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Outsourcing IT Is An Evolving Paradigm For The Insurance Industry

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Outsourcing IT Is An Evolving Paradigm For The Insurance Industry


The ever-increasing complexity of technology decisions presents challenging questions for todays insurance executive. Fortunately, the industry is in the middle of an outsourcing evolution that is redefining operational boundaries, and insurers are no longer limited to in-house resources when considering options for information technology (IT) solutions.

With the Internet becoming an integral tool for business operations, a profound change has occurred in the possibilities for outsourcing tasks. Consequently, something of a paradigm shift is taking place when it comes to defining IT objectives.

Outsourcing was once implemented only as a tactical, cost-savings measure, but it is now being used to affect long-term strategic objectives. IT outsourcing solutions are becoming critical tools for maintaining competitive advantage and adding to top-line growth.

In order to understand this paradigm shift and its implications for the insurance industry, its helpful to look back at outsourcings evolution, as well as the current options found in ASPs and Internet-based insurance applications. The variety of business processes supported by outside service providers illustrates the competitive strengths that todays insurance executive can achieve by thinking outside the walls of the organization.

When it comes to outsourcing in the insurance industry, evolution has moved at a snails pace. However, virtually every carrier has outsourced some aspect of IT operations since the 1980s, when the widespread use of software applications such as Microsoft Office signaled the industrys first movement toward IT outsourcing.

After all, how many insurance companies have in-house departments developing e-mail systems or spreadsheet software? However, the practice of keeping IT implementation and administration inside remained the industry standard for a long time, even for third-party applications. The boundary between in-house resources and outside providers was very clear, and at the beginning, insurers rarely crossed it.

Even as outsourcing gained wider acceptance, insurers were reticent about embracing new breeds of external services for insurance-specific applications. There was great reluctance to hand over day-to-day maintenance, and even greater discomfort with entrusting proprietary data to someone on the “outside.” Eventually, insurers cautiously ventured into running common applications such as payroll with off-site vendors. Over time, insurers gradually began to tap outside vendors for development of insurance-specific applications, although administration continued to remain in house.

Because of the speed of technological change and the competitive need for specialized expertise and development skills, insurers have recently turned to third-party vendors for end-to-end development and off-site implementation of Internet-based insurance applications. The increased security and competitive capabilities that these technologies offer inspire the confidence of insurers and allow them to let go of old protective concerns regarding outside vendors.

Whatever the reasons for the historically slow adoption of outsourcing, current market pressures create the need for rapid changes. Competition forces carriers to re-examine business practices and communicates an urgency to implement the economies of scale that technology provides. Greater efficiency and faster time to market are critical.

These demands require the lightning speed of paperless processes, networked operations, and Web-enabled customer service. In addition, effective data management is a key concern, requiring the overhaul of data architecture and the merging of disparate, far-flung data repositories. Given these challenges, the specialization offered by IT outsourcing services is invaluable to todays insurance executive.

Today, outsourcing business operations is often as simple as plugging in a phone jack. The number of Internet-based service providers is increasing nearly as fast as the number of strategic business processes that they support. Web design and application developers are currently popular choices for insurers, but more specialties exist.

Many services offer consulting capabilities, and can assist with industry-specific strategies regarding systems integration, procurement, and product support. However, planning for strategic outsourcing first requires that a company understand its core competencies thoroughly. Many insurers choose to retain in-house control over the processes that differentiate them from competitors, such as product development, and outsource other “non-core” tasks.

Any company selecting a service provider should request certain assurances. Can it provide 24/7 service and support? Does it offer training for staff? Whats the providers reputation for stability, security and quality?

Choose a partner with the experience and resources best suited to your business, keeping in mind the difference between procurement and strategic outsourcing. An IT service provider isnt just another supplier, its a virtual partner that lends specific expertise and frees resources for other core competencies.

Use a management team to establish objective performance criteria and set guidelines for the service provider. And finally, recognize that under the new paradigm, outsourcing represents a reallocation of resources aimed at adding competitiveness, so direct cost savings dont always result. But by carefully choosing outsourcing services as part of a comprehensive business strategy, insurers can maximize opportunities created by a changing marketplace.

Many insurers are choosing ASPskey providers of insurance business processes that represent a literal reinvention of the software industry. Using the Internet as a wide-area network, ASPs provide real-time communication, collaboration, and accountability applications while storing data in a central, separately managed location.

Through scalable resources and infrastructure, ASPs speed up time to market on new business services. World-class software applications, data availability, and 24/7 system maintenance and user support are accessible for organizations of all sizes, all without requiring significant investments in software, deployment time, or IT personnel.

Outsourcing business processes is a new concept for the insurance industry, but it is quickly being embraced. In the current marketplace, success requires reaching beyond the walls of the organization to accomplish key business tasks. For many of these tasks, insurers can utilize the wide spectrum of technologies offered by application service providers. At the end of the day, IT outsourcing does much more than control costs; it can make an invaluable contribution to company growth and profitability.

is president and COO of Visibillity, an application service provider based in Chicago. He can be reached at [email protected]

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 19, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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