Another issue KAHG had to consider was what the carrier would do in event of a crisis. We didnt really have a good disaster recovery plan in place for intake, he says. It was kind of a scramble when we had situations where offices were shut down. We felt outsourcing with the right vendor would eliminate that concern.

KAHG also wanted to bring its intake area into a 24/7 environment for both customer convenience and improved service. After normal operating hours for our claims offices, the customer actually would get someone on the phone who could help direct care, referring services to where they were appropriate. The customer wouldnt get an answering machine or a pager number.

The fact that KAHG didnt have the appropriate technology in place to get its intake center up to such quality was a major factor in the decision to outsource. To improve its customer service, Burnam believed the carrier needed to receive better management reporting on what was taking place in the intake center. We did the best we could with manual tracking, but we felt [improved reporting] was something we could get from an outsourcing vendor.

Burnam says the final piece of the equation was to get a model that was flexible and allow KAHG to make changes on the fly. We wanted to be able to make changes that could be put in place effective immediately across all our jurisdictions, says Burnam. As we see opportunities, we can implement [changes] faster by having a vendor to go to and install them across the board.

How to Pick One
Dean Davison, an analyst with the consultant META Group, recently published an executive summary: Outsourcing Desk Reference. In his report, Davison advises insurers to consider five points when negotiating an outsourcing contract.

• Enter into the outsourcing engagement with correct expectations.
• Articulate primary objectives of outsourcing and risks associated with options.
• Select an outsourcing vendor capable and motivated to meet primary objectives.
• Negotiate contracts with service levels that align with primary objectives.
• Implement a strong team to manage the outsourcing vendor throughout the contract.

Having high expectations can cause problems for an insurer as well. There is no absolute guarantee an outsourcer will perform the function any better than the insurer could perform it. Davison believes some of the misconceptions include:

• IT expenses automatically will be reduced by outsourcing.
• Vendors possess best practices and bring such operations to clients.
• Cost and quality are optimized by a company that is in the business of providing technology services.
• Offshore vendors offer huge savings in application services.
• Vendors are simultaneously better, faster, and cheaper than internal IT.
• Vendors reach economies of scale other companies cant match.

The Little Guys
Sutter is a small California-based personal auto carrier, and Kleinecke says, like other small carriers, the company worried hiring one or two people to run its IT department would create a problem of its own. The thing that scares you is you are going to hire someone who is, in essence, going to hold you hostage, she says. The cost of outsourcing IT operations can be expensive, she adds, but we felt like we had more control [outsourcing] from a personnel standpoint.

Bill Kleinecke, Dianes brother and vice president of underwriting and marketing for the closely held, family-run insurer, says the fact that Fiserv was a proven entity made the decision easier. The decision to outsource was made in 1997 as Sutter faced the looming Y2K crisis. Throw in the increased regulatory requirements the California-based insurer faced, and the decision became much easier. This was a proven way to meet the states requirements for data, he says. The fear companies had of losing all their data also was pretty real at the time.

Playing Politics
To experience real cost savings, many businesses feel they must turn to India or other offshore locations to find outsourcers. But political unrest throughout the world and the fear of terrorists here in the U.S. means disaster recovery plans, as mentioned earlier by Burnam, are mandatory.

Majarand Teje, general manager for the insurance solutions business in North America at IT and business process outsourcer Wipro, says the majority of his job is spent easing the concerns of customers. With much of its operation in India, Wipro faced a real challenge when the threat of war with Pakistan gripped India. Teje says maintaining customer satisfaction and having the data to back it up is the best tool he has to ease the minds of American insurers. We walk them through the complete business continuity processinfrastructure, network, securitythat allows them to get a comfort feeling, he says. When possible, he encourages potential customers to visit India and the Wipro facilities. That also allows them to draw a lot of comfort, he adds.

By contrast, when KAHG went looking for an outsourcer, Burnam says it was nice to find a provider in the Northeast where KAHG does much of its business. First Notice is based in Boston and has multiple locations. Having multiple locations for that 24/7 model obviously is very advantageous, he says. The [provider] can expand and shrink staff as it needs to, something we couldnt do.

Finding an outsourcer with the right technology in place is what makes the deal easier for an insurer, Burnam believes. With First Notice Systems, KAHG found a company with the technology that would allow Kempers business rules and scripts to be built right into the claims intake system. Virtually any employee from [First Notice] could pick up a callfollowing our scripts and our call flowsand hit the mark, says Burnam.

The technology offered by First Notice was better than what KAHG found with other vendors, according to Burnam. Even more important, First Notice could handle policy feeds into the system and was heading in a direction of interfacing loss data into partnering service providers systems. These were all very important parts of the decision-making process. And, of course, its reputation, he says. One of the things that gives us confidence is [FNS] can use our business rules and scripts. It can automate those in such a way they are followed consistently. That gives us a high degree of confidence in the intake process.

