During a recent interview with a senior-level leader within a large P&C insurer responsible for their outsourcing efforts, he made the comment that they plan to increase their use of BPO and explore SaaS solutions. However, he then went on to state that the biggest hurdle that they face in using SaaS is they don't really know how good they are to be able to compare if any vendor can do a better job than they can. This struck me as very on target, and reflects the state of many insurers, although most will not admit it.
I’ve worked in IT for over 25 years with some very large and distinguished companies, as well as smaller, not-so-well-known ones. In each case, I was fortunate to work with some very qualified and intelligent people. In most cases, we usually believed that “our” IT team could do the job better than anyone else. This is a great attitude to have from a team perspective, and fitting to some degree for companies at the time. However, this can no longer be acceptable with the maturation of BPO and SaaS. You can no longer delude yourself into thinking you can do IT solutions (soup-to-nuts) better than any SaaS vendor, especially into today’s market where utilization, agility, speed to market and lower TCO are key business drivers. An insurer’s IT team may know the business and their IT systems better than anyone, but it doesn’t mean that they can support business solutions going forward better than anyone else.
I’m not suggesting that BPO and SaaS vendors can always support insurance applications more effectively and efficiently than an insurer’s IT support staff, but insurers have to begin determining how well they actually perform to be able to decide if a SaaS or BPO vendor is a better long-term solution. It would be like creating a baseball team that does nothing but practice and play games among themselves and believe that they have the best team around.
Within most sports, the metrics to compare already exist. They do not exist within most IT development and support staff today. What is your current support level for your current applications? How much control do you really have over your applications and infrastructure? How secure is your data today? These are valid concerns stated by insurers today with respect to BPO and SaaS, but they should be the same questions insurers are asking of themselves.
BPO and SaaS are beginning to mature in the insurance space. The economy and competitive forces will drive these solutions forward. Those insurers that know how well they do IT today and can compare their own capabilities to potential vendors will be the ones that are able to make the smart choices with respect to what to outsource and what to keep in house. Those that do not will be the “lessons learned” stories over the next several years. (See the “Approaching the Boiling Point: BPO, SaaS in Insurance” Celent report, due out December, 2010.)
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Benjamin Moreland is a senior analyst in Celent's insurance practice, and can be reached at bmoreland@celent.com.
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