BPO has been used extensively, for more than a decade, throughout the financial services industry. The one exception is insurance, but we are beginning to see signs that core systems BPO is heating up.

Insurers that are rethinking their core systems have questions about alternatives such as outsourcing some or all back office functions to avoid building another generation of legacy systems, according to a new report, Approaching the Boiling Point: BPO, SaaS in Insurance. Celent conducted a survey of insurers to gain their perspectives on business process outsourcing. According to the survey, a clear majority of insurers will either continue their present levels of BPO (50%) or increase them (36%).

The key hurdles that vendors must overcome, even if they are more perception than reality, are shown in the figure. Software as a service is lagging a little behind BPO in most insurers’ minds, but they are cautiously anticipating that SaaS will gain strength.

“Celent expects that the first wave of strong movers into core systems BPO and/or a SaaS model for core systems will gain competitive momentum that will be difficult to match,” says Craig Weber, Senior Vice President of Celent’s Insurance Group and coauthor of the report.

“Insurers and SaaS vendors will need to build strong relationships through successful implementations with well-defined SLAs to overcome the SaaS and BPO hurdles,” says Benjamin Moreland, Senior Analyst with Celent’s Insurance Group and coauthor of the report. “However, those that do will address the biggest IT challenges today with respect to flexibility, agility, and lower TCO.”

This report aims to provide a current state of the market with respect to BPO and SaaS. It offers insights into the primary issues insurers must address.