Three Questions: Russell J. Pass

As insurance industry companies look to cut costs and increase efficiency, like businesses in other sectors they're often looking at offshoring opportunities. But the benefits of offshoring can go beyond simple cost savings. Recently, Russell J. Pass, a member of Chicago-based management consultant Bridge Strategy Group L.L.C., discussed some of the potential benefits, possible pitfalls and general considerations associated with offshoring by insurance industry companies.

Q. What are some of the potential benefits insurance industry companies can realize by offshoring some operations?

A. There's no denying that cost remains prominent, but cost savings result from more than just wage arbitrage. They also result from a commitment to continuous improvement. That's something of which these highly motivated offshore workforces are very capable. The benefits of learning to do the job better are obviously not limited to cost alone. They encompass service and quality, as well.

Where we've worked, offshoring has also been a reason to standardize and centralize functions that had previously been decentralized, largely for historical reasons. Standardization done intelligently brought significant benefits and would never have happened without the spur of moving the work offshore.

If wage arbitrage is your only reason for going offshore, you're probably making a mistake. Eventually, it's going to go away, and probably sooner than we think, given wage inflation and currency appreciation in many of our trading partners.

Going offshore is really about tapping into the specialized expertise of other countries and the competitive advantages of their workforces.

Q. What sort of insurance industry tasks or functions are particularly likely candidates for offshoring?

A. A common misconception is that offshoring is for simple, repetitive tasks that people onshore have little interest in doing. The reality is that offshore workers, given the right training and hands-on experience, are every bit as capable as individuals here in the U.S.

The best candidates are those that can be easily decoupled from the work that will remain onshore and don't complicate customer relationships. This includes IT and back office tasks like finance, accounting, and parts of HR, but we've also had a good deal of success with front-line functions.

Premium accounting and a number of actuarial services, though complicated, work well because they can be easily packaged into work units for someone offshore to perform. Even something as potentially sensitive as claims, at least those that don't require much in the way of negotiation, can work. Companies uncomfortable offshoring a front-line function like claims can dip their toes in by starting with runoff claims, where we've had success.

Q. What sort of things should an insurance industry company be looking for in an offshoring partner?

A. The first thing to understand is that it is possible to offshore without outsourcing, and vice-versa. Companies that are comfortable outsourcing are increasingly getting out of the business of deciding where the work is going to be performed. Whether or not they are offshoring is less and less visible to them.

Offshoring services is really an HR play, and what you want in an offshoring partner is a company that will be able to sustain itself even as the war for offshore talent intensifies, one that can explain how its recruiting and retention strategies will enable it to maintain a competitive advantage over time. You also want what you would want from any outsource provider—a good reputation, a commitment to more than just fulfilling minimal contractual obligations, and a willingness to be flexible as needs change.