A Conversation with Eric Rea, president, se2
se2 provides BPO services for the life insurance and annuity industry serving clients such as Commonwealth Insurance Group (a division of Goldman Sachs) and Prudential. The Kansas-based provider currently has close to one million contracts under administration worth $40 billion. President Eric Rea, 51, believes outsourcing may be one of the best ways for insurance companies to survive the current difficult times, and se2 even has an innovative way to finance the transition.
Q: Historically, companies win or lose market share during times of economic change. What does today’s uncertain economy mean for insurance companies?
A: More and more insurance companies are rethinking their business model. Companies that will be successful in the long term will seize the moment in times of economic turmoil to rethink how they process their business in a way that enables them to come out stronger. Our current economic troubles are a call to action to make the necessary changes to an outmoded business model.
Q: What do insurance companies need to rethink today?
A: Today, successful insurance companies are defining their core competencies as designing new products, handling sales and distribution, and managing risk. That enables them to leave their back-office operations and IT services to outsourcers like us. By doing this, companies can focus their attention on revenue-generating activities.
Q: What do they need to change?
A: It’s increasingly becoming more competitive. Insurance companies are looking to reduce expenses and launch new, innovative products faster. We see our clients rethinking their operational model. During the good years, insurance companies grew, often by acquisition. The result is a complex operating model using a number of different systems. Now they want to simplify their operations, even virtualize them. Reducing complexity is a good way to reduce cost. Today companies have a choice. They could spend millions of dollars modernizing their platform and processes, or they could outsource to se2 because we have a proven, modernized platform and process.
Q: What’s the most compelling part of outsourcing for insurance companies today?
A: PricewaterhouseCoopers, ACES, and other benchmarking studies reveal that the average cost to administer a policy or contract for an insurance company is twice the cost at which se2 can provide the service. Before the current credit crunch, the return on investment (ROI) was compelling. Our clients report they break even between the first and second year with an ROI that averages 40 percent. One client achieved an ROI in as little as nine months.
Q: And today?
A: Companies may need to make a significant investment to move their business to our platform. Before last fall, insurers had the money and were interested in outsourcing because of the ROI. Today, the BPO business case is stronger than ever; but because of current economic conditions companies are being selective in using their capital.
Q: Did you find a solution to this conundrum?
A: We did. Clients have the ability to utilize the savings achieved through our lower-cost model to fund the one-time cost of conversion. There are a number of creative ways to fund conversion costs by leveraging the capital obtained through substantial expense reduction.
Q: Are your clients taking advantage of this option?
A: Yes. We’ve actually always offered these options to our clients, but few were interested because they had the capital. But it has been a very active discussion topic over the last six months.
Q: How can you provide service processing at half the cost?
A: First, the development of our technology and processing platform moved us to a high-tech, low-cost platform which integrates, automates, and supports all functions performed at insurance companies. These include mailroom, product development and administration, agency licensing and commissions, printed output, electronic interfaces, and pricing and trading.
Second, trained and experienced insurance professionals perform functions from the call center to complex processing services.
Third, we use a hybrid onshore/offshore model. We learned many clients want to take advantage of the savings available in our offshore model but want their customers and brokers to talk to an onshore insurance professional who understands their finances, business, and culture.
We hire high-caliber, educated people to work in our call and service centers. We process many non-customer-facing back-office processes in India. Keane is our outsourcing partner in Gurgaon.
We are also flexible. We can leverage our platform as an ASP processing platform. Ninety percent of our clients transfer their business to us for BPO processing. But 10 percent want to use our ASP platform and do it themselves.
Q: Is labor arbitrage the reason you can cut the processing costs?
A: It’s one reason. The other is we constantly reinvest in our solution. Our reinvestment goal is to create sustainable business value for the long term. We found our clients are looking for more than just low-cost resources; they want capability, such as the ability to launch new products fast.
For example, last year the federal government issued new regulations governing the 403(b) plans for non-profit organizations. Companies had to invest millions of dollars to stay in compliance or exit the business. We did the investment for them and were one of the first to market with a complete 403(b) compliance solution called 403(b)connect. Our existing clients benefited from our reinvestment and we were able to offer that tool in the marketplace because of our technology. We have already signed two new clients.
Q: How important is domain knowledge to outsourcing clients?
A: Clients demand better solutions, so they value subject-matter experts. They want a supplier that knows their business.
Q: In your opinion, what are the ingredients for a successful outsourcing relationship?
A: Both buyers and suppliers need to be honest with each other about their strengths and weaknesses. There needs to be trust, candidness, and transparency. The two parties have to be able to communicate about issues and create a forum for joint decision making.
Flexibility is also key. Going in, the partnership may have one perception, but changing times may require them to adapt their model to meet the unique needs of the market. You also need the right governance model so both parties can achieve their objectives.
Q: Can you describe that governance model?
A: It has to touch every aspect of the organization at every level. That includes operations, customer service, technology solutions, financials, as well as the senior management team. A good governance program engages everyone so the relationship can achieve value.
Q: Do you see any significant change in service level agreements (SLAs)?
A: Today, clients want SLAs that are more results-oriented as opposed to tactical SLAs. Turnaround time is still important. But, for example, now clients want to assess the outsourcing work by the number of contracts administered, not by the FTE headcount.
Q: What is the current economy doing to the supplier landscape?
A: Some suppliers are doing well. We are actually getting more inquiries than ever because insurance companies are exploring ways to cut costs. Offshore, we predict there will be some consolidation. The Indian suppliers face stress as they mature to a more sophisticated operating model.
Q: Isn’t insurance processing boring?
A: Not for us. It’s our passion. In my opinion, we have the best team in the country. We love this stuff. Also, we constantly challenge each other to discover better ways to serve our clients. I believe it’s a privilege to be part of such an exciting team. In addition, I find it exciting to work with insurance companies that have trusted us with their customers.
We have insurance DNA in our corporate culture. We are the outgrowth of an insurance company and understand the business and its many nuances.
Q: What was your most important business lesson?
A: I learned early on business success is not just about technology. People and processes make the difference. And you always need to keep an eye on the customer.
Q: Where did you grow up?
A: I was born in Baltimore, Maryland. I lived with my family in Australia for 18 months. I attended Ursinus College outside of Philadelphia.
Q: How did you get into outsourcing?
A: I was a consultant; se2 was my client. They were a great people to work with. They asked me to join, and the alignment was right.
Q: What was the last book you read?
A: A biography of Abraham Lincoln. I hadn’t appreciated the challenges Lincoln faced. He didn’t always have consensus. He strove to create it to do the right thing. He always took the moral high ground and was humble. Being President did not go to his head.
Q: What is your favorite movie?
A: Right now the quintessential answer for everyone with an offshore component is Slumdog Millionaire. I’ve visited India, and the movie really captured the essence of Indian cities. I also like adventure movies like the Bourne Identity.
Q: What do you and your family do for fun?
A: Hiking, biking, and exploring. We love the lakes around Topeka.
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