Roller-Coaster Ride

Insurance carriers weighing the issue of whether to outsource IT or some of their business processes have debated everything from the political ramifications of such a move to the position of the U.S. dollar in the world marketplace. Whether it is despite or because of these issues, industry observers, such as John Varricchio, partner with Ernst & Young and a leader in the insurance operations improvements practice, see "a dramatic uptick" in interest among insurers. "As companies streamline and centralize their processes and operations, it leads to easier outsourcing decisions," he says. "You can streamline the complexity, and that makes it easier to outsource elements of the business."

One of the reasons for the surge in interest is because cost savings still can be achieved, particularly as other geographies have emerged to compete with India for outsourcing dollars. "Other pockets of expertise have opened up around the globe," says Varricchio.

Insurers have to be careful they get everything they bargain for when they make the decision to outsource. Part of negotiating an outsourcing agreement is to agree on the services that will be provided, how the work will be measured, and how those measurements will be monitored, according to Jeff Argotsinger, senior vice president of Swiss Re. "At the end, we have to know what's going to happen if they don't meet the standards," he says.

METRICS

Metrics are critical in outsourcing, Varricchio contends. "If you don't have the metrics, you really don't know what success looks like," he says. Quality metrics and operational performance metrics are two types insurers are using. "Identifying those SLAs beforehand is critical," he says. "It is very difficult to renegotiate SLAs after you have outsourced something."

Early in the selection process, both parties need to agree on what is required from a service standpoint, and those standards need to be tracked and monitored monthly. "It's part of the evaluation process we use in deciding on a vendor," says Argotsinger. "Can [the outsourcer] meet our standards, and what kind of recourse is there if it doesn't meet the standards?"

Argotsinger believes using an outsourcer sometimes can be easier than dealing with the internal IT department. "The outsourcing option gives me as the manager/business leader a little more opportunity to manage [performance standards], more so than an internal solution," he says.

For example, if a company tells an outsourcing vendor specific turnaround times are needed with regard to implementation of certain changes, explains Argotsinger, the outsourcing vendor will respond with the cost of the project, the time frame it will be performed in, and the functionality the carrier will receive. Carriers can receive that same information from internal sources, but Argotsinger adds there is a catch. "The difference is, in the internal world, the IT people may get caught in another internal project that is deemed more important to the corporation at that point in time and won't be able to get to my project for another month," he says.

Business leaders may complain about this, but there isn't much that can be done to reverse a decision from higher-level executives. "If I go to the outsourcing vendor, though, and it says it has a problem with my demands, there are repercussions," Argotsinger remarks. "I can delay payments, or we can renegotiate a number. It's a much more effective way to get things done and a more transparent way to monitor the business."

ONSHORE

One insurer has established its own outsourcing firm. About a decade ago, Antares Management Solutions was created as a subsidiary of health insurer Medical Mutual of Ohio (MMO), and today Antares provides onshore business process and information technology outsourcing services to many organizations in the health, life, and accident insurance industries and related markets, according to Rob Nelson, systems development coordinator for Antares.

Each customer has individual needs, and within each customer, there are individual needs for specific departments, he points out. "We have a development team that works with each customer," he says. "Each of the workflow processes we work with is an individual process, but the teams collaborate as they are building the solutions. We find we have more opportunity to share the information between the departments."

Antares recently upgraded its enterprise content management to address its clients' ECM needs with the implementation of the OnBase solution from Hyland Software. "Once we've completed the conversion processes, one of the ways in which we'll be able to measure the ROI will be to see what greater flexibility we have with this system and what more we can offer," says Nelson. "[Customers] are beginning to see that now as we implement the product."

Antares is able to offer new workflow processes for its customers with more flexible options to make everyone's job easier and more efficient, asserts Nelson. "When we complete the conversion of these processes, our customers will be in a good position to measure the difference in productivity," he says.

The metrics differ in each case, adds Nelson. In claims, because of the high volume and the extensive reports on productivity, customers should be able to use the productivity reports to determine the metrics, while in other departments there will be shorter process times for the users to measure. "The greatest difference [users] will see is we will be able to implement a lot of new workflow processes we were not in a position to make prior to this," says Nelson. "Those efficiencies will make a big difference."

With its old system, Antares felt limited in what it could offer the customer in terms of workflow. "It took us too much time to do custom development and licensing solutions to expand the use of workflow for our customers," says Nelson.

