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November 18, 2001 at 07:00 PM
Outsourcing IT Is An Evolving Paradigm For The Insurance Industry
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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.
