Outsourcing is a business reality for global competitiveness. Numerous business processes are being outsourced to countries like India. Processing of Insurance claims is one such outsourced process. Insurance claim processing and underwriting are the major components of any insurance process. But claim processing is a very low-end job as compared to underwriting, which requires highly-specialized skills and experience to handle. Our financial viability study shows that any insurance claim processing outsourcing requires a voluminous transaction; otherwise invested fixed cost will not be recovered. Thus economy of scale plays an important role here. This paper summarizes the findings of a field study undertaken in Hyderabad. It highlights the cost elements and how they affect the revenue model. It also gives the break-even analysis and how it is dependent on some key parameters.

Insurance claim processing in the BPO is a different process from original full claim processing. This is because only a fraction of the original process has been outsourced to off-shore destinations like India. To undertake the above study, we interacted with three leading BPOs in Hyderabad. These BPOs had varying capacities, ownership and client profile. But all the BPOs processed Insurance claims as an outsourced process. BPOs incur a good amount of cost in setting up operations. It is a myth that it is a low capital intensive project as far as service sector is concerned. There are some hidden costs also. Some of the hidden costs are employee retention cost (in the form of retention incentives), admin extra cost (in terms of complying with day-to-day reporting), etc. Sources of income for most companies are limited as most of them are having very few numbers of clients.

For the purpose of our study, leading BPO companies in Hyderabad were approached. As per our field study, we found that most of the companies have small number of clients but large volumes. This shows that economy of scale is the logic for sustaining an outsourcing business. In financial terms we can say that if we set up a 2-5 seat contact or customer support center, and then we will end-up spending extra in terms of fixed cost, because our capital expenditure does not spread over the volumes. Training/recruitment Most of the people in the company believe that training is very important as far as customer support is concerned. One needs to deal with cross-cultural, supervisory and other issues related to the employee customer interaction. For all this the company needs well-trained professionals. So training cost is quite high in many cases.

Global CEO Magazine, Business Model, Insurance Claim Processing, Tax Obligations, Financial Viability, Quality Standards, Quality Standards, Service Sector, Revenue Model, Telecom Infrastructure, Revenue Model, Financial Risks, Risk Hedging Mechanisms.