Too much to do and too little time? Many carriers are turning tostrategic outsourcing
both IT functions and business processesto allow their technologypeople to excel.

If necessity is the mother of invention, then most likely itsalso an equally close relative of outsourcing. Priorities changeall the time in the IT departments of insurance carriers, and todaythe focus is not just on core competency, but on corporate strategyand ITs role in achieving strategic goals. In a recent report onoutsourcing conducted by Gartner, research director Kimberly Harrisfinds top insurers are doing things differently today.

The top companies, the ones that are doing things veryaggressively, are the ones saying their IT departments shouldnt bestrictly IT, as we used to define it, says Harris. Some of these ITshops are moving into what I call IT strategy shops. They aremoving some of what used to be done in an IT shop into outsourcingcompanies so the insurer can focus on what would be more strategiclevels of IT. That really gets into the theme of thebusiness/technology alignment weve heard so many companies talkabout.

Harris believes the shift in attitude toward outsourcing tookplace in 2002 as insurers began to place more strategic value on ITprojects while examining core processes that could be supportedexternally. A study conducted by Gartner in late 2001 found mostoutsourcing projects had limited strategic vision. Harris assertsthe pressure to get results has brought insurers to re-examinethose core competencies. Whats happening is the insurance companiesare saying, Ive got so much to do, whether its technology orbusiness, and I dont have enough time to do it. So they are lookingat things that are noncore, that are not value added, Harrissays.

Carriers need to get all these jobs done, but increasingly theoption is to look at what is not considered a core competencythething that makes the insurer different from anyone elseand find anexternal party that can help with those jobs.

So much of outsourcing for American companies is being done onforeign soil, and Harris says India is still the country of choice.As the United States wages war in Iraq, questions about moving asegment of business offshore are making some insurers nervous. Shesays many insurers that were planning on outsourcing offshore arewaiting until the dust settles. Those that already have projects inplace are considering more disaster recovery/risk mitigation backuppolicies than what they had previously, says Harris.

Mexico and China are considered near-shore and were thought tobe moving up in the world of IT outsourcing, but Harris doesnt seeany growth in those markets. Nine times out of 10, when somebody isasking me about outsourcing, they are asking about offshoreIndia,says Harris.

Companies that have not used outsourcing typically startslowlylow-level business process outsourcing (BPO), says Harris. Asthey become more comfortable, they either move into bigger areas ormove offshore. They want to jump in and get their feet wet withsomething that is close and easy. As they become more confidentwith the process, thats when we start seeing them look more towardoffshore or different variations.

Harris believes the best model is one that blends environments.You shouldnt look completely offshore or onshore, she says. Thebest way to get a return on outsourcing is if you have a blendedmodel where you use the best of both worlds.