Datamonitor says the life and pensions outsourcing market grew by an estimated 128% between 2001-2002.

Currently, total operating costs of UK L&P stands at £2.1 billion, and although 70% of UK L&P insurers still will not currently consider BPO, the size of the addressable market is estimated to be worth £630 million, of which £130 million is already under contract.

To date, policy administration business process outsourcing (BPO) in UK L&P has revolved around closed book insurers, where an insurer ceases to pursue revenue opportunities for a product line, with a strict operations cost focus.

But current market conditions are putting BPO on the open book agenda providing one of the fastest growing vendor opportunities within financial services outsourcing. Datamonitor cites Liberata's evergreen outsourcing contract with Barclays and Woolwich last year, where 240 staff were transferred to Liberata for a charge of £200 million over the duration of the contract.

More recently, Unisys clinched a 10 year contract with Royal & Sun Alliance for policy administration BPO and systems migration on to Unisure, as well as the transfer of 1700 staff. Unisys will manage a total of 2.4 million policies over an initial period of 10 years at a total cost of £300 million to Royal & Sun Alliance (R&SA).

Datamonitor expects rapid development in policy administration BPO, but says there are still significant issues to be resolved for open book insurers which will have to be addressed before growth is realised. The research reveals that many insurers started enquiries into potential BPO opportunities in 2002. Given the deal cycle times that are involved, Datamonitor expects a steady drip-feed of new contract signings over the coming year.

But as the incumbents build expertise, new entrants will find market entry increasingly challenging. Also, Datamonitor says L&P policy administration opportunity for the vendor in terms of market entry will exist only for another two years. The firm cites Accenture, CSC, EDS and IBM as potential market entrants.

Anders Maehre, financial services technology analyst, Datamonitor, says the market will be shaped by the success and failure of early deals, as many firms are adopting a wait and see attitude.

"The current growth in the policy administration market is driven by a minority of L&Ps that are willing to consider the solution, but the addressable market can double, even treble, in size if the first wave of deals are deemed successful," he says.

"The impact of perceived success in the deals that are now being signed will be key to future acceptance levels or conversely the fall-out of any L&P BPO failures can significantly impair the future growth of the market," adds Maehre.