While insurers face numerous challenges in making business process outsourcing (BPO) work, many expect their company's use of BPO to remain level or increase in 2011.

Analysts at Celent are beginning to see signs that core systems BPO and Software-as-a-Service (SaaS) is heating up. According to the financial research and consulting firm’s recent report, “Approaching the Boiling Point: BPO, SaaS in Insurance,” in the current economy, competitive pressures will continue to drive insurers to seek solutions that balance reduced costs, high service quality and well-managed delivery risk. “We expect that the first wave of strong movers into core systems BPO and/or a SaaS model for core systems will gain competitive momentum that will be difficult to copy,” the report states.

The firm conducted interviews and surveys for the report, finding that nearly half of all respondents (49%) expected their company's use of BPO to remain level in 2011, while 36% expected it to increase. The top three areas of concern regarding BPO for core business processes were lowering of service levels (49%), loss of control (44%) and data security (41%).

Significant hurdles and challenges are forcing insurers to play a waiting game. One challenge is finding a vendor "fit," Celent says. Insurers believe that BPO- and SaaS-based offerings have not matured. Respondents rated vendors' capabilities strongest in the print/mail areas and weakest in the core business processes.

Another challenge is getting processes under control so that they can realistically be outsourced. A third is pushing their corporate culture toward BPO. And a fourth is getting over the perceived loss of control inherent in outsourcing business processes.

Celent advises insurers that will eventually take the plunge to make it a short wait. They should get started bringing these new tools to bear on their core systems strategy, perhaps experimenting with a portion of core systems and services that travels well.

This article first appeared on Insurance Networking News web site.

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