Encompass Insurance, a Boston – based subsidiary of Allstate that delivers auto and home insurance in Massachusetts, was in a bad way in 1985. “For quite a few years we had mismanaged our data to the point where it was costing us a lot of money,” says Andy Carpentier, vice president of marketing/COO for Encompass. “We needed to correct this because Massachusetts state regulators were levying a lot of fines against us, probably close to a million dollars.”
Encompass didn’t know it would become a pioneer by turning to Montreal, Canada’s CGI for assistance. Today, Canadian firms are rapidly impacting the American BPO landscape. U.S. companies concentrating on core business activities are turning to corporations north of the border when searching for BPO offshore services.
CGI rectified the matter quickly. But getting Encompass right with the state’s regulators by overhauling its data management was just the first step toward the goal of providing BPO services to keep the firm competitive in the insurance industry, a task that CGI has met for Encompass for almost 20 years.
Why Canada Is Competitive
There are two variables to consider: labor rates and proximity. Canadian fees can offer as much as 20 percent or more discount from American rates, due to the exchange rate (currently $1.56 CAD for $1.00 USD). Frank Koelsch, president of Everest’s Canada office, comments, “We expect Canada to become an increasingly competitive near shore supplier of outsourcing services to the U.S. market. Not only are existing Canadian outsourcers like CGI becoming more active in the US, large global outsourcers are beginning to deliver an increasing number of global services from Canadian based locations.”
Pierre Gagne, senior vice president at NewLink Group Inc., a Toronto consulting firm that focuses on wealth management of insurance companies, sees great benefits for U.S. insurers outsourcing to Canada. “The reasons of proximity and cultural similarity are bonuses to Canadian firms’ less-expensive labor rates.”
The second issue — proximity — becomes important in the type of work being done, according to Dean Davison, vice president for the consulting firm Service Management Strategies. “Some projects cannot be ‘sent’ offshore so easily. They need more vendor/client integration, planning and coordination. Otherwise, the result is poorly defined projects, volatile applications, or work that is frequently changing (e.g., e-business strategy). In these situations, Canadian near shore outsourcing offers benefits of lower labor (compared to the U.S.), and closer proximity.”
The American insurance industry is one example of how Canada dramatically impacts the BPO landscape. This highly regulated business demands refined data management to meet the stringent requirements of numerous government oversight offices in a strictly regulated environment. But the difference between success and failure is the quality of service each firm provides to its agents and policy-holders and efficient management of numerous types of data.
For over 20 years, CGI has provided information management BPO to a growing percentage of North American insurers.
Helping Auto Insurers in Massachusetts
CGI is the largest provider of automobile processing services in Massachusetts, handling over half of the state’s policies and over $1.5 billion in direct written premium. Massachusetts prohibits rate competition and has stringent regulations. Fines for non-compliance, especially for data management, can be steep and arbitrary.
Today, Encompass utilizes the CGI’s CollaborativeEdgeTM program. Its strength lies in interfaces between agency management systems and carriers’ policy administration systems, as well as with several far-flung industry databases, to exchange underwriting, billing, and claims data; most of it Web accessible.
“This streamlines our data management. And the Web-based platform enhances relationships with our underwriters,” adds Carpentier. “We’re a long way from being the biggest insurer in this state. Strict regulation conformity and offering high quality service are even more vital to our remaining competitive.”
The added value, according to Karen Furtardo, vice-president, insurance management services for CGI, is the firm’s experience. “We’ve gone through this cycle over and over. We also retain our employees an average of eight years, many of whom have worked for state insurance regulatory agencies. This experience offers greater client leverage. You could say we have this down to a science.”
Credibility within states where CGI represents insurance firms is also vital. “It certainly works in the client’s best interest if regulators know we’re working on their behalf,” adds Furtardo.
Service Management Strategies’ Davison agrees. “They bring a lot of expertise to a highly-regulated industry. Even though they’re a Canadian company, the difference in regulations between those in the U.S. and Canada is minimal. The perception is that Canada is the 51st state anyway.”
Because Massachusetts tightly fixes insurance rates rather than allowing competition, the inducement to policyholders to remain with a company is entirely service-based. The ripple effect to carriers is they have to stringently monitor their costs and stay out of trouble when it comes to compliance.
Realized savings can run anywhere from 10 to 33 percent of budgets for managing these specific processes, depending on the size of the firm. Because of this refined data management and blended offshore structure, CGI counts among its clients all the top 20 carriers in the US and over 100 of the top 250 insurers in North America.
Lessons from the Outsourcing Journal:
- Lower rates, cultural similarities and closer proximity make Canadian firms an option when it comes to outsourcing BPO tasks.
- In a growing number of cases, offshore BPO outsourcing can be blended to near shore (on-continent) for customer service duties and distant (Far East) for non-customer facing tasks.