Consultants Seek E-Biz Investments

Regarding recent and planned spin-offs of consulting units among the largest firms, participants see this primarily as an opportunity. ""By splitting off the consulting organizations, there's no question that you're eliminating obstacles and creating opportunities"" in terms of dot-com and new technology investment, says Charles Brinkley, partner in charge of e-business strategy for the insurance industry at PricewaterhouseCoopers (PWC, New York) . ""Now you can joint venture, taking equity stakes in start-ups, sharing both the upside and downside.""

Consulting organizations that part legally with their auditing partners have no legal restraints on what types of joint ventures they enter into. ""If you're an auditor you're prohibited from entering into certain types of activities: You can't have an economic interest in anything that involves a company you're auditing,"" says Brinkley.

Auditing has become a drag on consulting organizations, say some executives contacted by Insurance & Technology. ""It's a declining business,"" notes one consultant. ""With M&As, the number of companies to audit is going down.""

The trend also creates opportunities for technology players looking to boost their consulting and services presences. For example, Palo Alto, CA-based Hewlett-Packard is reported to be interested in buying the consulting arm of PWC.

Still, some prominent players have opted not to wear the venture capitalist's hat at this time. At KPMG Consulting LLC (New York), ""anything that we're working on is our clients' projects,"" says Paul McDonnell, managing director in financial services at KPMG. ""We're not trying to take over our clients' back offices or make them dependent on usfor five years. Instead, we're helping them develop the skills they may not have had, working side by side with them in the trenches, constantly trying to share our knowledge and transfer it to the client.""

At Cap Gemini/Ernst & Young (New York), a top priority is helping insurance clients improve their speed of delivery. Last summer, the firm put together what it says is the first major e-procurement system for London-based Royal & SunAlliance, reports David K. Zimmerman, Cap Gemini/Ernst & Young's vice president of global business development for the insurance sector. The project was completed in just 14 weeks and is supposed to save the insurer at least British Sterling 20 million annually.

""To be competitive in today's insurance marketplace, tight control of cost is essential, and the significant reduction in cost achieved by e-procurement is therefore of strategic importance to our business,"" says Moira Crabtree, the Royal & SunAlliance's global director of purchasing. ""We have done our sums on this project very carefully, and it is clear that we will have a payback period of weeks rather than months.""

Another question posed to consultants is, what to do with legacy? Many appear to believe that legacy systems should be replaced quickly, having outlived their usefulness. Deloitte Consulting's LaPorta says, ""Companies will eventually have to deal with legacy. If they expect to harness the power of the Web, they will have to achieve what the securities industry refers to as 'straight-through-processing.' This requires Internet enabling of the legacy systems and will result in giant improvements in administrative costs. It will also require a significant investment.""

Similarly, Karen Furtado, vice president of consulting services at CGI Information Systems and Management Consultants, Inc. (Andover, MA), believes the sooner insurers replace the old systems, the better. ""People are still challenged by legacy,"" she says. ""Once they come up with their Internet and e-strategies, they can decide what legacy systems to replace. The immediate need is to get information out and then go through the process of replacing those applications.""

However, John McCauley, vice president and global consulting executive with IBM's financial services sector (Armonk, NY), takes a different position in the legacy debate. ""The issue of getting out of these systems is overblown,"" he says. ""They're fully depreciated, bulletproof and operational. The trick is to enhance them with middleware and take advantage of their low-cost and efficiency. Let's not throw the baby out with the bathwater.""

Another focal point for insurers in the coming year, consultants agree, should be customer-focused marketing. Andersen Consulting's David Hollander, a partner in the insurance practice, points to marketing enhanced by data mining as a huge opportunity for insurers. ""Truly effective and innovative marketing is the next big domain for insurers,"" he says. ""Generally speaking, currently it's not targeted, focused and optimized for specific channels. But I think there's a big, big opportunity for those who look at it as a management science with discipline and analytics.""

Taking targeted marketing to the Web through B2B exchanges and portals is an area where many carriers are looking for guidance from consultants. ""Our thinking is that in the next 12 months there will be increasing interest in these B2B applications,"" says PWC's Brinkley. ""You'll see these exchanges, portals and 'vortals' used by insurance risk managers, doing for risk managers what brokers used to in some cases—particularly those things that simply require the shopping around for the best price.""

Brinkley sees carriers creating exchanges to leverage their buying power—particularly in claims. ""These are still in the discussion stages, but we'll be leveraging our experience here,"" he says.

Even with seasoned consultancies pushing insurers to become e-businesses, most industry veterans expect their clients will pursue these initiatives in relatively traditional (for insurance) ways-proceeding in measured, limited steps as they determine their technology strategies. ""For the industry, there's still an initial shock wave relative to how expensive all of these initiatives are,"" says IBM's McCauley. ""We've all got shareholders, so people are picking and choosing their projects.""

Adds KPMG's McDonnell: ""People aren't taking a Big Bang approach. We're here to make sure that as incremental steps are taken, there's value.""

2 of 3