Sutter operates on a legacy system with Fiserv, and Diane Kleinecke realizes that wont last forever. Its an old systemit works, its functionalbut we see its limitations as well, she says. Its nice to know [Fiserv] has other products to offer that we will be looking at.

What About Me?
With any outsourcing relationship, concerns often arise among insurers over where the outsourcers loyalties lie among its list of clients. Diane Kleinecke believes stability is a key factor in maintaining a good relationship. What makes us feel we arent lost in the shuffle is over the course of our relationship [with Fiserv], weve had a single point of contact who knows the system inside and out, she says. He has a very good understanding of our business and our priorities. That consistency has made the difference for us.

She doubts Sutter would feel the same if there had been a great deal of turnover in that position. Theres been plenty of turnover below him and probably above him, so maybe weve just been fortunate, she adds.

Burnam doesnt see that as a problem, either. One reason is his outsourcer treats feedback from the insurer seriously. They respond quickly to issues, he says. Our ideas for program enhancement and development are taken seriously. I dont ever feel like were not a priority. If that wasnt the case, that would be a huge problem.

First Notice Systems Powers believes control of the relationship is a major hurdle for insurers. His company deals with it by making every contact between the outsourcer and the insured available to the insurer. Every call we take and every data element we capture for every client is written out to an Oracle database and can be reported upon, he says. You can literally have reporting that is provided on the half-hour. Now, a lot of people dont care to see all that data, but its available.

Such availability brings about a familiarity for the insurer. Its important companies know when they outsource theyre not just outsourcing to a bunch of people in another part of the country or the world theyve never met and hope for the best, says Powers.

He also asserts it is more than just technology that makes the arrangement work. Its also the training, Powers says. Our reps go through four weeks of training before they hit the floor. They need to know adjudication vs. subrogation. There is a focus on training, refresher training, and monthly exams. Carriers often participate in those training sessions as well. They want to make sure the program knowledge of our reps is not only about scripts and call flows, but its also about the culture and how [the reps] interact with the policyholder.

Stay in Touch
Keeping in contact with the outsourcer means more than studying a monthly activity report. I have a dedicated analyst to the relationship, says Burnam. That analyst, along with the monthly reports from the outsourcer, allows KAHG to keep tabs on what is taking place in the intake center. Plus we have a lot of different ad hoc reports that have evolved over the last 18 months, he says. We are looking at percentage of calls that come in by time of day, wait times by time of day. This gives us assurance FNS is keeping tabs on its model.

Sutter and Fiserv go through weekly conferences where an open-item list is discussed as well as any adjustment in the insurers priorities. Early in our relationship, we had more direct contact, but at this point, since its an older system and we havent made significant changes in the last few years, the conference call aspect has worked pretty well for us, says Diane Kleinecke.

Sutter hasnt been tempted to re-establish its own IT department, but the company is open to improvements. We have shopped other systems to take a look at what is out there, says Diane Kleinecke. We would certainly consider going to an in-house system or a different form of outsourcing, but we found this [current system] to be very effective for us. It lets us concentrate on the part of the business we know best.

The important decision, Burnam says, involves where an insurer differentiates itself from the competition. Taking first notes of claims is not what makes KAHG stand out from the competition; rather it is in the adjudication process and the personal touch that is provided the policyholder by the claims adjusters and agents, he points out.

It makes it easy to outsource because [intake] is somewhat of a commodity process, he says. The key is getting the right information into the hands of the adjusters so they can do their job. To the extent we can offer some services at the front end of the intake process, we will absolutely want to do that, he says. And FNS is helping us accomplish that.

What to Do
There are several steps to be taken to make a successful outsourcing arrangement work, Davison says. Determining the business value of sourcing decisions enables businesses to derive and implement sourcing strategies more effectively, thereby enhancing business flexibility, he says. IT leaders and project teams should formalize a plan that describes why and what should be outsourced, even if the answer comes back as being nothing.

Davison doesnt believe signing a contract is the beginning or the end of a relationship with the outsourcer. He describes it as just a single point in a long line of negotiation and relationship management issues that must be continually addressed. IT leaders should create an organization with clear roles and responsibilities to manage vendor relationships in addition to ongoing contract administration.

Getting the Best Deal
In a recent TechStrategy Report from Forrester Research, analyst Christine Ferrusi Ross listed three areas that should be part of any outsourcing deal.

1. Include road-map milestone metrics in contracts.
Clients who want enhanced infrastructure without big-bang migrations should ensure the outsourcer is compensated on meeting specific incremental milestones, according to Ross. She believes this encourages and compensates the outsourcer for looking at better ways to do business. This type of innovation should be blended into agreements, not treated as additional projects on top of existing contracts, she says.

2. Insist on outsourcer training commitment.
Buyers should insist on including terms in the contract that require outsourcing employees to be able to handle technology innovations, Ross advises. Require the outsourcer to commit at least three to five days training on emerging technologies to the delivery team members, she says. The specific technologies chosen should be determined jointly by the client and the outsourcer based on the clients infrastructure road map.

