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Actuarial KPO in India

PO (business process outsourcing) is not an unfamiliar term anymore. A BPO is a business model where some (or all the) processes of a department are outsourced to a third party. For example, in the claims department of an insurance company, receipt of claims, handling customer queries, notifications of payments, etc, can be outsourced to a third party. The third party carries out the tasks with little engagement of the insurance company’s claims department. It can help the company to minimise its claims handling expenses and can make the process more efficient. It works well for processes that are labour-intensive and less complex.

What is KPO?
KPO (knowledge process outsourcing) is where a knowledge-intensive process is outsourced for example software solutions development. A number of companies are successfully outsourcing complex projects. In the list of such complex process outsourcing, actuarial processes/projects outsourcing couldn’t have fallen behind.
The Indian insurance market has lately witnessed the entrance of some global insurance and reinsurance players with the primary intention of getting a share of the Indian actuarial talent pool. After the first opening of an actuarial KPO unit in India in 1997, the Indian actuarial KPO industry has come a long way.
In this article, I have tried to highlight some of the features of the Indian actuarial market, some strategies that could work well in the actuarial KPO set-up and possible challenges that such a model might face.

Why India?
India is an outsourcing hub for many operations now. There are a lot of BPO companies providing third-party services at low cost and of good quality. Currently there are around ten global companies who have either outsourced their actuarial operations to a third party or have set up their captive offshore offices in India. So what are the benefits of an Indian location?
The Indian insurance industry was opened up to private insurers in 1999. The actuarial profession, which so far could fetch an average paying job in the public sector unit insurance companies, suddenly became a much sought after career choice. The surge of students enrolling to the Actuarial Society of India (ASI) tells it all (figure 1). Now students are coming fresh out of graduation courses having passed seven or eight Faculty, Institute, or ASI exams. Renowned universities have started offering specialised courses in actuarial science.
This amounts to a talent supply of around 100 fresh actuarial students with at least four or five exams every year. But finding a qualified actuary with domestic experience in India is, however, both challenging and costly (on a par with qualified actuaries in Europe).
In the case of a captive, the cost of setting up and running an office in India is much less than in developed countries. Also, the actuarial salary differential at entry level is quite high (see figure 2). The other option is to outsource the actuarial processes or projects to a third party this can save the trouble of opening a captive in a foreign country. Even with a third party, total cost per analyst will be much lower.
India is developing fast and this is evident with the infrastructure developments all over India. Indian governments have been unanimous when it comes to the commitment to build world-class roads, office, or residential complexes and hi-tech townships. The state governments are ready to go extra miles to attract foreign investment to their states with attractive schemes for the investors such as a tax holiday for a few years.

Strategies that work well
With a few years of experience in the actuarial outsourcing industry, I would like to suggest some strategies that might work well in such a business model. Some of these are common strategies to follow with any new business initiative. But some of them are specific to this model.
Top management commitment
Setting up an offshore office or starting a relationship with a third party is a long-term concern. This initiative will work well with the top management’s belief and support for such a set-up. Let’s be frank: people will be more comfortable working with someone sitting next to them rather than someone sitting more than 1,000 miles away. Globalisation is a skill that will be required from people working in the western world. As for any change, it is likely to meet resistance, but the skill can certainly be learned and mastered.

Start small
It is always better to start the experiment at a small scale. It is easier to keep a small team together during the initial experimental days. It may also help to call all the Indian team members for on-site training. The aim should be to develop the initial members as team leaders of sub-teams.

Initial on-site training
It is necessary to give the initial Indian team comprehensive training like any other new employee at the local office. For this, on-site training for the Indian team will be helpful. It also encourages better integration with the actuaries with whom the Indian team will be aligned. The initial trained team can also train the subsequent team members joining the Indian team.

Alignment with experienced qualified actuaries
The talent pool of experienced local actuaries is presently limited in India. For less experienced actuarial students, this creates a developmental challenge. Alignment with experienced actuaries in countries with a more developed profession is a way to fill this ‘role model’ gap. A good suggestion for a business model is therefore a combination of a few experienced actuaries in the local offices and the rest (majority) of the team in, say, India.

Intermittent visits
Even after the team is established, there may be expansions of the existing team or some more processes (or projects) that can be transferred to India. It may also happen that some more actuaries want to utilise the Indian team’s support. It works well to start any new process with a short on-site training for the new Indian team members. Due to socioeconomic differences, a visit to a foreign country is still seen as a rewarding experience.
Alternatively, the local office actuaries can visit India to train the team there. This works particularly well if the Indian team size is big and a visit for all the members would not make business sense. With these visits, Indian teams get an opportunity to meet and learn from experienced qualified actuaries.

Proper communication channels
There are advanced communication technologies these days that don’t let us feel the distance between people communicating with each other. Customised chat engines, teleconferences, and video conferences are some of them. A proper use of these technologies helps to mitigate the difference between various locations from which employees of a global company work.
With such technologies, the Indian team members can get in touch with the clients easily. They can also participate in meetings among actuaries from which they can learn. There are companies that are using these techniques effectively.

Gradual increase in responsibilities
Some of the reporting processes, such as management information reports, may become repetitive. It is important to teach the students to read between the numbers and try to interpret them. But reasonably speaking, one cannot expect a student to run the same reports for two years. Some effort towards showing the big picture to the Indian teams may help. If possible, the Indian teams can be involved in meetings where the reports generated by them are being discussed. Once a process is stabilised, some more complex work may be transferred to Indian teams. It gives the students a sense of learning and growing within the team.

Challenges
As with any initiative, starting and running the outsourcing has its challenges. The ones listed here are India-specific challenges as I see them.

People and knowledge retention
Retaining talent is a major challenge in a booming economy where new opportunities are mushrooming fast. Even with the best retention strategies, we might not possibly stop attrition. So, the next best option is to retain the maximum possible process (or project) intelligence of the person. One can follow two rules: to document every process and to have a back-up resource for every Indian analyst. It should be strictly followed to have a detailed document of the standard operating procedure for all the transitioned processes. Regular audits will make sure that all teams comply with it. The back-up analysts can be trained to handle a process in the absence of the primary resource, including absence due to attrition.
Hiring the right people
The first step to setting up a process is to hire the right candidates. Even for an old process, after attrition, there will be a need to fill the position with an analyst of similar skill-set within a short timespan. Given the specialised nature of the actuarial profession, it is not always easy to find the right candidate at short notice.
Even though there are many students taking actuarial exams in India, the focus seems merely on passing exams. Out of a number of job applications, a significant number of rejections are due to poor communication skills, inability to apply the exam concepts to real life problems and poor analytical skills in general. For a set-up where Indian analysts have to interact with insurance professionals sitting abroad on a daily basis, it is important for the candidates to have good English-speaking and comprehension skills. Having a standard hiring procedure helps to maintain a short turnaround time for hiring and a certain benchmark for all candidates.

Providing a technical growth path
The youth is typically both eager and passionate to apply theoretical concepts to corporate challenges. Traditional success in India has been defined by the number of direct reports that one would have. Rewarding technical excellence will have to have a strong priority for any KPO set-up. An important part of it will be to show the technically gifted students a career path if they are successful.

A win-win situation
Even with the few challenges, the actuarial KPO has been a successful experiment in India. There are around ten global companies that have either outsourced their actuarial processes to a third party in India or have opened an off-shore office. XL, Swiss Re, Deloitte, Watson Wyatt, RGA, EMB, AXA, and Prudential are some of them. It is a win-win situation for both the companies and the Indian actuarial students access to the Indian actuarial talent pool for the companies and an opportunity to work with global companies for the students.

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