American insurance carriers are turning to offshore IT development strategies, and Craig Weber, senior analyst for Celent Communications, says there is no mystery to the strategy. Its a short list, he remarks. The top three reasons for using the offshore model are cost, cost, and cost. I heard that from everybody I spoke with.

Weber interviewed carriers for a new study called Raising the Bar on Offshore IT for Insurance. One of the major cost savings for insurers involves the use of programmers. The Celent study found the average salary for a programmer in the United States is $63,331, more than double the second-highest average salary (Ireland, $28,500). With India being the popular choice for IT outsourcing, it shouldnt come as a major surprise the average programmer there makes $5,880, which is the lowest salary of the 10 countries included in the Celent survey.

Even with currency and exchange rate fluctuations, the labor arbitrage has worked consistently since the offshore model came to prominence, says Weber. We dont think its going to change anytime soon. Its not just IT, though, its manufacturing as well. Weber believes the offshore model is not being utilized to its best potential: It makes sense to a much larger degree than [American insurers] are currently applying it.
India has a strong lead over its clos-est competitorsthe Philippines, Russia, and Chinain the IT race. Those countries have low costs, but they dont have great language skills, and they dont have great insurance vertical experience, says Weber. Despite the increased competition, Celent expects to see India maintain its leadership in the offshore market for the foreseeable future.