Free Trial!
Today’s Best Stocks To Trade! Click Here
India-based outsourcer WNS has announced the GBP115 million ($228 million) purchase of Aviva Global Services (AGS), the captive offshore unit of insurance giant Aviva. As part of the acquisition, WNS, which is majority-owned by private equity shop Warburg Pincus, will continue to provide services to Aviva: the two companies inked a 100 month agreement that will provide WNS with approximately $1 billion in service revenue. Soon after this announcement, HCL Technologies, another Indian IT services provider, revealed the acquisition of Liberata Financial Services (LFS), a division of the UK outsourcer that serves the life and pension industry. The deal price was not disclosed, although the fixed assets have reportedly been valued at $2 million.
These two deals are significant as they highlight three separate and distinct trends. The first trend, which applies only to the WNS-Aviva deal, is the move away from captives and towards pure outsourcing. The second trend is the increasing tendency by vendors of all kinds to concentrate on verticals, particularly the insurance vertical. Finally, the acquisition of UK assets by Indian enterprises suggests a marketplace approaching a new level of maturity.
The WNS-Aviva deal illustrates the increasing value which insurers are placing on pure outsourcing, as compared to off-shoring via a company-owned captive. To fully appreciate the deal, however, it is important to understand the shared history of Aviva and WNS.
A few years ago, Aviva set out to lower costs by moving certain operations to India. However, the company presumably did not want to lose control of the customer, nor did they want to be at the mercy of one vendor. To address this, Aviva tapped three BPO providers - WNS, EXL and 24/7 - to build and operate a number of facilities. Those facilities, once operating smoothly, would then be transferred back to Aviva: thus, Aviva Global Services was created.
Prior to last Thursday's deal, AGS had been in the process of taking over the operations built by its three partners; last summer, for example, 300 WNS employees were transferred to AGS. However, after WNS acquired the company, this process has come to a halt. According to Neeraj Bhargava, CEO at WNS, this is due to the opportunity presented by the acquisition for further cost savings and greater flexibility to gear up or down.
Mr Bhargava's assessment is the crux of why captives cannot compete with outsourcers. AGS is indeed less risky for Aviva - after all, Aviva maintains control of the customer and avoids vendor dependency issues - but captives like AGS cannot easily achieve scale through the books of other insurers. This invariably makes unit costs for captives higher than those for outsourcers. In a less competitive market, such cost savings could perhaps be overlooked. However, this is not possible today: the insurance market is simply too competitive to let cost savings fall by the wayside. Furthermore, flexibility is another major advantage that outsourcers have over captives. By owning AGS, Aviva could not scale up without significant investment, nor could it scale down without causing its investment to plummet. By outsourcing, Aviva transfers that burden to WNS.
Meanwhile, the HCL-Liberata Financial Services (LFS) deal highlights the push by vendors to focus specifically on verticals, particularly the insurance vertical. By developing industry-specific services such as policy administration and claims, vendors are enlarging the marketplace and positioning themselves as 'value-add' partners. These strategies will become increasingly important as the BPO market matures.
The concept of becoming a 'value-add' player is accentuated in the HCL-LFS deal. Along with a solid framework of large insurance clients, LFS provides HCL with the tools and processes to migrate clients onto a tailored version of AMARTA, a leading policy administration platform developed by SunGard. Such 'platform utility' is key to not only keeping costs low but to recruiting new insurance clients seeking transformative outsourcing. Additionally, HCL is now firmly entrenched in the UK market, which is a hot bed of insurance BPO: according to Datamonitor's report, Trends and Strategies in Policy Administration BPO, roughly one-third of UK insurers outsource policy administration, compared to just 5% and 4% in Continental Europe and North America, respectively.
It is important to note that this focus on the insurance vertical is not just occurring in the BPO arena. In the last three months, Oracle has made two acquisitions which deepened its insurance offering. The first acquisition was Adminserver, which propelled Oracle into the policy administration space. The subsequent Skywire Software acquisition, which took place in June, enriches Oracle's proposition to insurers seeking a web-based sales and services offering.
Finally, the recent deals illustrate the increasing maturity of the Indian BPO space. Indian companies have blossomed from low-cost providers of low-value services into strategic acquirers of foreign assets. According to Dealogic, Indian companies have announced 156 foreign M&A deals valued at $13.5 billion in the first half of 2008. This is 57% above the same time last year, and roughly equal to the whole of 2006. Although this is a natural progression which is not specific to the insurance sector, it highlights how far the Indian BPO industry has come in terms of achieving maturity.
Jonathan Steiman
http://www.datamonitor.com
Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon
More News:
Market Updates |
Stock Alerts |
All Trading News |
Stock Index
About TradingMarkets | Contact | Advertise | Careers | Link to Us | Site Map | Help | Terms & Conditions | Privacy Policy | Return Policy | Testimonials | Feedback
