Outsourcing IT Saves Money, But Life Insurance Agents Aren't Buying It

October 28, 2001 at 07:00 PM
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Outsourcing IT Saves Money, But Life Insurance Agents Arent Buying It

For all the controversy that has surrounded the application service provider model of software delivery, most would agree at least that the model is a money-saver.

An ASP, or application service provider, manages and delivers software applications to multiple entities from data centers across a wide area network, according to the ASP Industry Consortium, an advocacy group based in Wakefield, Mass.

The advantages for software users are many. The software doesnt take up space on a hard drive or network; all updates are done automatically by the ASP; theres no installation procedure to worry about, and it just costs less to get software via the Internet than it does to buy a disk and install and maintain it yourself.

Despite those advantages and an obviously ailing economy, however, life insurance agents and brokers are not rushing to convert to the ASP model or to take advantage of other types of information technology outsourcing savings.

The reason, according to observers and agents, is that its just more comfortable to get IT services from a primary carrier.

"The biggest outsourcer for a broker is the carrier," states Chuck Johnston, program director, insurance information strategies, for the Stamford, Conn.-based analyst organization, the Meta Group.

As companies, many brokerages and agencies are "too small for EDS and IBM to go after them" to sell software and services, Johnston explains. Carriers, however, are looking to create bonds with such agencies, and to create "exit barriers."

According to Johnston, carriers ask themselves: "How can I give [agents] technologies that will increase my wallet share?"

It is only among the largest brokers that Meta sees interest in outsourcing alternatives, says Johnston. "Were starting to see large brokers interested in online processing components. It allows brokers to get into the submissions and communications business at a relatively low cost." Johnston refers to such technology as "SEMCI for financial services," in that it reduces the cost of managing multiple insurer interfaces.

For mid-size and smaller brokers, however, the options may be more limited. "Most agents have one major carrier theyre using, and they get their technology from that company," states John Davidson, owner of Davidson Insurance Services, Thousand Oaks, Calif.

Davidson, who describes his agency as a "small boutique shop," says he outsources some technology for his benefits business, but his primary source for technology is his primary carrier, Guardian.

According to Ann Purr, second vice president at Atlanta-based LOMA, agents and carriers "have a relationship thats tried and true. If anything goes wrong [the agents] know exactly who to call."

With an ASP, however, "its a different story," says Purr. "You are one of many customers. With a carrier, youre one of their own."

Purr says she hasnt heard a lot of talk about ASPs or outsourcing IT in the life agent community. "If an agent wanted to talk with us about the pros and cons of outsourcing, okay, but there are a lot of advantages to staying with the carriers youre working with," she states.

She points out that in many cases, agents may not even be aware of their options for outsourced IT services or for accessing software via the ASP model.

In the end, says Purr, "if they have a way to deal with one company and theyre comfortable, theyre going to do that."

Purr also observes that "the agents job is sales, not procurement," so if a carrier provides technology and helps the agent to use that technology, the agent is getting what he or she needs.

"Agents are good at selling," Purr says. "They dont want to be evaluating technology."

When agents do have technology questions, according to Purr, they look to leverage the carriers IT expertise.

She concedes, however, that larger brokers "who have many carriers that they sell for, may be in a whole different position." Their size and buying power may enable them to listen to alternative technology proposals from competing insurers.

For most agencies, however, "for you to go outside of your core competency, youd have to be convinced of the benefits, or [convinced] that youre not getting what you need from the source you have," says Purr. The effort to compare and shop for IT services, she notes, involves "precious time that you have to take away from the sales process."

Al Chavez, owner of Al Chavez Insurance Agency, San Jose, Calif., says his agency considered some outsourcing, but wont be doing any in the immediate future.

"Were pretty much with Farmers on the life stuff; everything comes from them," he explains with regard to the agencys technology. "The downside is that we dont get access to better products from other companies, but the time and money [involved in implementing new technology] wouldnt pay off for us.

"If our clients seem to be wanting more," says Chavez, "we probably will look at [other sources of technology]."

At the Tom Molloy Insurance Agency in Las Vegas, vice president John Molloy says the firm is using an agency management system from AMS Services that is delivered via the ASP mode.

"There are no cost savings," he notes. "You either manage your data or you dont manage your data." The agency deals primarily in commercial lines and auto insurance, as well as life insurance.

Recently, the agency has had to pay for a T-1 line to improve Internet access and speed, says Molloy. "You pay for efficiency. With the bulk of the insurance companies going on the Web, its insane." He adds that in his office, as many as eight people may be logged on at the same.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 29, 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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