The decision to outsource can be a difficult one, but sometimesall it takes is a littlebit of research. Mark Burnam, claimstechnology director for the Kemper Auto and Home Group (KAHG), adivision of Unitrin, says the decision to outsource itsfirst-notice-of-loss calls wasnt too difficult once the researchwas complete. Did we want to spend money building or buyingsoftware to support the intake process? he asks. The answer was no,not when KAHG could leverage the technology investment made by theoutsourcer it chose to handle the call center.

Of course, no decision to outsource is easy, no matter what sizethe company. But knowing what your company does well and whatothers do better is a good place to start, and thats why SutterInsurance Company chose to outsource its technology department.Fiserv, the company Sutter chose, had a lot of economies of scalewe couldnt duplicate at our size, says Diane Kleinecke, vicepresident of finance and accounting for Sutter.

Finding the right fit with an outsourcer is key to any long-termarrangement for insurers. Greg Powers, vice president of sales forFirst Notice Systems (FNS), the vendor chosen by KAHG, believesinsurers need to focus on three areas of concern when contemplatinga deal. One is program knowledge, says Powers. Will these[outsourced] reps be able to understand your company, your culture,specific scenarios your [people] go through? Second, will they beable to provide the same level of customer service? The third is,will they have controls in place? If the boss asks what ishappening, you need to give answers with details and data thatencompass the [outsourcing] experience. It is critical anyoutsource provider has good answers for all three of theseareas.

Why Look Around
Burnam says there were anumber of good reasons KAHG turned to outsourcing. The insurer hadsix offices around the U.S. with responsibilities for claimshandling, and KAHG saw it was difficult to maintain consistency inthe intake process across the different offices. Burnam reports theproperty/casualty insurer considered centralizing the call centerusing its own staff. We didnt feel we had the economies of scale toaccomplish that cost effectively, says Burnam. We also felt wedidnt have the right technology in place.

Another issue KAHG had to consider was what the carrier would doin event of a crisis. We didnt really have a good disaster recoveryplan in place for intake, he says. It was kind of a scramble whenwe had situations where offices were shut down. We felt outsourcingwith the right vendor would eliminate that concern.

KAHG also wanted to bring its intake area into a 24/7environment for both customer convenience and improved service.After normal operating hours for our claims offices, the customeractually would get someone on the phone who could help direct care,referring services to where they were appropriate. The customerwouldnt get an answering machine or a pager number.

The fact that KAHG didnt have the appropriate technology inplace to get its intake center up to such quality was a majorfactor in the decision to outsource. To improve its customerservice, Burnam believed the carrier needed to receive bettermanagement reporting on what was taking place in the intake center.We did the best we could with manual tracking, but we felt[improved reporting] was something we could get from an outsourcingvendor.

Burnam says the final piece of the equation was to get a modelthat was flexible and allow KAHG to make changes on the fly. Wewanted to be able to make changes that could be put in placeeffective immediately across all our jurisdictions, says Burnam. Aswe see opportunities, we can implement [changes] faster by having avendor to go to and install them across the board.

How to Pick One
Dean Davison, an analystwith the consultant META Group, recently published an executivesummary: Outsourcing Desk Reference. In his report, Davison advisesinsurers to consider five points when negotiating an outsourcingcontract.

• Enter into the outsourcing engagement with correctexpectations.
• Articulate primary objectives of outsourcing and risksassociated with options.
• Select an outsourcing vendor capable and motivated to meetprimary objectives.
• Negotiate contracts with service levels that align with primaryobjectives.
• Implement a strong team to manage the outsourcing vendorthroughout the contract.

Having high expectations can cause problems for an insurer aswell. There is no absolute guarantee an outsourcer will perform thefunction any better than the insurer could perform it. Davisonbelieves some of the misconceptions include:

• IT expenses automatically will be reduced by outsourcing.
• Vendors possess best practices and bring such operations toclients.
• Cost and quality are optimized by a company that is in thebusiness of providing technology services.
• Offshore vendors offer huge savings in applicationservices.
• Vendors are simultaneously better, faster, and cheaper thaninternal IT.
• Vendors reach economies of scale other companies cantmatch.

