Over the last four decades, outsourcing has morphed as business models evolved, technology advanced and competition for resources and expertise expanded.

In its infancy, outsourcing gained market traction in the data center (information technology outsourcing or ITO) focusing on IT cost savings and staff augmentation. This was largely in response to rapid IT infrastructure changes and staff shortages. Organizations were enabled to quickly adopt new technologies and expand business automation and integration capabilities.

During the 1990s, through the Y2K and dot-com frenzies, outsourcing provided resources to meet aggressive organizational plans. At the same time, expanding technology capabilities linked onshore and offshore resources virtually and created networked organizations.

The first business process outsourcing (BPO) services focused on non-core functions such as human resources, payroll and printing. This provided reduced operational costs and access to innovative technology options.

This has continued during the 21st century, expanding into core business operations.

Another shift is underway, but one that will change the model for BPO and software and the value proposition beyond operational cost savings and staff augmentation. This shift is about strategic business value enablement–including new business models, products, or services options–achievable because of technology.

The result is expansion of BPO into core insurance business operations including policy management, customer service call centers, claims management, supply chain management, and auto or property repair network management.

This “new BPO” offers innovative business options, agility, process optimization and brand enhancement. It enables reallocation of organizational resources–whether capital, time or people–to strategic, competitive and market distinguishing initiatives.

This model embraces strategic technologies and is technology-enabled.

The new BPO uses a common services-oriented architecture (SOA) one-to-many software platform that automates the end-to-end insurance process delivered using the Internet.

It offers a robust system that can grow with the business and a standardized platform, while supporting unique business needs. It provides a richer, seamless stream of data between all insurance process stakeholders, ripe for insurance analytics-driven business.

It also enables the creation of new, innovative and competitive services; offers “plug and play” between software and BPO, creating organizational agility; and provides access to “best practices” for services and software.

Insurers no longer can know and do everything. There are not enough resources to do all business functions well because the business is too complex and changing rapidly. Instead, insurers must focus on core competitive competencies, such as product and risk management, and seek strategic partners with knowledge, expertise and new BPO capabilities to support operational needs while enabling strategic options previously unavailable.

The business value potential is significant. Look at similar shifts in other industries with new services like investment/equities in the 1990s with DTCC (Depository Trust & Clearing Corporation) and banking with SWIFT (Society for Worldwide Interbank Financial Telecommunication). Those markets have seen significant customer, financial and market growth.

In the insurance industry, there are many examples of organizations beginning to leverage the new BPO as well. Consider an insurance bureau/marketplace established 40 years ago in South Africa to support brokers/agents. It expanded and transformed by leveraging new technologies and software solutions. Today, the bureau provides seamless integration of policy, claims and accounting via a transaction model, “freeing” capital for business growth.

The bottom line: The bureau makes it simpler and easier for brokers to do business. It creates the opportunity for insurers to reach new distribution points and supports full policy management from quote, issue, billing and collection of premium for more than 400 brokers, with the option of providing BPO policy administration.

Forty years of continuous innovation has expanded the model by adding Web-based comparative quoting for brokers, aggregator capabilities and now, full claims management.

Another example takes the bureau concept further, using a modern SOA software platform for policy, claims and analytics in a BPO Software as a Service (SaaS)-based delivery providing flexibility, agility and scalability for any part of the insurance process. Rather than outsourcing the solution/process to run more cheaply, this model is about cost-effective and sustainable insurance processes, underpinned by technology.

This more traditional BPO operation is standardizing on a modern SOA insurance solution across all of the organization's geographic operations via a BPO/SaaS delivery model. Within two regions, this operation is providing claims and analytics BPO services on a common software platform for 104 insurers. Some of these insurers are in the global top 20 and all have unique requirements.

This model is based on investment in modern software solutions that provide a one-to-many platform, which is highly automated and includes extensive business analytics/insight.

As this “new BPO” model continues to evolve, it creates new options for insurers including “plug and play” between the software platform via license and services via the BPO/SaaS delivery model. Consider the business value during a catastrophic claims event, rollout of new products, entry to new markets, or M&A consolidation. In other words, this is not your traditional BPO.

While the global economic turmoil continues to drive cost pressures, forward-thinking insurers are looking for more from their software and outsourcing partners. Customer expectations, market agility, product and service innovation require new levels of organizational agility to remain competitive.

Business solutions with a unique software platform, BPO services and SaaS delivery offer an alternative that is operational and strategic, helping to channel disruption into competitive advantage.

Leading insurance companies that are willing to explore “new BPO” services via a SaaS delivery model will redefine long-held industry assumptions and unleash a wave of innovation not seen in decades.

Is your organization just looking to replace legacy systems, or is it looking to redefine your competitive position? It is not a question of either/or, but rather the unique combination on a common software platform. The new BPO is real, powerful and transformative, and it will significantly shift the competitive landscape.

Denise Garth is Vice President of Global Industry Affairs for Innovation Group. She may be reached at [email protected].