Application Service Providers Put A Different Spin On Outsourcing

Orlando

Application service providers (ASPs) are assuming a new role, allowing insurers to outsource the development of software applications that help boost productivity and bolster the bottom line, says one expert.

Henry Padilla, manager, management solution services for New York-based Deloitte & Touche LLP, said that thanks to ASPs, instead of outsourcing processing of insurance policies and claims, carriers can outsource the development, deployment and maintenance of key software applications. He spoke at techDEC, the Tech Decisions Exposition & Conference, sponsored by the National Underwriter Company, and held here last month.

“ASPs have proliferated in recent years,” said Padilla, citing “a lot of growth in that area.” He added that a number of ASPs have specialized in vertical markets, such as insurance and specific functionality.

An ASP provides access to and support for software applications–”from e-mail packages to incident reporting to full policy and claims administration,” Padilla explained. He cited Yahoo! as an example of an ASP, along with Internet Service providers such as America Online.

The ASP will usually host these applications at a remote facility on an infrastructure that is maintained by them, he continued. Access is typically gained via the World Wide Web or a virtual private network.

Driving the growth in ASPs is the fact that software vendors see it as a way to enhance their revenue and support capabilities, said Padilla. On the customer side, companies see value in outsourcing certain applications to reduce costs and to enable the company to move focus and manpower away from software development and maintenance, and toward other, more critical areas.

“You usually dont see a company totally outsourcing everything to an ASP,” Padilla remarked. “ASPs arent going to totally transform the way we do business. Where it makes sense [to use an ASP], it will streamline operations.”

Historically, said Padilla, ASPs have catered to smaller companies that needed additional IT support. The growth, however, is expected to be in large companies that want to cut IT support costs. In insurance, he added, many ASPs are reporting growth in the “small-to-mid-market.”

Typical services delivered via the ASP mode include e-mail, payroll, document storage and online collaboration, Padilla observed. “In insurance, claims applications have been a traditional focus.”

More recently, however, Web-based rating/quoting and underwriting engines have gained popularity, he said.

Policy administration, decision analytics, policy printing and check issuance applications are also available. “These arent as big, but theyre getting there,” Padilla pointed out.

Cost reduction and timeliness are primary reasons why carriers consider using ASPs, said Padilla. “Companies find that as they grow, they cant expand these areas as quickly [as they need to].”

ASP-delivered services and applications enhance revenue in a number of ways, Padilla noted. These include: increasing speed to market, supporting new lines of business, enhancing customer support, enabling strategic partnerships, enhancing ability to integrate systems of acquired companies, and enhanced internal collaboration.

Padilla said the trend toward requiring a minimum one-year payback on company expenditures in IT is something he is seeing “a lot.” In calculating possible return on investment from using an ASP, the first step is to determine your reasons for considering using an ASP approach, he said.

“Assess an ASP approach as an option. Compare it against the traditional software license approach,” Padilla advised. Companies must also factor in the associated costs–both immediate and ongoing. These include one-time, up-front costs, needed improvements to the infrastructure, licensing fees, and costs for data conversion and integration, he noted.

Padilla recommended that potential ASP users also consider risk issues, such as whether or not the vendor is well established and how flexible and scalable the application will be in the companys environment.

Service agreements from ASPs typically include provisions for application availability, 24 x 7 support, and configuration, said Padilla. Security is an issue, he added, so include provisions for ongoing attack and penetration studies.

There are also limitations to be considered in regard to the ASP model, he noted. These include limited customizations to the software, since ASPs have many customers and cant always provide high levels of customization. Other limiting factors include bandwidth and connectivity needs, having less control over backups, and not having raw data available for analytical purposes, he said.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 7, 2002. Copyright 2002 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.