of low margin accounts, increasing efficiencies across business units, growth in offshore delivery and increasing collections business in Q4.