The Little Guys
Sutter is a smallCalifornia-based personal auto carrier, and Kleinecke says, likeother small carriers, the company worried hiring one or two peopleto run its IT department would create a problem of its own. Thething that scares you is you are going to hire someone who is, inessence, going to hold you hostage, she says. The cost ofoutsourcing IT operations can be expensive, she adds, but we feltlike we had more control [outsourcing] from a personnelstandpoint.

Bill Kleinecke, Dianes brother and vice president ofunderwriting and marketing for the closely held, family-runinsurer, says the fact that Fiserv was a proven entity made thedecision easier. The decision to outsource was made in 1997 asSutter faced the looming Y2K crisis. Throw in the increasedregulatory requirements the California-based insurer faced, and thedecision became much easier. This was a proven way to meet thestates requirements for data, he says. The fear companies had oflosing all their data also was pretty real at the time.

Playing Politics
To experience real costsavings, many businesses feel they must turn to India or otheroffshore locations to find outsourcers. But political unrestthroughout the world and the fear of terrorists here in the U.S.means disaster recovery plans, as mentioned earlier by Burnam, aremandatory.

Majarand Teje, general manager for the insurance solutionsbusiness in North America at IT and business process outsourcerWipro, says the majority of his job is spent easing the concerns ofcustomers. With much of its operation in India, Wipro faced a realchallenge when the threat of war with Pakistan gripped India. Tejesays maintaining customer satisfaction and having the data to backit up is the best tool he has to ease the minds of Americaninsurers. We walk them through the complete business continuityprocessinfrastructure, network, securitythat allows them to get acomfort feeling, he says. When possible, he encourages potentialcustomers to visit India and the Wipro facilities. That also allowsthem to draw a lot of comfort, he adds.

By contrast, when KAHG went looking for an outsourcer, Burnamsays it was nice to find a provider in the Northeast where KAHGdoes much of its business. First Notice is based in Boston and hasmultiple locations. Having multiple locations for that 24/7 modelobviously is very advantageous, he says. The [provider] can expandand shrink staff as it needs to, something we couldnt do.

Finding an outsourcer with the right technology in place is whatmakes the deal easier for an insurer, Burnam believes. With FirstNotice Systems, KAHG found a company with the technology that wouldallow Kempers business rules and scripts to be built right into theclaims intake system. Virtually any employee from [First Notice]could pick up a callfollowing our scripts and our call flowsand hitthe mark, says Burnam.

The technology offered by First Notice was better than what KAHGfound with other vendors, according to Burnam. Even more important,First Notice could handle policy feeds into the system and washeading in a direction of interfacing loss data into partneringservice providers systems. These were all very important parts ofthe decision-making process. And, of course, its reputation, hesays. One of the things that gives us confidence is [FNS] can useour business rules and scripts. It can automate those in such a waythey are followed consistently. That gives us a high degree ofconfidence in the intake process.

Sutter operates on a legacy system with Fiserv, and DianeKleinecke realizes that wont last forever. Its an old systemitworks, its functionalbut we see its limitations as well, she says.Its nice to know [Fiserv] has other products to offer that we willbe looking at.

What About Me?
With any outsourcingrelationship, concerns often arise among insurers over where theoutsourcers loyalties lie among its list of clients. DianeKleinecke believes stability is a key factor in maintaining a goodrelationship. What makes us feel we arent lost in the shuffle isover the course of our relationship [with Fiserv], weve had asingle point of contact who knows the system inside and out, shesays. He has a very good understanding of our business and ourpriorities. That consistency has made the difference for us.

She doubts Sutter would feel the same if there had been a greatdeal of turnover in that position. Theres been plenty of turnoverbelow him and probably above him, so maybe weve just beenfortunate, she adds.

Burnam doesnt see that as a problem, either. One reason is hisoutsourcer treats feedback from the insurer seriously. They respondquickly to issues, he says. Our ideas for program enhancement anddevelopment are taken seriously. I dont ever feel like were not apriority. If that wasnt the case, that would be a huge problem.

First Notice Systems Powers believes control of the relationshipis a major hurdle for insurers. His company deals with it by makingevery contact between the outsourcer and the insured available tothe insurer. Every call we take and every data element we capturefor every client is written out to an Oracle database and can bereported upon, he says. You can literally have reporting that isprovided on the half-hour. Now, a lot of people dont care to seeall that data, but its available.

