Fireman's Fund Insurance Co. has been no stranger to technology outsourcing initiatives over the past three years. But the term "outsourcing" might be an inaccurate depiction of what the carrier's senior IT team regards to be its mandate. Instead, Fireman's Chief Technology Officer Diane Comer views these agreements as "strategic partnerships."In January, the Novato, Calif.-based carrier announced two major initiatives involving technology firms that provide Fireman's Fund with a comfortable degree of internal decision-making latitude. Under a seven-year, $157-million contract with IBM Global Services, Fireman's Fund plans to implement IBM's on-demand computing technology. One of the key distinctions of IBM's on-demand computing is that it enables clients such as Fireman's to pay for only the computing power it uses within a shared-services arrangement. Fireman's Fund projects savings of about $10 million a year in IT-related costs from this advantage.
With Armonk, N.Y.-based IBM on board, the property/casualty carrier, an operating unit of Germany-based Allianz Group, then inked a five-year, $42-million contract with AT&T Corp. to develop a secure, high-speed, integrated network. AT&T's design and management of an Internet Protocol Virtual Private Network (IP VPN) is expected to provide 4,500 Fireman's employees in 60 locations across the United States with faster access to data on premiums, claims, insurance quotes and other customer information, according to Comer.
"I really look at both these initiatives as strategic partnerships-it would be inaccurate to call them outsourcing partners," she says. "These partnerships have the ability to move us forward from a technology standpoint."
The IBM deal signals the premature end to a seven-year contract Fireman's forged in 2001 with Montreal-based CGI Group Inc. That alliance provided IT infrastructure and maintenance outsourcing support for help desks, printers, servers, desktops and other IT infrastructure. The company did not provide specific details on the terms of terminating the CGI contract.
Not meant as a slight to CGI, Comer believes Fireman's simply outgrew some of the underlying commitments of the initial contract.
Industry experts believe the appointment of Frederick Matteson as senior vice president and CIO in early 2004 might have served as a call to arms for Fireman's to re-engineer, or at least tweak, its technology development and IT maintenance strategies. The CGI initiative had been forged under former CIO William "Billy" McCarter.
Accelerating IT changes
"The shift to IBM's on-demand might be the result of Fireman's executive change," says Susan Cournoyer, senior research analyst for Stamford, Conn.-based research and advisory firm Gartner Inc. "I think they wanted to accelerate strategic changes in IT. This was a major factor in their sourcing strategy, which addresses capacity along with greater visibility."
The IBM arrangement is an expression of faith by Fireman's that IBM will deliver in a shared-services structure, she adds. "It's up to IBM to convince Fireman's that they are not 'second-class citizens' since these services were not developed exclusively for them."
Fireman's Fund has relied on older operating systems that should have been phased-out sooner, she says. "If it takes you a long time to migrate from older technology--as was the case with us--then that technology tends to break down, and it becomes harder to repair."
"It was not until last year that we migrated key applications off the OS2 operating environment," she says. "When this shift occurred, it also signaled the need for a new partner to push us forward."
IBM will leverage its Universal Management Infrastructure to automate Fireman's key IT functions, such as manipulating computing capacity based on usage needs; monitoring system performance; and taking corrective action when problems arise. The computing power will be drawn from a shared pool of data-center resources: Approximately 500 applications, including policy processing, billing and claims handling, will run on the new infrastructure.
Under the agreement, IBM will manage and support Fireman's 5,200 PCs, increasing flexibility and freeing up capital for investment in growth-oriented activities, says Comer. IBM will also manage the group's help desk and handle workstation support.
While the IBM on-demand initiative transforms Fireman's IT capabilities, the AT&T venture provides several customer service advantages.
The new network, which replaces several disparate voice and data networks from multiple vendors, will support Fireman Fund's mission-critical applications, Comer says.
A key benefit of the new network will be the consolidation of an integrated voice-and-data system, enabling 60 different Fireman's Fund office locations nationwide to share a common communications platform.
The insurer will also deploy AT&T's Internet Protect to continuously and proactively monitor the network for potential security breaches.
"Most of our 60 offices will have double the bandwidth and some offices will have triple the bandwidth capacity they currently possess," Comer says.
Gartner's Cournoyer says that migrating to an IP environment has occurred less often in the insurance sector and more often with banks. The low insurance adoption is "surprising because insurers really need a higher level of networking technology in place, but most don't. That's what makes this deal heartening," she says.
AT&T's advanced services means that Fireman's will be able to put "the right expert on the phone to deal with customer inquiries, plus the extra bandwidth is a huge benefit," Cournoyer notes.
"The added bandwidth enables a company to start thinking about digital media opportunities-customer kiosks that agents and brokers can tap into-as well as the ability to provide a higher level of training capabilities (such as e-learning) in a more robust bandwidth infrastructure." she says.
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