COMFORT LEVEL

WorkSafeBC is a workers' compensation insurer in Canada, and over the years, it has enhanced and augmented its claims and policy management systems, reports Todd Yule, director of the claims management solutions project. "We have six big core systems that run the claims management systems–all different technologies," he says. "All of them run in stovepipes and are not very connected or data rich. There is nothing we can harvest on the back end to do intelligent reporting."

WorkSafeBC couldn't actively manage its operations with its old systems, explains Yule, so the carrier decided to replace the systems with a single application. "To enable new business processes, we had to make a clean cut and rebuild our world the way we wanted to look," he says.

WorkSafeBC did some of the development offshore and had gotten comfortable with the outsourcing model. "After looking at some other testing strategies, we decided to see what was available," says Yule. "We hadn't settled on an offshore approach; we just wanted a different way to look at it."

COMMUNICATION

When Swiss Re established its relationship with CSC, Argotsinger relates an internal IT person was dedicated to the relationship with CSC. This relationship allows for the smooth integration of information between the two companies. "It's important your internal IT person or team has a collaboration with the outsourcing vendor because of the data transfer," notes Argotsinger. "The insurance world is just information transfer. There is no product you can place your hands on. The clients give us information, and we give them a quote. They send us information about a claim, and we give them a check. It's just a passing of information."

Communication between the carrier and the outsourcer is of vital importance to the arrangement, asserts Argotsinger. Swiss Re schedules weekly calls with its outsourcing vendors to discuss what each side is working on, where projects stand, what the timing issues are, and what the costs are. "It's all about communication upfront to make sure everybody's on the same page," he says. "When we have that kind of communication going on, it becomes much easier when there is an issue that arises. Everyone knows what is going on and can make plans around it."

Argotsinger recommends carriers seek details in reports from the outsourcing company. As an example, he explains, CSC provides call center services for Swiss Re, and the carrier receives a report with 18 or 19 different metrics–how long they are on the phone, how many calls were abandoned, the number of calls during a week, and so on. "It's important to have a depth of metrics laid out so you can tell what's going on with performance," he says.

Monitoring the performance of the outsourcer is an ongoing process, advises Varricchio. "It's not a once-and-done situation," he says. "There has to be continuous monitoring to make sure you are extracting the value you wanted. It's done from a customer service perspective and overall operational performance. The idea is to bring greater clarity to the overall offshoring decision process."

WorkSafeBC is in the middle of testing the core application it has developed with its outsourcer, HCL Technologies, and hopes that phase will be done by the end of September. "When we go live, we're turning all our old systems off," says Yule. "There are some things we're integrating, but we're doing a massive data conversion. There's no margin for error. The testing effort is enormous to make sure we get this right."

Measuring the success of the project has been an interesting process, claims Yule. "The technical testing is working through with our business analysts so together we're kind of a team," he says.

LEAP OF FAITH

WorkSafeBC evaluated several companies and brought in a couple to look at everything the insurer had and come up with a strategy. "The only constraint we put on them was the end date," Yule says. "The burn rate is insane on a project this big. Getting it in as expeditiously as possible was important. Certainly that's what our board of directors was telling us, as well."

HCL Technologies offered an offshore/onshore model and convinced WorkSafeBC the outsourcer had the expertise to do the job. "We were looking for companies with experience and were used to big projects," says Yule. "HCL brought in an offshore team and got this thing going in the way it should be set up."

It was a big step for WorkSafeBC, but Yule describes it as "an educated leap of faith." Since the needs of the carrier were acute, Yule points out WorkSafeBC didn't have a lot of time to select a partner. "You do as much legwork within the time frame as you can," he says. "We did have to do an evaluation fairly quickly based on the people we saw."

TECHNOLOGY ISSUES

When Antares contemplated its upgrade to the Hyland system, Nelson indicates the outsourcer worked closely with its customers in making the selection decision. "The customers were very much involved in the RFP process," he says. "When we purchased the product, we had complete buy-in [from them]. We had participants even at the director level. They went on reference site visits and participated in demonstrations by all of the vendors. That buy-in upfront kept us aligned."

Communication also remains important when technology issues arise. Argotsinger believes most outsourcing companies are staying ahead of insurance carriers on technology improvements. "The vendor usually has a better feel for the marketplace," he says. Still, Swiss Re has steering committee meetings where Argotsinger's team discusses what CSC has in mind. "There is a collaborative process in looking at things to change on a day-to-day basis," he says. It is imperative companies set up a well-defined communication plan that establishes meeting times or a regularly scheduled time to discuss common issues, Argotsinger believes. "If you don't have that, you can get pretty far off the path," he says. "As we all know, business changes, ideas change, and people change. You don't want to get far removed from that communication to where your company and the outsourcer are going down different paths."