Back From The Dead: The Resurgence of BPO in Life & Pensions / Wealth Management

Several companies are considering Business Process Outsourcing (BPO) again, or renegotiating their current contracts; if you fall into one of these groups, here’s what you should consider…

The History

BPO became popular in the 1990s and 2000s with several companies e.g. Prudential, Zurich, Pearl/Phoenix, outsourcing their closed books in order to reduce servicing costs, avoid or reduce expensive change bills on their legacy systems, and achieve certainty of future costs by moving to cost per policy over 10+ year periods.

Over a period of 10-15 years, there were numerous deals, with Capita being the main winner, along with Unisys, HCL/Liberata and Equiniti for Annuities. The approaches to improved cost were to improve in-situ then migrate the legacy systems to a new one. Offshoring, primarily for labour arbitrage, came along in the 2000s.

Then it went quiet and very little happened for 10+ years.

Suddenly, in 2016/17, it all kicked off again.

Over the last 2-3 years there has been a significant increase in activity and deals, including the recently announced Prudential-TCS/Diligenta deal, LBG (TCS/Diligenta), Aegon Protection (ATOS), Aegon existing Pensions (TBC), SLOC (TBC), AXA/Phoenix (TCS), Retirement Advantage (Equiniti) and number of others in progress or being considered.  

So What Has Changed?

  • Cost reduction and avoidance are still very important.
    • From this perspective nothing has changed: companies’ costs are increasingly under pressure as margins reduce as a result of competition, regulation and customer awareness. And cost of change whether regulatory or other is still a major concern, especially where companies have multiple old admin systems
  • Customer.
    • While cost is important, how companies improve customer service, provide greater (and cheaper) access, and finally actually understand their customers, is now crucial.  And outsourcing companies are enabling this – or at least talking a good game!   
  • Digital or Digitalisation. 
    • This can mean many things, but every BPO deal has a lot of it. Much of this is focused on the customer (see the points above), but also includes “new ways of working” such as Agile, DevOps, Lean; plus, process efficiency via greater automation, robotics, AI; improved systems architecture, via layering, APIs, integration, and use of micro-services. All of these can help improve the customer experience while also reduce costs of servicing and change
  • Risk & Regulation.
    • Several BPO deals had previously been driven by the need to reduce the IT spend on regulatory change and manage operational and delivery risk. These are still very relevant, but the Risk and Regulatory components are now even more important: the ever-changing regulatory landscape is now a huge factor in the deals e.g. RDR and Pensions Reform were not conceived when many of the first-generation deals were signed, and now we have many known changes e.g. GDPR and many unknowns – including Brexit. 
  • Offshoring.
    • This has become the norm for IT (infrastructure and application development and maintenance) and for some simple back-office processes. But people are no longer relying on this to drive the big cost savings – partially because the labour arbitrage gap is closing, but mainly because self-service, straight-through processing and greater use of the digital channel mean that processes are being removed or completed by customers.  
  • Open book versus closed.
    • All of the original deals were for closed books, but now open book deals are the norm – or at least books/deals that are part closed, and part open. And while Financial Services companies are focusing more and more on the customer, they are increasingly prepared to have the systems and/or the processing run by a 3rd party.  

And finally – there has been a large change in the BPO suppliers.

TCS/Diligenta has established themselves as the market leader with several successful migrations to BaNCS. But they are very stretched with recent/imminent deals keeping them very busy and raising concentration concerns.  

Capita are in turmoil in several parts of their business – and several L&P deals are or will move to other suppliers.

New entrants and other smaller players will win deals: HCL are back in the game; Wipro are very actively pursuing deals, as are several of the tech and processing companies such as WNS, Accenture, Majesco, Genpact and ATOS.   

So, What Does This Mean If You Are Considering BPO For The First Time, Or Renegotiating Your Current Deal?

BPO is still a viable approach to reducing operational costs and cost of change – particularly IT.  And there are a number of companies now very actively competing with TCS – so there are deals to be done.

However, while many things have changed, the key factors in a successful BPO deal are still:

  • Be clear why you are doing this – and this must be linked to the company strategy
  • Run a rigorous process – obviously with the right advisers
  • Don’t just buy the cheapest – delivery of the transformation is key
  • A win-win for both sides is crucial – if the supplier has got a bad deal it will only come back to hurt you
  • Redesign the retained organisation to manage the outsourcer effectively and efficiently – managing strategic partners needs to become a core competency