Doing Your Best

I dont believe in a wholesale outsourcing of an IT department, Lowenthal said. You need to pick and choose. You look for an appropriate mixture. At one time, the IT department was considered in the same light as Lowenthal holds e-mail today. It was a backroom place, he said. People didnt consider it part of the business process. But today, IT is an active partner of the business side of insurance.

That doesnt mean you cant outsource the IT department, though. There are companies out there who will take over your IT operation, often by hiring your old employees. Canadas CGI (www.cgi.ca) is one of them. Last summer the Canadian firm signed a 10-year agreement with Firemans Fund to take over the carriers infrastructure. Michael Filak, senior vice president of outsourcing and business engineering for CGI, said the deal will likely cut Firemans expenses in half over the life of the contract. CGI hired 298 employees from Firemans and bought the insurers data center in Phoenix.

Such deals often mean that carriers have to tighten their processes because the IT staff is no longer a part of the same corporation, but Filak said in this case CGI has a different operating model. Other outsourcers take away a companys flexibility, but our plan leaves them a lot of control, Filak said.

Still, things dont work on the fly when you turn your operations over to an outsourcer. It forces them to be more disciplined, Filak said.

One reason this deal can work for both sides is because CGI is not just a technology companyit knows the insurance business. And Filak said that was one of the principle reasons CGI was able to beat out the competition for the Firemans contract.

If its all about cost, youre missing the boat, said Don West, vice president of client services for the State National Companies (www.statenational.com). You have to look for things that you do that are not core competencies, but you have to ask yourself if someone else can do it cost effectively while still maintaining the important things, especially customer service. At the end of the day, its all about the customer.

Taking Chances
Lou Kwiker, co-founder, president, and CEO of Insurance Technology Solutions (www.insurancetechnologysolutions.com) said carriers need to ask seven questions when they are deciding on an outsourcer:

1. What is the quality of the outsourcers management?

2. Has the outsourcer done this type of work before?

3. What are your companys business processes?

4. How much involvement will there be for your company?

5. What is the cost?

6. Are there competitive choices?

7. Is my company better off doing this internally or with new partners?

I think it comes down to philosophythe culture of the organization, Kwiker said. Is it comfortable dealing with a third party that has a particular expertise that your company doesnt have?

Insurance is about risk, and outsourcing involves some risk as well. David Hollander, Accentures (www.accenture.com) managing partner for the claims solutions group, said, Typically there is an element of risk that has to be shared between the two companies. Working with an outsourcer is a partnership: Unless both sides are successful, neither can be. And, he said, Cost is just one level.

There are going to be successes and failures anytime such deals are made. Like many new ideas, outsourcing was initially looked upon as a panacea for carriers, particularly those with costly and antiquated legacy systems. Bill Kenney, CIO of the Colony Group (www.colonyins.com), an E&S carrier, believes the pendulum has swung the other way, particularly for smaller carriers. We do outsourcing for selected projects, but the day-to-day stuff we handle internally, he said.

Opportunities Knock
Amy ODonnell, vice president of Contractors Resources (www.contractorsresources.com), believes insurance offers many opportunities for outsourcing. You have to look at a high level skill set that you cant afford as an employer, she said. A thorough examination of the staff, its strengths and weaknesses, is important whether implementing a new system or upgrading. You may not need that employee or group of employees after the project is done, ODonnell said. Your maintenance department can handle things from there.

But Lowenthal doesnt believe such decisions should be made strictly on the basis of your current staff. Outsourcers come in and say they can do the exact same thing for 20 percent less than what it is currently costing you, he said. But basically they are just hiring your people to do the work. The IT leaders have to look within their own department. Is the outsourcer cutting servicesor efficiencies?

Many times the answer is not outsourcing, he said. Management skills in the IT department are a key factor. There are a lot of good technical people out there, but you need managers, too, Lowenthal said.

Keeping legacy systems running is challenging, even for outsourcers. Not surprisingly, it is one area thats popular for outsourcing. Nag Rao, North American Director for First Apex (www.firstapex.com), an IT services provider for the insurance industry, urges carriers to let his company handle their big iron. Unburdening itself from a legacy system, he explained, allows the carrier to focus on other matters.

Carriers have trouble keeping legacy talent in the U.S., Rao said. Give us that work and you can keep your people working on the cutting edge projects.

Lowenthal said thats what Hartford did with its Y2K project back in 1999. It worked well, he said. The company got the job done in a similar amount of time and for about half the cost. With legacy applications you have to ask yourself questions like, Can I make it GUI? Some of that type of work is good to outsource.

West cautions smaller carriers about outsourcing decisions. Mid-tier and smaller carriers dont have the discretionary dollars to bring in big consultants, he said. Such decisions can be difficult when the only outside voice you are hearing belongs to the company trying to sell you something. (Looking for a consultant? Be sure to read Decisions, Decisions, page 16.)

Employees can question the decisions you made as well. It can be looked upon as an abandonment of part of your company. I dont know how to manage this, therefore Ill have someone else do it. Carriers have to remember what keeps them in business. Business processes are important, but it all comes back to the customer, West said.

But do customers care if the customer service rep is in New Delhi or New Britain? Not likely. Philosopher Norm Peterson once questioned a business decision made by the proprietor of Cheers: Sammy, is this going to affect the price of beer? When told it wouldnt, Peterson replied, Well than what do I care?

Customers want good service at a reasonable price. What happens behind the curtain is of little concern as long as the carrier keeps those two things in mind.