Is Leasing Equipment the Answer to Capital Preservation?

Chicago — Most insurers would agree that economic times are turbulent. Analysts predict IT budgets will remain flat into 2009. A new white paper from HP Financial Services, the Murray Hill, N.J. leasing and financial services subsidiary of the Hewlett-Packard Co., suggests that a way to preserve some capital is to manage the IT portfolio lifecycle through planned replacement programs—leased equipment. Leasing turns what otherwise would be considered a capital investment--requiring borrowing and/or a significant upfront commitment of cash--into a level operating expense, according to the paper.

“Leasing IT equipment facilitates an ongoing lifecycle management program and establishes regular, scheduled technology refreshes,” according to the report. “It also fits well in an IT management approach focused on reducing total lifecycle expense and ensuring that IT infrastructure meets business needs at all times. Leasing makes it more likely that the enterprise can bring new equipment on board, take advantage of improvements in performance and efficiency, and dispose of outmoded gear before repairs escalate—all with a comprehensive understanding of the costs.”

“Companies can be lulled into believing that an economic slowdown means a business slowdown,” Michael Cuno, HP Financial Services’ spokesperson, told INN . “That’s certainly not true for insurers, who can see demand explode without warning. Now is the time for businesses to evaluate their IT environment to ensure they are meeting their current customers’ demands and also will be prepared to grow their business as the economy recovers.”

While leasing may be convenient and cost effective, asking upfront about additional charges and sanitization may prevent unexpected costs and leaks. "Some companies [taking their leased equipment back to the lessor] think they don't have to sanitize the data—that the lessor is going to do it—but oftentimes unless the lessee pays additional money or requests it, the lessor doesn't necessarily do it," Frances O'Brien, analyst with Gartner, a Stamford, Conn. Research firm, told INN in 2007.

Extra charges for damages may develop when the leasing company sanitizes the data because they use an overwrite tool that may overwrite the operating system, rendering the equipment unusable, says O'Brien. "So, theoretically, if an insurer leases equipment, they should sanitize and load back up that operating system."

Some insurers choose to lease equipment for reasons other than cost. Using IBM Asset Recovery Solutions for secure, documented data destruction on 2,500 mobile computers coming off lease, Western & Southern Life Assurance Co. took important steps to help protect itself from legal exposures under the Right to Financial Privacy Act and other data privacy regulations with a cost-effective data cleansing solution—without diverting critical IT resources from its core mission. "The environmental regulations change frequently, and it can be difficult to know the latest environmental disposal requirements," says Steve Hamilton, vice president of IT Operations of the Cincinnati-based life insurance, annuities, mutual fund and investment management provider.

Western & Southern buys and leases equipment depending on various factors, which leads to different disposal methods. "Leased equipment is returned to the vendor at the end of the lease. Purchased equipment could be sold, cannibalized for spare parts, donated or disposed of depending upon its value, useful life, etc.," Hamilton says.

Sources: HP and INN archives

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