Ten years ago, telecommunications costs were typically the 14th or 15th line item for insurance companies, says Johnny Podrovitz, CEO of MSS Group Inc., Castle Rock, Colo. "Now, they're the third or fourth."
As a result, they're getting a lot of C-level attention, says Podrovitz, whose firm provides telecommunications cost management services to insurers and other companies.
Senior-executive attention has increased demand for MSS Group's services. In terms of employees, the company has grown 20% to 35% per year, according to Podrovitz.
In 2000, it was ranked 135th on Inc. magazine's list of the fastest-growing U.S. companies. "We've noticed in the last year or so, telecom cost management is becoming accepted as a 'best practice,'" Podrovitz says.
Hot new sector
Indeed, total telecommunications cost management (TTCM) is emerging as a hot new sector in the business process automation marketplace this year, according to Aberdeen Group, a Boston-based market research firm.
That's because the typical Fortune 500 company spends more than $116 million per year on telecom services-and, it processes more than 15,000 invoices, notes Aberdeen in a recent report titled, "Total Telecom Cost Management."
In addition, the management of this expenditure is largely inefficient, says Dana Tardelli, research director at Aberdeen. "In fact, most enterprises don't even audit these invoices, and don't know exactly how much they spend on telecom services," she says.
MSS Group is one of 19 companies cited in the Aberdeen report. These companies provide software, consulting, business process outsourcing and hosted application services that reduce unnecessary costs related to inefficient telecom expense management.
What do TTCM firms find when they scrutinize their customers' telecom expenses? On average, 7% to 12% of telecom services expenses are in error, according to Aberdeen, resulting in $8 million a year in lost profits for the typical large Fortune 500 company.
"I worked in the telecom industry for many years," says Bob Odenheimer, senior vice president, IT operations and telecommunications for Magellan Behavioral Health Services, a Columbia, Md.-based health and wellness firm that serves HMOs, PPOs, and indemnity insurers. "It is very common for their billing systems to be terrible. Their bills are full of errors," he says.
Not only that, but its' not uncommon for employees to order services from their telecom carrier's local office-which is then billed at retail rates-even though the company has contracts specifying that all services will be provided under contract rates.
Fortunately, Magellan isn't paying for those errors. In 1999, it contracted with MSS Group to audit its telecom invoices before they are paid-ensuring they comply with the company's contracts and looking for evidence of slamming or other unsavory industry practices.
"When (MSS Group) finds a bill in error, they have us 'short-pay' the bill by the amount of the error," Odenheimer says. "If the bill is $100, and we should receive a credit for $10, (MSS Group) tells us to pay $90, and they send an e-mail to the (telecom) carrier applying for a $10 credit."
MSS Group also provides a data feed into Magellan's accounts payable system. "We don't have to do any data entry," Odenheimer says. "That saves a lot of time in the finance department."
It also saves the company three times what they spend for the auditing service. "MSS Group provides us with a monthly report that shows all the credits they've applied for, and all the errors they've found, and how much it saves us on an annualized basis," Odenheimer says. "To date, we've received about a 300% return on our investment."
Voice over IP
Executives at Aviva Life Insurance are similarly pleased with a recent telecommunications cost management decision they made. The company implemented a voice/IP network from 3Com Corp., Santa Clara, Calif., which enables Aviva to process transactions and service to its 10,000 independent agents more efficiently.
"Using 3Com's voice system, we'll recoup our investment in 30 months and save $800,000 in Internet and long-distance fees in years three to five," says Greg Partyka, chief technology officer at the North Quincy, Mass.-based annuity and life insurance carrier.
With offices in North Quincy, Mass. and Buffalo, N.Y., Aviva is using the 3Com data network to move voice calls-as well as data-between the two locations, explains Greg Zweig, 3Com product manager. As a result, Aviva is not paying for those long-distance calls.
Furthermore, because the two offices are interconnected, when someone calls headquarters, but needs to talk to someone in the Buffalo office, the call can be transferred no differently than if it were transferred to a cubical in North Quincy, he says.
