A passage to India

Risk & Insurance, April 1, 2004 by Peter Rousmaniere

It's time to consider relocating some workers' comp operations offshore, such as in India, South Africa or Ireland. Lowering costs is an essential element but I think only part of the matter. Try to view offshore relocation not as losing an American employee but rather as gaining a better business process.

Computer systems are today equally accessible in Baltimore and Bangalore, and so are images of scanned documents. Phone charges between each city and Brooklyn are about the same. But the Baltimore worker might cost, with benefits, $60,000 compared with $10,000 for the Indian worker.

A workers' comp insurance professional, Bob Ayers, has visited India-based operations and feels the outsourced workers there are as proficient if not more so than Americans. His research tells him that outsourcing of not just insurance industry jobs but entire business processes is going to happen. Even if our industry doesn't do it today or tomorrow, the collapse of communication barriers makes it inevitable.

An early adopter of offshore placement of service workers, General Electric Co. seeks to outsource 70 percent of its work, send 70 percent of that overseas, and locate 70 percent of that in India. Deloitte Touche is predicting that by 2010, about 2 million of the 13 million financial sector service jobs in mature economies could move from Europe, the United States, Japan and Hong Kong, to countries bordering the Indian Ocean primarily.

By my rough estimate, about one fifth of jobs in workers' comp insurers and TPAs are candidates for relocation. These are a large share of claims adjusting, policy administration, call center and IT positions. Filling them with overseas personnel can, for an insurer, reduce the combined ratio by the equivalent of about two percent of premium.

Offshore deployment first focused on software programmers and data entry. With gains in telecommunications, jobs in customer service, accounting, document management and claims handling departments become viable candidates for offshore placement.

Offshore jobs in these business processes are growing at well over 25 percent per year. Rafiq Dossani at Stanford University's Pacific/Asia Research Center has recently completed a useful study on the subject. It takes at least a year to get it right. As more insurers, American and British, set up offshore captive operations with multiple functions, planning and implementation becomes less risky.

This could be loud talk designed to drown out the cries of Americans losing jobs. So, I'll imagine I am COO of a workers' comp insurer wanting to deliver a good return on investment while respecting my responsibilities of corporate citizenship. I will ask two advisors--Mr. Local and Ms. Global--to argue the case.

Mr. Local weighs in. "You've already forgotten the lessons from the dot-com bubble? Think of this as a new technology that will rise and crash before it's safe to use. Do you want to play with your current employees' futures? Let the other insurer incur the risks of innovation. Yes, over the long run the economics do look attractive. But wait until labor pools over there develop further"

Countering, Ms. Global tells me, "These workers are eager to work within their own cultures for mature-economy firms. Face it, our industry here pays relatively low wages domestically and we're way back in the queue for the talented employee. Don't you want to deliver some services now but can't because domestic labor costs are too high?"

As COO, that gets me thinking how I'd prefer live, warm voices at help desks and call centers. Also, I'd prefer more educated workers to handle my medical-only claims. And I can use some analysts with accounting backgrounds to focus on claims fraud without other adjusting tasks to distract them.

If foreign workers come here with green cards and work for us, is it any different if we take the jobs to them? A departed friend, a life-long Communist who also made a killing through Wall Street insider trading, was fond of saying "At five o'clock we are all economists." Maybe so.

Columnist Peter Rousmaniere writes monthly for Risk & Insurance. He can be reached at riskletters@lrp.com.