Such availability brings about a familiarity for the insurer.Its important companies know when they outsource theyre not justoutsourcing to a bunch of people in another part of the country orthe world theyve never met and hope for the best, says Powers.

He also asserts it is more than just technology that makes thearrangement work. Its also the training, Powers says. Our reps gothrough four weeks of training before they hit the floor. They needto know adjudication vs. subrogation. There is a focus on training,refresher training, and monthly exams. Carriers often participatein those training sessions as well. They want to make sure theprogram knowledge of our reps is not only about scripts and callflows, but its also about the culture and how [the reps] interactwith the policyholder.

Stay in Touch
Keeping in contact with the outsourcer means more than studying amonthly activity report. I have a dedicated analyst to therelationship, says Burnam. That analyst, along with the monthlyreports from the outsourcer, allows KAHG to keep tabs on what istaking place in the intake center. Plus we have a lot of differentad hoc reports that have evolved over the last 18 months, he says.We are looking at percentage of calls that come in by time of day,wait times by time of day. This gives us assurance FNS is keepingtabs on its model.

Sutter and Fiserv go through weekly conferences where anopen-item list is discussed as well as any adjustment in theinsurers priorities. Early in our relationship, we had more directcontact, but at this point, since its an older system and we haventmade significant changes in the last few years, the conference callaspect has worked pretty well for us, says Diane Kleinecke.

Sutter hasnt been tempted to re-establish its own IT department,but the company is open to improvements. We have shopped othersystems to take a look at what is out there, says Diane Kleinecke.We would certainly consider going to an in-house system or adifferent form of outsourcing, but we found this [current system]to be very effective for us. It lets us concentrate on the part ofthe business we know best.

The important decision, Burnam says, involves where an insurerdifferentiates itself from the competition. Taking first notes ofclaims is not what makes KAHG stand out from the competition;rather it is in the adjudication process and the personal touchthat is provided the policyholder by the claims adjusters andagents, he points out.

It makes it easy to outsource because [intake] is somewhat of acommodity process, he says. The key is getting the rightinformation into the hands of the adjusters so they can do theirjob. To the extent we can offer some services at the front end ofthe intake process, we will absolutely want to do that, he says.And FNS is helping us accomplish that.

What to Do
There are several steps to betaken to make a successful outsourcing arrangement work, Davisonsays. Determining the business value of sourcing decisions enablesbusinesses to derive and implement sourcing strategies moreeffectively, thereby enhancing business flexibility, he says. ITleaders and project teams should formalize a plan that describeswhy and what should be outsourced, even if the answer comes back asbeing nothing.

Davison doesnt believe signing a contract is the beginning orthe end of a relationship with the outsourcer. He describes it asjust a single point in a long line of negotiation and relationshipmanagement issues that must be continually addressed. IT leadersshould create an organization with clear roles and responsibilitiesto manage vendor relationships in addition to ongoing contractadministration.

Getting the Best Deal
In a recent TechStrategy Report from Forrester Research, analystChristine Ferrusi Ross listed three areas that should be part ofany outsourcing deal.

1. Include road-map milestone metrics in contracts.
Clients who want enhanced infrastructure without big-bangmigrations should ensure the outsourcer is compensated on meetingspecific incremental milestones, according to Ross. She believesthis encourages and compensates the outsourcer for looking atbetter ways to do business. This type of innovation should beblended into agreements, not treated as additional projects on topof existing contracts, she says.

2. Insist on outsourcer training commitment.
Buyers should insist on including terms in the contract thatrequire outsourcing employees to be able to handle technologyinnovations, Ross advises. Require the outsourcer to commit atleast three to five days training on emerging technologies to thedelivery team members, she says. The specific technologies chosenshould be determined jointly by the client and the outsourcer basedon the clients infrastructure road map.

3. Reward individuals, not just the outsourcer as acompany.
Employees of the outsourcer should be encouraged to find ways toimprove the clients operations, but the money shouldnt all go tothe outsourcer, according to Ross. If the outsourcer earns a bonusfor identifying client savings, she asserts, the contract shouldrequire a bonus to the individual team member who suggested theimprovement.

