BPM Series: Operations as a Service or Business in a Box!

As we are evaluating an IT partner for the start-up Insurance company that I am working for, more than one prospective IT partner have offered to work with us on Operations as a Service or Business in a Box model.

What is Operations as a Service or Business in a Box Model?

As part of the model, IT partner would take complete responsibility for back-office business process execution as well as IT systemms & infrastructure implementation and offer it as a combined service. So for example, for an insurance company, the IT partner would invest in systems such as Policy Administration System, Channel Management System, Auto Underwriting System, Portal, BPM & Imaging system, etc. along with the necessary infrastructure - Data Center & Network. The IT partner would go on to configure the company's products and processes on these systems. The IT Partner would then run the back-office business processes such as New Business & Underwriting, Policy Administration, Claims Management using the IT systems and infrastructure implemented for the company. The IT partner would charge a consolidated fees - per transaction / rental fees - for the IT systems, infrastrcutre and process services.

I couldn't believe my ears. This is something that I had predicted almost a couple of years back through various blogs on SaaS and convergence of SaaS, BPO and Shared Services:

Sidwalk: Software as a Service - A reality check!
BPM Series: SaaS, Shared Services, BPO - Will they converge?
BPM Series: SaaS, Shared Services, BPO - Will they converge? - Most likely

There are atleast one financial services company and two insurance companies recently set-up in India have opted for this model offered by an Indian IT MNC and a global IT MNC. There seem to be obvious advantages especially for start-up companies to opt for this model. They are:
- Quick time to market
- Focus on critical ser-up activities such as Branding, Marketing, Product Development, etc
- Lower capital costs
- Scalability and flexibility in running operations

What do you think are the challenges and downsides?