The concept of business process outsourcing (BPO) emerged at the end of the 20th century. Tasks viewed as difficult or time consuming, and where companies had no real competency, were outsourced. The insurance industry is no exception to this trend. Many insurers have decided to divert some of areas of their operation to specialists, in an effort to cut costs. Lebanese company Capital Outsourcing has positioned itself in the auto claim insurance market.
Capital Outsourcing, a company born of the merger of three companies — Logistix, Trinec Group and Blue Wave Group — was launched in 2006. “The company benefited from the three companies’ existing client lists and expertise in the field of BPO, information technology outsourcing (ITO) and proprietary banking software,” said Joe Khayat, chief administrator and HR officer at Capital Outsourcing. The company, which is headquartered in the Dubai International Financial Center, has a $12 million market capitalization and is backed by a team of 200 employees.
Capital Outsourcing delivers personalized solutions to companies, allowing clients to maximize their resources, improving efficiency and focusing and core competencies. In the area of insurance, outsourcing has proved to be a profitable strategy for many companies around the world. “Companies can dramatically reduce costs by outsourcing selected business functions such as payment processing, computer program development and call center administration. As an example, insurance companies can cut down expenses by as much as 15%, by outsourcing their motor claims,” Khayat added.
The insurer is responsible
While distinct blocs of business may be delegated to an outsourcing company, the overall responsibility for that business remains with the insurer from both a business and legal sense. Besides cost reduction, clients also gain flexibility, as they can opt for a number of solutions or services, which can be adapted and customized to match their needs. As Khayat explained, “The number of insurance frauds can also be significantly reduced, although I do not have exact figures in mind.”
Business process outsourcing is not simply a back office procedure but a vast operation that includes people on the ground implementing and monitoring procedures at every step of the way. Companies have complete visibility on the actual claim processes.
According to Khayat, the concept of outsourcing auto claims is built on the belief that insurance companies will naturally tend to focus on their core activity, which provides them with a competitive advantage. In Lebanon, the concept of outsourcing auto claims is not new to the insurance market, as it was introduced a few years ago by the subsidiary of a local insurance company, whose operations were eventually shut down, mainly because of conflict of interest. “Insurance companies became hesitant when they discovered that the outsourcing company was owned by one of their competitors. The case of Capital Outsourcing is very different as it is a completely independent company,” Khayat underscored.
In recent years outsourcing insurance services has become increasingly popular. Among the major business process areas that have proven to be extremely suited for BPO are quotation generation, financial administration, underwriting and associated compliance activities, claims adjudication and processing, policyholder servicing, documentation and information technology.
Insurance companies are mainly looking to outsource some of their “pain points,” which are deemed too expensive to operate by one single company and can be further enhanced by collaborating with a specialized third party. “We also service physical damages associated with automobiles. We traditionally make use of the insurance companies’ network of body shops,” Khayat said. The manager reckons that total loss on cars for 2007 was estimated at 300 vehicles, the figure including losses consequent to act of terrorism recently having taken place in Lebanon.
However, significant cost savings resulting from BPO must be balanced against some substantial risks. Failing to select a qualified and compatible service provider and to put into place a well-structured outsourcing agreement, are among the reasons advanced by industry analysts leading to costly operational problems or even significant business disruptions. Other concerns of insurance companies revolve around the quality of service rendered. Most insurance companies have spent years developing their network of clients built on personal relationships. “On the service level, a client of a company that has outsourced its motor claim will definitely not perceive any changes in the quality of service provided,” Khayat asserted. The end client who has bought an insurance plan from company X and is eventually involved in a car accident will call the company’s hotline, which will connect him to the dispatch center of Capital Outsourcing responsible for handling the call. “Our role resides essentially in handling back office operations,” the manager underlined, “without the client being aware of the change in management.”
No direct competition
The company currently works with five insurance companies, among them Libano Arabe, Victoire and Fidelity. According to Khayat, “We do not face any direct competition for the moment.” Capital Outsourcing’s current car park includes some 140,000 vehicles insured, out of a total 1.5 million cars in Lebanon, of which only 400,000 cars are insured.
The manager admits that the company faced some resistance from market players upon the introduction of the outsourcing claim insurance concept. “When a company decides to outsource some of its operations, it is generally confronted with the problem of firing employees, which is a daunting task from a human resource standpoint. People tend to usually avoid destabilizing a company’s work environment in any way,” he said.
Capital Outsourcing currently boasts a $20 million turnover, which is expected to grow to about $100 million within the next five years. Revenues from the company’s insurance activity are estimated at some $1.6 million, while growth in this particular line of business is expected to reach 25% per year. “We have the possibility to handle auto insurance claims for as many as ten companies and we might expand our current car park by 60,000 cars with two more insurance companies joining our client list. This will reflect positively on our operations and improve our efficiency levels due to simple economies of scale,” Khayat said.
The manager emphasized that the company aims at securing about 70% to 80% of the auto claim market in Lebanon. With a sector growing steadily year by year, Capital Outsourcing is looking to expand its current operations, either vertically or horizontally, by looking into regional markets or adding to its current activities other services such as medical claim outsourcing.
