They may not be the bullies down the street, but the insuranceindustrys largest carriers are usually seen as the biggestchallenge to mid-size insurersthats according to Matt Josefowicz,senior analyst for Celent Communications (www.celent.com), a research andadvisory firm for the financial services industry.

In his recent report, Technology Market Snapshot: Mid-SizeInsurance Companies, Josefowicz explained that mid-size carriersneed to make their distribution systems more effective, especiallywith Web-based tools, if they want to compete. That might seem likemaking a deal with the Devil; a few years ago, insurers werefearful of the Web and the effect it would have on theirrelationship with independent agents. But, says Josefowicz, Thatfear has diminished today.

But how big is a large carrier? Labels like large and mid-sizehave been muddied by the last decades mergers and acquisitions.Josefowiczs report lists mid-size carriers as those with directwritten premium between $100 million and $1 billion. A lot of thelarger insurers have scooped up the mid-size carriers, Josefowiczsaid. Depending on the company and the product line, though, notall these mergers have let either side experience true integration.Integration may be on the to-do list, but a lot of mid-sizecompanies are operating independently of the parent, he said.

Josefowicz believes mid-size carriers have to focus on serviceto their agents if they want to be profitable in the years ahead.Over the years, the number of insurance agents has shrunk, but theneed for those agents remains. Many are licensed to severalcarriers, but the majority of the business they write is with oneto three carriers.

One tool that will make the agents enjoy working with yourcompany is an extranet, according to Josefowicz. Agents need tosell, not spend time entering data or waiting for responses, hesaid. If you let an agent have access to your back-end system, itcuts a lot of steps. It can compress the policy origination timefrom 30 days to one hour. That can be a big benefit in recruitingnew agents.

Another area that carriers are focusing on is policyadministration systems. Mid-size carriers dont have the massivesystems used by their larger competitors, but they still need tolook at upgrading, Josefowicz said. They have to integrate thedistribution system, add new products, and be flexible.

His study found that the third area that mid-size insurers arelooking at is business process outsourcing (BPO). He believes thatcarriers need to focus on what they do best, not on specialtyareas. And billing is one place a company can look for assistancewithout hurting the quality of products.

Too often, the mid-size insurers arenot surprisinglycaught inthe middle. Large companies can write huge contracts with largetechnology service providers for complete and customizedoutsourcing service, Josefowicz said. Smaller companies can make dowith more commoditized service. But mid-size insurers may not beable to function with a commoditized BPO or afford a highlycustomized full service one. For this reason, we expect only thelower-tier mid-size companies will embrace BPO for all their ITfunctions, although more commoditized functions like billing mayhave higher adoption rates. ROBERT REGIS HYLE