3. Reward individuals, not just the outsourcer as a company.
Employees of the outsourcer should be encouraged to find ways to improve the clients operations, but the money shouldnt all go to the outsourcer, according to Ross. If the outsourcer earns a bonus for identifying client savings, she asserts, the contract should require a bonus to the individual team member who suggested the improvement.

Tech Guide: Outsourcing Vendors

AdminServer, Inc.
Malvern, Pa.
972-715-2028
www.adminserver.com

Afni Insurance Services
Simsbury, Conn.
860-651-9775
www.afniinc.com

Allegient Systems
Wilton, Conn.
203-761-1289
www.allegientsystems.com

Allegis Communications
Seattle, Wash.
800-566-6112
www.allegisteam.com

Apex Data Systems
Tucson, Ariz.
520-298-1991
www.apexdatasystems.com

Claims On Line, Inc.
New York, N.Y.
212-949-7000
www.claimreportsonline.com

Computer Outsourcing
Shelton, Conn.
203-925-3920
www.computeroutsourcing.com

Connextions
Orlando, Fla.
877-772-6868
www.connextions.net

CSC Financial Services
Austin, Tex.
800-345-7672
www.csc-fs.com

E-Claim.com, LLC
Gretna, La.
504-388-3256
www.claimassignments.com

dakota imaging
Columbia, Md.
410-381-3113
www.dakotaimaging.com

Docucorp International
Dallas, Tex.
800-735-6620
www.docucorp.com

EDS
Plano, Tex.
972-605-5000
www.eds.com

Examen, Inc.
Sacramento, Calif.
916-921-4300
www.examen.com

Fiserv
Brookfield, Wis.
800-322-4220
www.fiservais.com

Fiserv Life Insurance Solutions
Cedar Rapids, Iowa
800-928-9926
www.fiservlis.com

GenSource Corporation
Valencia, Calif.
661-294-1300
www.gensourcecorp.com

gotoPremiumFinance.com
Woodland Hills, Calif.
800-229-9822
www.gotopremiumfinance.com

Input 1, LLC
Woodland Hills, Calif.
800-229-9822
www.input1.com

INSpire Insurance Solutions
Fort Worth, Tex.
817-348-3999
www.nspr.com

Insurance Data Services
Hemet, Calif.
800-996-9964
www.certsonline.com

Insurity, Inc.
Hartford, Conn.
404-456-5088
www.insurity.com

LIDP Consulting Services, Inc.
Woodridge, Ill.
630-829-7100
www.lidp.com

Magnify
Chicago, Ill.
312-384-7161
www.magnify.com

Management Data, Inc.
Birmingham, Ala.
205-991-7511
www.mgtdata.com

McCamish Systems
Atlanta, Ga.
800-366-0819
www.mccamish.com

MFXchange Holdings, Inc.
Toronto, Ont.
866-639-6399
www.mfxfairfax.com

NaviSys
Edison, N.J.
800-775-3592
www.navisys.com

nomoreforms, Inc.
Boca Raton, Fla.
402-336-6637
www.nomoreforms.com

nsite solutions Inc.
Urbandale, Iowa
888-282-6596
www.nsitesolutions.com

OUR-HR, LLC
Greenville, Miss.
663-334-6919
www.our-hr.com

Outerbounds Technologies
Atlanta, Ga.
770-261-6010
www.outerbounds.com

Output Technology Solutions
Kansas City, Mo.
816-842-5862
www.output.net

Patni
Irving, Tex.
866-728-6446
www.patni.com

Rackley Systems, Inc.
Pulaski, Tenn.
800-874-2616
www.rackley.com

ReClaim Technologies
Newark, Ohio
740-344-6956
www.reclaimtech.com

Renodis, Inc.
Minneapolis, Minn.
952-838-3103
www.renodis.com

Results International Systems, Inc.
Dublin, Ohio
614-540-3666
www.resultscorp.com

Risk Sciences Group, Inc.
Schaumburg, Ill.
800-619-0224
www.risksciencesgroup.com

Sector, Inc.
New York, N.Y.
212-383-2168
www.sectorinc.com

SevenSpace
Chantilly, Va.
703-961-5700
www.sevenspace.com

The Severan Corporation
Exton, Pa.
419-584-0284
www.severan.com

SS&C Technologies, Inc.
Windsor, Conn.
860-298-4625
www.ssctech.com

SunGard Insurance Systems
Roswell, Ga.
800-337-2677
www.insurance.sungard.com

Trumbull
Windsor, Conn.
877-285-2174
www.trumbull-services.com

Valley Oak Systems
Alamo, Calif.
925-552-1650
www.valleyoak.com

Visibillity, Inc.
Chicago, Ill.
888-484-7424
www.visibillity.com

Xerox Global Services
Rochester, N.Y.
770-569-5668
www.xerox.com