EXL’s Acquisition of The Hartford’s Trumbull Gives it a More Complete Portfolio of Offerings in the U.S. Insurance BPO Market | Sherpas in Blue Shirts

EXL Service announced on October 4, 2011, that it had acquired Trumbull Services, a specialized provider of Insurance BPO services in the Property & Casualty (P&C) segment in the United States. This acquisition is not large in terms of the additional headcount obtained (Trumbull is a less than 200 employee company) or the deal amount (not announced, but likely to be in the range of US$50 million). However, it is strategically significant, as it gives EXL Service a greater foothold and a ready-made technology platform to offer in the U.S. P&C Insurance BPO space in general, and the insurance subrogation BPO business in particular.

Even without the acquisition, EXL has been the dominant third-party BPO provider in the U.S. P&C market (excluding TPAs), with the highest scale in terms of FTE count. However, offerings in the Insurance BPO space are no longer just about scale – the increasing role of technology is becoming an important consideration. With this in mind, EXL had been looking for a suitable acquisition in the Insurance BPO space in the United States/Europe for a while now.

Going a bit deeper into the strategic value of the Trumbull acquisition, the addition gives EXL deeper expertise in the P&C Insurance BPO space with the important ability to offer subrogation BPO to insurers. (Subrogation is a process under which the insurer can pursue action against the party causing loss to the insured, in order to recover at least a portion of the claimed amount paid out to the insured. This also involves proportionately repaying the deductible paid by the insured to the insurer.). By offering this capability to insurers, EXL gives them a chance to lower premiums, lower deductibles, and, therefore, increase market share. In the U.S. P&C Insurance market, which saw consistently falling premiums and declining investment yields in 2008-10, this is an enticing offering.

The acquisition also bolsters EXL’s capabilities on the technology front. In May 2010, it acquired PDMA, the maker of LifePRO, a policy administration system in the Life Insurance BPO market deployed with 40+ insurers around the world. With the Trumbull acquisition, it also gets SubroSourcePro, a platform solution to maximize recoveries from claims. This bolsters EXL’s technology offerings, giving it greater ability to offer insurers flexible scalability and a transactional, pay-per-use pricing model that allows them to convert some of their fixed costs into variable costs.

With the acquisition, EXL also strengthens its onshore presence in the U.S. market. This is an important capability to have in an economic environment where regulatory requirements and customer preferences are mandating onshore presence for some processes. However, although EXL now has greater onshore presence in United States, it still lacks significant presence in the Western European and Latin American markets. Given that demand for Insurance BPO is rising in these locations, EXL will probably go for another acquisition in these regions in the near future, to ensure that when insurers go BPO shopping they can clearly see the store (vendor) with the most wares (capabilities).

Finally, EXL also gets a marquee client in The Hartford Financial Services with this acquisition. Trumbull had been a captive of The Hartford, and EXL has committed to honor existing service agreements. It will also tap into Trumbull’s existing client base, which includes a number of insurers with which EXL did not have any existing relationships.

However, EXL will face some challenges as it integrates Trumbull with its existing business. One is smoothing through cultural and operational style differences, as EXL is a global BPO major while Trumbull was a small captive held by a financial services major. Integration of Trumbull’s operational capabilities with EXL’s offerings will be another hurdle as EXL goes to market with a combined offering. Finally, there will be some drag on EXL’s margins, as Trumbull has an exclusive onshore presence while EXL’s own resources are largely offshore.

The bottom line is that  the Trumbull acquisition has given EXL not just a stronger foothold in the P&C Insurance BPO space, but it has also strategically deepened EXL’s portfolio of offerings, enhancing its potential in the U.S. Insurance BPO market.

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