Outsourcing provides the personnel and technology Swiss Re needs to keep growing commercial insurance lines at a blistering pace.Take the example of staffing at the century-and-a-half-old company, which has U.S. headquarters in Armonk, N.Y. With operations in 30 countries, Swiss Re would face a nearly insurmountable task trying to locate, hire and train employees for every office.
Yet, outsourcing banishes the geographical nightmare, says Mike Rubin, the IT leader of Swiss Re's commercial insurance arm. "With an outsource product, it doesn't matter where they are," Rubin says of personnel.
Geography aside, Swiss Re might have had a hard time finding people quickly enough to support the company's recent growth. Profits nearly doubled last year, reaching 4.56 billion Swiss francs ($3.74 billion U.S.), with the acquisition of GE Reinsurance accounting for much of the growth.
Despite the buildup, the company wasn't plagued with empty cubicles. "It's pretty easy to scale up these businesses," Rubin says of growing with the help of outsourcers. "We can get [the workers we need] tomorrow."
Outsourcing also allows Swiss Re to reduce staff without layoffs if the market turns soft, says Rubin. "You can scale up and down the number of people," he says. "We can keep our expenses in line with our premium."
Dispelling the specter of layoffs also helps maintain morale, says Rubin. "It gives our own people more stability," he says.
In effect, the insurer operates with two groups of workers. First, it has the internal staff of regular employees. Second, there are the people who work through outsourcing contracts and are located primarily overseas.
Of 175 IT workers, about 10% are internal Swiss Re employees. Approximately 60% are with Swiss Re's two application service providers (ASPs)-Insurity, a Hartford, Conn.-based company owned by ChoicePoint Asset Co., and CyberComp, Overland Park, Kan. The remaining 30% are contractors with Swiss Re's Global Development Center Resource.
THE TECH SIDE
The two ASPs build applications and manage and distribute software and services for Swiss Re. The ASPs host and maintain the applications. Swiss Re leases the software and determines how it will be used. The insurance-specific software provided by the ASPs performs functions that include rating, quoting, policy issuing, billing, booking, statutory reporting and claims handling.
"Why wouldn't we do the whole thing ourselves?" Rubin asks rhetorically of the decision to outsource technical functions. In reply to his own question, he lists four reasons: pure cost, economies of scale, flexibility and deep around-the-clock coverage.
Insurity provides one of Swiss Re's three major platforms. In fact, the vendor processes half of Swiss Re's commercial insurance business, including underwriting services for lawyers, agents, and excess and surplus customers.
Insurity offers Swiss Re services ranging from policy administration to claims management to compliance reporting, says Bruce Coates, an Insurity vice president.
Because Insurity performs the same functions for other insurers, says Rubin, Swiss Re can reap the savings that Insurity can gain by leveraging infrastructure costs across different companies. "We don't need to do that work on our own," Rubin adds.
CyberComp processes another Swiss Re platform-one for a small business workers' compensation line, a specialized product delivered through agents and brokers. The platform covers front to back services, from billing to underwriting to claims.
The third big platform is healthcare-related and covers medical expenses, principally for catastrophic events. The product for "employers' stop loss" pays large claims as part of an employee benefits package. The business requires rigorous analysis of data and considerable underwriting skill, according to Rubin.
Each of the three platforms works differently and relies on its own support system. Outsourcing those functions might not run nearly as smoothly without a strong management team at the home company, observers say.
STRONG IN-HOUSE MANAGEMENT
Rubin describes his internal team as business-oriented, process-oriented and project-oriented. Members generally have served as senior managers who have honed their skills in managing vendors.
Business and management acumen count for more on the team than deep technical knowledge, says Rubin. The technical skills-knowledge of Java, the ability to read codes and experience with moving servers around-come from the contract workers. "They're really the bits and bytes technical guys," Rubin says.
"They need to provide us with some level of scale that we couldn't provide ourselves," Rubin says of the vendors. "They have to bring some technology that is very specific to our needs."
Most of the employees Swiss Re hires on contract as part of an outsourcing initiative are based in India. A few others work in Hungary, while some are based in the United States.
The contract workers Swiss Re employs in Hungary have "knowledge that we needed," according to Rubin. Eastern European workers also tend to earn less than their counterparts in the West, he says.
Outsourcing to India provides enough workers in different time zones to give Swiss Re 24-hour support and development. "There are some real economies to be gained from having people in different parts of the world and in different time zones," says Rubin.
Workers in one part of the world, say India, can test systems. Any errors they discover can get attention in another location, say the United States, without missing a beat-or losing a full day, says Rubin.
"That shortens launch time and speed to the market," he notes.
Meanwhile, the help desk also gets 24-hour coverage, allowing customers anywhere in the world to receive assistance no matter what the local time.
EARLY START
Those benefits attracted Swiss Re outsourcing early on. The company began using GDC contractors about seven years ago instead of domestic contractors "to bring our cost ratios down at the time," reports Rubin. Swiss Re began its relationship with Insurity about four years ago to expand the underwriting platform.
Major decisions on outsourcing, like signing on with Insurity or CyberComp, ascend to the top of the corporate ladder at Swiss Re because specific business solutions are involved, the company says. The IT department makes other judgments, such as choosing a contractor to hire workers in India.
The company makes those outsourcing determinations known to insurance departments in the appropriate states and Canadian provinces. "We proactively inform them of what we're doing and how we're doing it," says Rubin. "We document it with the regulators."
Security concerns come into play with outsourcing, too. "Our vendors have to have network and building security in the same way we require of our branch offices," says Rubin. "We essentially treat our vendors as though they are a part of us-from a security standpoint."
That means a building used by a Swiss Re contractor in Bangalore, India, must have the same security as the reinsurer's offices in Chicago and Kansas City. Vendors who can't meet the company's security requirements do not receive serious consideration for contracts, the company says.
Swiss Re believes outsourcing will work as intended only if the company monitors vendor performance. "You need to put metrics or measurements in place to be sure our vendors are doing they're paid to do," says Rubin.
Overseeing vendors requires a skilled home office staff, says Rubin. "Strong project management is what makes this happen," he maintains.
And, in his estimation, the effort pays off. Outsourcing has provided Swiss Re with the ability to run complex systems at prices that the company could not have duplicated internally, he says.
Ultimately, Rubin says, customers share in the outsourcing benefits achieved at Swiss Re. "It's reflected in the cost of our insurance," he says. "We need to keep that as low as possible, because we need to be competitive in the market."