Tech Guide: Outsourcing Vendors

AdminServer, Inc.
Malvern, Pa.
972-715-2028
www.adminserver.com

Afni Insurance Services
Simsbury, Conn.
860-651-9775
www.afniinc.com

Allegient Systems
Wilton, Conn.
203-761-1289
www.allegientsystems.com

Allegis Communications
Seattle, Wash.
800-566-6112
www.allegisteam.com

Apex Data Systems
Tucson, Ariz.
520-298-1991
www.apexdatasystems.com

Claims On Line, Inc.
New York, N.Y.
212-949-7000
www.claimreportsonline.com

Computer Outsourcing
Shelton, Conn.
203-925-3920
www.computeroutsourcing.com

Connextions
Orlando, Fla.
877-772-6868
www.connextions.net

CSC Financial Services
Austin, Tex.
800-345-7672
www.csc-fs.com

E-Claim.com, LLC
Gretna, La.
504-388-3256
www.claimassignments.com

dakota imaging
Columbia, Md.
410-381-3113
www.dakotaimaging.com

Docucorp International
Dallas, Tex.
800-735-6620
www.docucorp.com

EDS
Plano, Tex.
972-605-5000
www.eds.com

Examen, Inc.
Sacramento, Calif.
916-921-4300
www.examen.com

Fiserv
Brookfield, Wis.
800-322-4220
www.fiservais.com

Fiserv Life Insurance Solutions
Cedar Rapids, Iowa
800-928-9926
www.fiservlis.com

GenSource Corporation
Valencia, Calif.
661-294-1300
www.gensourcecorp.com

gotoPremiumFinance.com
Woodland Hills, Calif.
800-229-9822
www.gotopremiumfinance.com

Input 1, LLC
Woodland Hills, Calif.
800-229-9822
www.input1.com

INSpire Insurance Solutions
Fort Worth, Tex.
817-348-3999
www.nspr.com

Insurance Data Services
Hemet, Calif.
800-996-9964
www.certsonline.com

Insurity, Inc.
Hartford, Conn.
404-456-5088
www.insurity.com

LIDP Consulting Services, Inc.
Woodridge, Ill.
630-829-7100
www.lidp.com

Magnify
Chicago, Ill.
312-384-7161
www.magnify.com

Management Data, Inc.
Birmingham, Ala.
205-991-7511
www.mgtdata.com

McCamish Systems
Atlanta, Ga.
800-366-0819
www.mccamish.com

MFXchange Holdings, Inc.
Toronto, Ont.
866-639-6399
www.mfxfairfax.com

NaviSys
Edison, N.J.
800-775-3592
www.navisys.com

nomoreforms, Inc.
Boca Raton, Fla.
402-336-6637
www.nomoreforms.com

nsite solutions Inc.
Urbandale, Iowa
888-282-6596
www.nsitesolutions.com

OUR-HR, LLC
Greenville, Miss.
663-334-6919
www.our-hr.com

Outerbounds Technologies
Atlanta, Ga.
770-261-6010
www.outerbounds.com

Output Technology Solutions
Kansas City, Mo.
816-842-5862
www.output.net

Patni
Irving, Tex.
866-728-6446
www.patni.com

Rackley Systems, Inc.
Pulaski, Tenn.
800-874-2616
www.rackley.com

ReClaim Technologies
Newark, Ohio
740-344-6956
www.reclaimtech.com

Renodis, Inc.
Minneapolis, Minn.
952-838-3103
www.renodis.com

Results International Systems, Inc.
Dublin, Ohio
614-540-3666
www.resultscorp.com

Risk Sciences Group, Inc.
Schaumburg, Ill.
800-619-0224
www.risksciencesgroup.com

Sector, Inc.
New York, N.Y.
212-383-2168
www.sectorinc.com

SevenSpace
Chantilly, Va.
703-961-5700
www.sevenspace.com

The Severan Corporation
Exton, Pa.
419-584-0284
www.severan.com

SS&C Technologies, Inc.
Windsor, Conn.
860-298-4625
www.ssctech.com

SunGard Insurance Systems
Roswell, Ga.
800-337-2677
www.insurance.sungard.com

Trumbull
Windsor, Conn.
877-285-2174
www.trumbull-services.com

Valley Oak Systems
Alamo, Calif.
925-552-1650
www.valleyoak.com

Visibillity, Inc.
Chicago, Ill.
888-484-7424
www.visibillity.com

Xerox Global Services
Rochester, N.Y.
770-569-5668
www.xerox.com