Lies, Damned Lies And Offshore Outsourcing

o U.S. outsourcing vendors are preferred by 9 of 10 U.S. insurance users/clients. Offshore data security, the complexities of managing risks, cultural barriers, compliance requirements and reliability are still viewed as offshoring drawbacks by 95% of insurance users. 96.6% of onshore clients state they would consider offshore vendors if these issues manifested improvements.

o System modernization, process transformation and innovation dominate sourcing agendas as the key drivers for vendor selections–more than the cost-based benefits of recent years, as risks from service interruption, customer data, information security and privacy exposures far outweigh any benefits from cost reduction to insurers.

How very interesting this all is. The CAGR of offshore insurance outsourcing is projected to be 33%, yet only 9% of insurers seem to favor offshore outsourcing, citing a number of very practical concerns, some of which have previously been voiced in this column.

If you think about it, however, a 33% growth among the 9% who favor offshore outsourcing is not terribly large, because the numbers favoring it are not terribly large. Assuming the statistical projection of the book to be correct, a one-third growth in the 9% who favor offshore outsourcing would mean that 12% will favor it next year, and 16% the next.

That still leaves 84% of insurance companies favoring onshore outsourcing over the offshore variety in 2010–in other words, the vast majority.

So, did the numbers lie? Well, not exactly. The interpretation of the numbers, however, is another kettle of (stinking) fish.

Having looked at the figures, it is easy to see that the interpretive statement, “that mix is shifting offshore at a breaking [breakneck?] pace,” is hardly justified by the reported numbers. There is no doubt that 33% seems like a large annual growth number when taken out of context, but as we have seen, it is actually not terribly significant when the original figures are relatively small numbers.

It may be true that offshore outsourcing is growing in our industry, but to suggest, based on these projections, that it is a runaway trend, is–to be kind–a gross exaggeration.

One also has to wonder how the onshore outsourcers have greeted the news in this book. If they did the math, perhaps a yawn was the best response.