In 2006, Auto Club Group (ACG) found that its document composition capabilities were highly inflexible and, faced with a legacy environment, it could not manipulate its print stream-at least without contracting additional workers.The Dearborn, Mich.-based company was unable to deal with spikes in mailings, which occurred when it had to send bulk materials to a large credit union, for example. And yet, employees and equipment often sat idle during lighter mailing periods.
Looking at the sea of hardware and software the company had accumulated over the years, Auto Club Group (ACG) realized document management "wasn't necessarily a best practices profile for us," says John O'Connor, director of strategic sourcing and fulfillment services for the carrier. Its documents were somewhat antiquated and they were not intuitive, says O'Connor.
So, like a growing number of insurance companies, ACG decided to outsource much of its document management work to vendors dedicated to the task. Document management processes can include everything from housing, maintaining and supporting the servers that run the document management technology to front-end business processes, such as scanning and indexing documents.
As with ACG, cost reduction has been a critical driver behind carriers' move to outsourcing. Document management costs are enormous in an industry that is drowning in information and is still largely paper-based despite making electronic advances.
ACG has already saved more than $1 million and expects to save millions more in reduced paper and postage costs alone by turning to Sourcecorp Statement Solutions, a document and imaging outsourcer based in Dallas, Texas, and Exstream Software Inc., an enterprise software solutions provider based in Lexington, Ky.
Approximately 70% of the costs of an insurer's typical production system in operations are postage related, according to O'Connor. Much of ACG's postage savings have come from "real quick, down-and-dirty efficiency gains by being able to tweak a legacy extract and do some of the easy formatting capabilities that we could do with Exstream," says Matthew Waldau, a consultant for ACG.
Exstream also reduced ACG's paper weight and helped focus the company's message. "We had a very shotgun approach to our messaging, where we just put everything into every piece," says Waldau. "And now [that we are] leveraging targeted messaging, we know there is a huge inventory save opportunity." No longer does ACG send out reams of mailings with superfluous papers that nobody reads.
OTHER OUTSOURCING DRIVERS
Technology executives are focusing on improving how they manage documents. Almost half (48%) of the 26 CIOs at U.S. insurance firms who responded to a recent survey have document imaging projects under way, and the same number had a document content/management project in progress, according to an August 2006 report, "Document Management for Insurers: Overview and Solution Spectrum," by the Boston-based research and advisory firm Celent LLC. (See the chart on page 30.)
Among the reasons is that vendors can add greater clarity and simplicity to insurers' document management work, observers say. Insurance firms typically have 10 to 12 document management systems, in the experience of Doug Winter, chief operating officer of Document Sciences Corp., a Carlsbad, Calif.-based provider of personalized enterprise communications solutions.
One carrier Winter encountered had 21 disparate systems. "Now, the technology exists where I can start consolidating that down to one or two, and I can get economies of scale where outsourcing maybe makes more sense," says Winter. Efficiencies also arise because outsourcers' document management tools can be easier to use than those insurers build, and outsourcers make many paper processes electronic.
Indeed, more insurers are outsourcing because document management technology has become far more sophisticated in recent years. Just three to five years ago carriers could not outsource the back-office operations of a document management solution.
"Nobody was offering Web-enabled, fully hosted and deployable outsourcing solutions," says Tim Tallaksen, director of insurance solutions for Hyland Software Inc., a Westlake, Ohio-based technology company that offers enterprise content management and other products and services.
ACG, for one, has also been impressed by vendors' staffing skills. Outsourcers "get very accustomed to-and very good at-hiring and maintaining flexible labor pools," says O'Connor. "And as an in-house operation that is something that we just didn't have the same fluency with."
Vendors also are working harder to target a greater array of insurance companies. In particular, enterprise content and document management providers no longer just look to ink deals with upper-tier firms but instead cater to the panoply of small-sized property and casualty firms, according to Celent. (See the chart, page 29.)
P&C firms are embracing outsourcing to manage the large number of documents they send out, because many documents have six- to 12-month terms and bills go out monthly, according to Greg Osborne, director of client services for Exstream Software.
Claims correspondence also can be hefty. One Top 3 P&C carrier told Osborne it is producing 50,000 pieces of claims correspondence per day. In contrast, life insurance companies handle big volumes in quarterly and annual statement runs but do not send monthly bills as often nor do they have as many claims as P&C firms, says Osborne.
Nonetheless, many insurers continue to resist outsourcing their document management work. Large insurers, in particular, are less likely to outsource certain document management tasks, because they can get economies of scale from major equipment investments.
A mere 10% of insurance market leaders outsource print and mail tasks, whereas 75% of middle market companies do so, according to Madison Advisors, an advisory firm based in Colleyville, Texas. (See the chart, Page 29.)
And some companies aren't interested at all in outsourcing-or in new technological solutions. "We still see insurance companies that process paper," says Hyland's Tallaksen. "They don't even have document management solutions. They are still using microfilm. And this is not a knock on them being behind the technology curve, but each individual organization evolves at its own comfortable pace."
Compliance concerns also cause insurers to shrink from outsourcing, though that is hardly the rule. Some insurers prefer to deal with compliance efforts in-house, as they are loath to part with proprietary information and want to keep a close watch on high-risk materials.
Yet, others believe that outsourcing document management can be the best avenue to comply with tight new regulations. "We understand that things that may not seem important to normal human beings-like where lines break on a page and which paragraphs go together - is very important in a regulated environment," says Winter.
Insurers like ACG agree. "You have a greater risk of noncompliance working in a vacuum than you would when you necessarily engage a third party," says O'Connor. "It is just another set of eyes, and it only bolsters the level of compliance and assurance."
Choosing the Best Outsourcer
To get the most out of an outsourcing relationship, insurers should choose only those pieces of the entire document management process best left to others.
Boston-based Celent LLC divides document management into document creation and document handling. The former concerns the authoring or automatic generation of a document to communicate with external parties, while the latter pertains to the acceptance, routing, storage, indexing and retrieval of external documents containing insurance information.
Certain elements of the process, such as printing tasks, can be outsourced better than others. A printer alone can cost several hundred thousand dollars, notes Greg Osborne, director of client services for Exstream. He says two small insurance companies told him that their inserter (or "intelligent inserting system"), at more than $100,000, is the most expensive piece of equipment in their entire company.
The insurer's outsourcing goal should be to save time and money, without forfeiting too much control over documents "because documents are the only expression of a carrier's reason for being," says Craig Weber, a senior insurance analyst for Celent, who, with his colleague Matthew Josefowicz, co-authored a recent report on document management.
Some insurers choose to design and develop documents in-house and then outsource the printing, mail and fulfillment.
Vendor solutions, while improving in recent years, do not always differ much from one another in terms of functions, Weber says. Consequently, he urges insurance firms to seek vendors with vertical expertise, implementation services and ongoing maintenance capability.
Insurers also should look at a vendor's track record, choosing those that have been in the business for years and who have a deep client roster, according to Tim Tallaksen, director of insurance solutions for Hyland Software Inc., a Westlake, Ohio-based technology company.
And insurers need to ensure that the outsourcer's document management solution can do everything that it could do if the insurer hosted the solution itself in-house. "There are factors beyond pure cost," says Tallaksen. "It must integrate with all of the other applications that you use, and it must provide the same user experience that it would if it was" built internally.
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