"We were looking at statistics showing that five years from now, 40% of commercial phone installations will be voice/IP," says Colleen Kayter, manager of technology development at Complete Insurance Inc., an independent insurance brokerage firm in Irvine, Calif., that installed a 3Com voice/IP network in its new facility in March.
"Voice/IP treats voice as simply another application on the data network," Kayter explains. "So it eliminated the need to duplicate network cabling throughout our office, which cut our cabling costs in half."
It also simplifies maintenance and administration, eliminating service calls from the telecom carrier when phones are moved or features are added. Phones are programmed using a graphical user interface on the computer desktop rather than with cryptic codes on a small phone display.
And, because each workstation uses only one jack, the phone is plugged into the jack, and the computer is plugged into the phone. This enables employees to initiate phone calls from their desktop by opening their e-mail application, selecting a contact record, and clicking the telephone icon, Kayter explains.
"The insurance industry is only going to get more dependent on data," says Kenny Wyatt, director of marketing at Sprint, Overland Park, Kan. "And that dependence on data spells 'network,' and that's the business we're in."
Last year, Sprint began focusing on specific vertical markets, including the insurance industry, Wyatt explains. Although similarities exist among vertical segments, "each vertical we serve has slightly different needs," he says.
"For example, in the insurance industry nearly 25% of the total cost of running an insurance company is related in some way to call centers," Wyatt says.
"And we obviously have a lot of technologies, both wireline and wireless . . . to help an insurer efficiently run a call center."
Sprint's insurance industry solutions also address business continuity and claims mobility, according to Wyatt. Wireless applications are becoming more popular for both claims adjusters and for insurers' business continuity planning, he says.
"If we can knock 1% off the cost of running a call center, millions of dollars will plummet to the bottom line. And if we can provide a system that enables a claims adjuster or a customer service representative to process one more claim or make one more call each day, (the productivity improvement) would almost pay for the implementation of such a system," he says.
Mutual of Omaha has contracted with Sprint for years, says Francis Larson, information services manager of the data communications team at the Omaha, Neb.-based insurance company.
The relationship has evolved over the years, he says. "We meet with Sprint on a regular basis to talk about quality issues. We go over problems we have with circuits or even invoicing issues."
These quality service reviews help build a partnership between Sprint and his company, he says.
AT&T is another telecom carrier that has set its sights more keenly on the insurance industry, specifically through an agreement it entered in June with IVANS and the Insurance Accounting and Systems Association Inc. (IASA), Durham, N.C.
Under the agreement, AT&T, Morristown, N.J., and IVANS Inc., Old Greenwich, Conn., are offering IASA members network solutions designed specifically for insurance and healthcare companies-at discounted rates.
IVANS has been a remarketer for AT&T data network services for the insurance industry since AT&T acquired IBM's Global Network in December 1998, explains Clare DeNicola, senior vice president of network services at IVANS. Before that, IVANS remarketed IBM's network solutions to property/casualty firms.
This new arrangement with IASA is designed to help insurers and healthcare organizations address the complex telecommunications issues they currently face, including deploying broadband connectivity, network security, business continuity and trading partner communications.
The services AT&T and IVANS offer include disaster recovery, virtual private networks, broadband, Internet and firewall services.
They also conduct monthly Web seminars for IASA members on telecommunications topics ranging from building a virtual private network for branch offices-to managing network costs-to integrating wireless solutions.
Avoiding migration costs
"Telecommunications is a large infrastructure cost for a lot of companies," DeNicola says. "And most companies are driven right now by cost cutting." These services provide IASA members an opportunity for savings, she says.
The program also enables IASA members to capture the benefits of implementing more efficient network technologies without investing in infrastructure, she says.
For example, IVANS works with carriers to establish virtual private networks with their independent agents or other third parties.
"We take a lot of the headache out of implementation by saying, 'We'll staff up to take the calls. We can be proactive and contact all your end users, or you can do a mailing and we'll just take the inbound calls,'" she says.
"We work with companies to get the benefits of migrating to a cheaper technology without having to absorb the cost of the migration."
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