Offshore Services In Recession, Claims CII

by Robin Pilgrim, LawandTax-News, London

08 September 2009

The Chartered Insurance Institute recently warned that the offshoring of business services in the insurance industry faces a difficult future in a new publication, titled: 'Outsourcing: Continued prosperity despite the global economic crisis?', written in partnership with The Royal Institute of International Affairs.

Laurence Baxter , head of policy and research at the CII observed that:

“Offshoring providers have been a major beneficiary of the boom in business services since the mid 1990s, but now their outlook is less assured as they suffer amidst a downturn in the global economy.”

The CII went on to suggest that advanced economies are becoming more cost competitive, at least during the recession, reducing the incentive to offshore, not least because the attitude in the US and Europe over relocating business operations to more tax- and cost-friendly climes has put their Governments under increasing pressure to protect domestic jobs and industries.

Companies are refocusing attention on core and essential support activities as funding becomes more difficult, with new projects and innovation the casualty of cut backs in spending, the CII revealed.

Of most relevance to the UK insurance sector is India, with an outsourcing industry estimated to be worth USD50bn.

The Institute revealed that in the five years from 2002 to 2007, India overtook Singapore and South Korea to become the fifth largest exporter of commercial services. In 2007, its offshoring sector grew by 35%, but the growth has slowed with forecasts for 2009 estimated at to be 4% to 7%.

The CII predicted that the recession in outsourcing will impact on the insurance sector by bringing about:

• Financial pressure to cut costs, which will include cutting new offshore investment projects;
• Sensitivity in political circles to avoid moving jobs offshore;
• The reduction of non-essential outsourcing activities; and
• The creation of more home based or near-shore outsourcing alternatives.

However, Vanessa Rossi, senior research fellow in International Economics at Chatham House, and one of the authors of the piece, suggested that once the global economy has begun to recover, so will the outsourcing industry.

“Within a few years we expect that offshoring may well see a reversal in fortune. Although the upturn could take some time to emerge as the jobs market typically lags behind recovery in production and demand by at least two or three years,” she predicted.

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