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Insurers Go Offshore To Develop IT

High costs and labor shortage send insurance companies to far-flung destinations in search of information technology help.

Even though the economy has slowed and thousands of dot-com-ers are looking for work, the impact has been minimal in terms of the severe shortage of IT workers in the United States and Europe.

To help fill the open technology spots—combined with a number of predominantly enticing financial incentives—companies are looking to new offshore labor sources. "Offshore talent pools are huge, and the talent is great," says Ted Kempf, principal analyst, emerging professional services, at DataQuest (Chicago), a subsidiary of GartnerGroup (Stamford, CT). "Given the state of the economy where home-grown IT talent is expensive and scarce, companies are looking elsewhere to fill technology needs."

India Is Offshore Leader

One of the offshore IT hotspots is India, where a large, educated, English-speaking and relatively cheap pool of IT professionals is attracting many financial services companies, including Farmers Insurance, The Hartford, John Hancock, Conseco, Guardian Life Insurance Co., Prudential Financial, GE Capital and Citigroup, to name a few. "When a we advertise for an open position in India," says Raghu Krishnaiah, head of US operations, CustomerAssets (San Mateo, CA), an e-customer-service outsourcing company, "4,000 people apply for the job." CustomerAssets has operations in Bangalore, India.

What's more, costs for technology developers in India run 30 to 60 percent less than their US counterparts. "Even with higher telecom costs and remote management expenses, it's still cheaper than the United States," Krishnaiah says.

Watch For Hidden Expenses

However, even cheap-by-American-standards workers will not attract every US company. "There is a lore that India is so much cheaper than the US when it comes to payroll," says Diana Beecher, senior vice president and chief information officer at Hartford-based Travelers Insurance (a unit of Citigroup, $902 billion in assets). "There is a costly burden in managing the offshore development that is sometimes more expensive than having an on-shore labor force. I have heard that India is the silver bullet for IT, but I really think it is more of a silver pellet."

Good project management is vital to any offshore IT operation, says Steve Gudzunas, vice president, The Hartford Technology Services Company (HTSC), the technology consulting subsidiary of The Hartford ($172 billion in assets, Hartford). "Strong project management procedures have to be in place" for a company to send IT work offshore, says Gudzunas, who was appointed to investigate offshore IT development by Dave Annis, The Hartford's CIO. "There is a great opportunity and we are going to start a few small pilots in India to test the waters."

Taking the Leap

Starting small may be a good strategy, especially for insurers that don't have experience in offshore development. "You have to have great process discipline to make offshore development operate seamlessly," says William Ball, vice president, information technology services, John Hancock ($127.8 billion in assets, Boston). "If you don't, the vagaries in requirements are multiplied when you add distance and time-zone differences between the two IT teams.

"Another obstacle is there is a general uncomfortableness that the work is being done halfway around the globe," Ball adds. "That feeling is surmountable through experience. Especially in this day and age, given the capabilities in communication, it almost seems like the offshore operation is in the next building." John Hancock is currently in the "introductory stages" of its offshore IT development and is exploring offshore options in India.

More importantly, for the technology workers in a company's home base, "off-shoring" of IT work frees up staff for other projects. "People do not have a lot of enthusiasm to work on the older legacy platforms," Ball says. In fact, John Hancock has "off-shored" some legacy maintenance. "The people who had been doing the legacy maintenance onshore have been moved to other work or are analysts for the legacy systems."

In India, technology workers are available for legacy maintenance and for other technology-related jobs that traditionally have a high turnover rate in the US. "We have moved some customer service, call center and back-office operations to India because the turnover for those positions in the US was as high as between 30 and 60 percent," says Pat Milner, vice president of corporate communications, Conseco, Inc. ($96 billion in managed assets, Carmel, IN). Conseco recently acquired exlService (Dehli), a firm that specializes in customer service and back-office outsourcing, for some of its offshore operations. "In India the turnover rate is about six percent"—not to mention that the average annual salary in the US for a customer service rep is a little over $30,000, while in India the salary is approximately $23,000.

India is not the only hot spot for offshore IT development. In fact, there are some "near-shore" players, such as Mexico and Canada, although service is typically not as good in Mexico and the cost savings are not as great in Canada, according to The Hartford's Gudzunas. "Ireland, China, the Philippines, Malaysia and the Caribbean islands are all sites an insurance company can consider," he adds.

Offshore, But In-house

While some insurers are outsourcing IT to various regions around the globe, Newark, NJ-based Prudential Financial ($363 billion in assets under management) is rapidly growing its own offshore company in Letterkenny, Ireland. Prumerica Systems Ireland, launched a year ago, currently has 140 workers and will be expanding to 210 staffers by the end of this year and to 335 by the end of 2002. "Prumerica has been very successful and has completed 18 projects to date," says Bill Friel, CIO, Prudential Financial. Prumerica IT staffers work on a variety of projects, including client/server, networking, mainframe and Lotus Notes applications, he says.

"The cost savings are significant because we are bringing a lot of work back in-house that we had been developing with consultants," Friel says. "We are reducing our dependence on outside consultants and, as a result, building institutional knowledge." Currently, all Prumerica workers are Irish, except for the general manager. "In a short period of time, we expect Prumerica will be managed by an Irish national."

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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