21st Century Outsourcing: New Drivers, New Options, New Challenges
Options Abound
There are outsourcing options for insurance organizations of every size and type, of course. Gaining in popularity among insurers are the “as a service” offerings — particularly software-as-a-service (SaaS), in which applications are hosted by an outside service provider and made available to users, typically over the Internet.
Mike Anselmo, CIO of Pawtuckett, R.I.-based Narrangansett Bay Insurance Co., (NBIC), is a champion of outsourcing in his organization, where he leverages SaaS delivery of core systems. Anselmo explains that NBIC outsources the development of its core applications and the hosting environment. “We actually host our system in the cloud through our vendors, and they ensure the performance, infrastructure and capacity is there,” Anselmo reports. “We prefer to use the professionals that are out in the field, rather than doing it ourselves.” Because of contractual agreements, Anselmo says, he can’t identify the insurer’s partners.
A small P&C company, NBIC ($114 million in 2011 gross written premium) wanted to leverage the latest technology, but doing this on its own would have been cost-prohibitive and difficult. “In order to build it ourselves, we would have required a large staff to maintain it,” Anselmo notes. “This arrangement allows us to have some variable costs to grow. When we hit our sweet spot of revenue, we plan to bring it back in house, but that’s years away.”
For White Plains, N.Y.-based specialty lines carrier Privilege Underwriters Reciprocals Exchange (PURE; $121.8 million in gross written premium), the decision to outsource had less to do with cost-savings than with having the right people on board to help manage the business and continue to move it forward. “For us, outsourcing is about being effective and achieving our goals. It’s about growing our business, being the easiest to work with and most importantly, providing the most exceptional service possible,” says PURE SVP and CIO Stuart Tainsky.
“We’ve chosen to outsource many of our organization’s technology components primarily because it gives us the opportunity to be effective in having our staff focused on the strategic aspects of our business. We don’t need our people to make sure a server light is on, or to manage an email environment. That’s not strategic — it’s too tactical for us. We’ve chosen to look at the commoditized components of the technology organization and ask ourselves, ‘Does that make us different?’ If the answer is no, we outsource it,” Tainsky explains.
Starr Companies’ Toran concurs that he typically keeps the very strategic tasks and processes in-house. “Normally I like to outsource things that are not a strategic advantage to our group,” he says. “I certainly wouldn’t outsource intellectual property or strategic thinking or anything along those lines,” he adds, including anything related to strategy, architecture and data warehousing.
Globalization Drives Outsourcing
Another trend that is having an impact on how insurers evaluate outsourcing is globalization. Notes Deloitte’s De Groodt, if an insurer is a large company with a global footprint, global competitiveness and goals around growth will drive its sourcing strategy. “And if the insurer wants to enter or advance in other markets but doesn’t have the capabilities in those areas, outsourcing can also help,” he adds.
Insurers doing business in multiple markets must strive toward standardization across geographies. If the insurer is doing business in 60 different countries, for instance, and it has to set up systems to work in all of them, outsourcing can provide a way to standardize both systems and processes in a cost-effective manner. “We’ve done a fair amount of process and standardization work with major multinational corporations looking to share and leverage systems between regions and across countries,” says CSC’s John Albanese.
The growing pressure to shift fixed IT costs to more variable costs comes into play for insurers that are looking to scale back non-domestic operations. “Outsourcing can provide a way for companies to essentially shed a lot of fixed infrastructure when they shed part of their operations or exit countries,” De Groodt points out. “Otherwise, they are under pressure because demand goes away and they are saddled with a large infrastructure.”
What’s on the Horizon?
Whether they are expanding in terms of geographic markets, or are seeking new customer segments and lines of business, growth-oriented insurers are looking for efficient and effective ways to grow their businesses. They are turning to BPO to help them execute on their growth agendas by managing their back-office operations, handling tasks such as policy administration, customer service, billing and payment services, and helping meet regulatory requirements.
“Generally, the trend for the future is more movement to BPO,” says Novarica’s Conlon, adding that it’s not going to happen overnight, but rather will be something the insurance industry will see long-term.
“BPO is valuable for companies that want to get into a new market or distribute existing products through a new distribution system, or that want to get into a new product or product line but may not have the capabilities to do those things — or have the capability but want to segment it because their existing process is too cumbersome or costly,” notes CSC’s Albanese.
BPO can be a strong component in an insurer’s transformation strategy, he adds. “There are three components to transformation: people with expertise, business process and technology,” Albanese says. “It’s about bringing new administrative systems, software and surround capability, being able to integrate them with the best systems the client has today, but supplementing with industry-leading technology that a service provider may bring to the solution as well.”
Outsourcing can provide insurance organizations with myriad benefits, whether purely a cost-savings measure, a means to hand over tactical and non-strategic tasks while leveraging the expertise of a third party, a strategy for increasing flexibility and agility and fostering growth, or a way to more quickly and efficiently enter new markets and introduce new products.
[What’s In Your Contract? 6 Steps to Creating a Better Outsourcing Partnership.]
Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio
Tweet This