Delegating the back office IT

outsourcing

Mark Bates

CHIEF EXECUTIVE RDT

The business process outsourcing debate has been rumbling on within the insurance industry for several years, and is likely to continue for some time to come. RDT’s Mark Bates explores the pros and cons of outsourcing a firm’s back office IT requirements

A

ttitudes towards outsourcing IT to a third party vary across the industry - even, it seems, during tougher operating conditions. Last year certain commentators suggested that the recession would incite

acceleration in the move towards outsourcing, as companies looked for ways to cut their cost base and re-allocate resource to core competencies.

It would seem, however, that businesses have taken a more short term view to the downturn than originally expected, so rather than witness a ‘knee jerk’ reaction to cutting costs by outsourcing IT, the current slump has encouraged companies to review their existing business models and consider how outsourcing IT might meet their longer term strategic requirements.

Outsourcing companies are seeing increased interest in fully automated administration solutions, as many insurers take stock of their business modules and processes and analyse the level of risk for each of their divisions.

Many are finding that their legacy administration systems are labour intensive, costly and out of date, making productivity insufficient - both financially and in terms of resource. This has led to a review of associated costs for upgrading and outsourcing new

28 insurancepeople APRIL 2010

technology to aid them in recession-proofing their business. Increasingly, companies want any outsourcing IT arrangement to be more of a seamless extension of their in-house efforts, and emphasis is therefore firmly laid on outstanding customer service levels and insurer/provider relationships.

Companies are also looking for more flexibility in their relationship and do not want to be tied to long, fixed contracts that leave little room for manoeuvre.

Legacy systems can be a real barrier to realising the full potential of business process outsourcing. Legacy systems are hard coded and not able to be updated to meet a company’s evolving needs, leaving insurers tied to their original provider unless they are prepared to invest more capital in developing their IT infrastructure. Up to date systems like

Landscape allow coding changes to be undertaken instantly and in real time. It can be tempting to think that patching up old systems is cheaper and will be sufficient, but many insurers now realise that they may be better off throwing the old systems away and starting again.

The fact is, outsourcing does not have to be an ‘all or nothing’ scenario: solutions like Landscape can work alongside legacy systems on specific business

processes - be it claims, renewals or point of sale, for example - to enhance processes during a transition period to a fully scalable system to support long term business growth.

A trusted outsourcing partner will be able to advise as to whether an existing system is working and delivering profit, or whether a company should be looking further ahead and migrating to a new, fully outsourced system.

The good news for the industry is that, as outsourcing companies work with several insurers, they get the advantage of shared investment opportunities without compromising confidentiality. Another key barrier that many companies find it hard to overcome when considering outsourcing their IT function is the perception of losing control - whether relating to product quality, internal knowledge or cost control and return on investment. The fact is outsourcing is not about losing control but regaining it, as it creates a unique opportunity for an insurer to share the responsibility for their IT processes with experts who have the specialist skills and best-of- breed technology to complement and support the existing business. The right choice of partner will ensure that ‘ownership’ - of people, processes, data and

knowledge - remains with the organisation.

Another concern that can hold insurers back from outsourcing business processes relates to risk management. The industry faces great regulatory focus on the way that it manages risk and some insurers are apprehensive that by outsourcing they are simply swapping one set of risk for another.

Reassuringly, the outsourced market is very well regulated and controlled by the FSA in the UK and as a result is, if anything, even more compliant than insurers’ in- house compliance risk processes. What’s more, the up to date systems they provide are set up to allow insurers to link up to industry databases in real time to help meet tougher compliance regulations.

Choosing the right provider, of course, is crucial to the success of any outsourcing project. To make the right choice, organisations must spend adequate time and effort strategically sourcing likely candidates by evaluating their skills, assessing their proposed costs and considering how they fit with their particular business need. This is an investment well worth the effort - by working together with a trusted partner, insurers and brokers alike can be fortified by the alliance and better placed for future success. Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36