Consultants Seek E-Biz Investments
To understand how prominent US consulting organizations will work with the global insurance industry in coming years, look no further than the headquarters of EDS Corp. (Plano, TX). EDS executives are endeavoring to play a role in the technological transformation occurring as the industry shifts from being product- to customer-oriented.
EDS expects to do everything from consulting to installing and maintaining the complex array of hardware and software needed to be "customer-centric," while organizing vast amounts of data about its clients' customers. In addition, EDS intends to become an investor in, as well as part owner of, an array of new companies and ventures created to service the needs of firms that survive the continuing push toward financial services consolidation. In short, anyone contemplating a new insurance B2B or B2C venture can expect EDS to be there, bidding not only on the nuts-and-bolts of systems development, but also offering to form joint ventures.
EDS isn't alone in its desire to both create and become part owner of new insurance/financial services e-ventures. Count on other high-profile consulting firms to follow suit, particularly those that have already separated their consulting and accounting practices.
This is not to say insurance technology consultants are giving up on their strong suits. They are on the front lines in helping the industry deal with critical issues, including: customer profitability; determining what products customers want over what channels; using technology to reduce costs across business processes; starting to deliver what customers want through business models that vary depending on a customer's current long-term profitability; dealing with legacy-systems problems; and exploring the possibilities of new B2B ventures such as exchanges.
Still, the interest in technology investment opportunities hints at some new directions for players. First, it provides a consultancy with a diverse revenue stream, as well as offering the opportunity to increase hands-on knowledge and experience that could be utilized in other assignments or business start-ups and ventures. Also, it can give firms a more public role in such ventures, rather than just a behind-the-scenes presence.
"We have taken an ownership stake in joint venture opportunities in the industry, although none specifically in the insurance arena yet," says Bill Budde, managing director of EDS's global insurance business. "We anticipate entering some of these arrangements with the insurance industry this upcoming year. We've been asked to become involved in the creation of new markets for insurance transactions—for example, in the relationship between agents and companies and between carriers and others," Budde continues. "We understand one-stop shopping, and because we are the number-one or two processing provider, we can provide tremendous leverage to insurance companies that would like to move in new directions without having to make investments in the necessary processing capabilities."
For what this might mean in insurance, Budde points to a joint venture EDS has with investment banking firm Arcordia (London). Arcordia, in the works since 1994, provides back-office processing and related services tothose who trade over-the-counter derivatives. "Working with JP Morgan, we decided to spin off their processing capabilities and privatize it as a new company," says Budde. "In this case, we have brought our technology, infrastructure and management consulting, and they have brought their best-in-class processing capability to create a new model for 24-7 derivatives trading. There's no reason we won't see these kinds of deals structured for the insurance industry."
Mike LaPorta, global leader, insurance, at Deloitte Consulting (New York), says his firm has not ruled out the possibility of creating joint ventures. "We do not have ownership interests in any insurance ventures today," he says. "I would not rule out such a venture in the next year, but we are not pursuing anything right now. We have an affiliate, Deloitte Ventures, which is an investment fund vehicle we use for such ventures. I could foresee such opportunities in several areas, such as software vendors, ASPs, and exchanges."
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