Unplugged: ASPs lighten IT burden

According to a survey by Gartner, a research and advisory firm, many insurance carriers are turning to outsourcing arrangements to reduce operating costs and streamline business operations. The survey shows that 48% of property and casualty insurers outsourced at least one business process in 2001, while an additional 9% of insurers plan to outsource processes in 2002. With the shaky economy, this percentage may grow as companies continue to have insufficient resources to manage IT systems inhouse.

PLUGGING THE DRAIN

Although tremendous financial pressures have forced insurers to find new ways to drive down costs, for the most part, paper-intensive processes and expensive human capital continue to be a drain on resources. Application service providers (ASPs) offer solutions to these costly problems:

Significant cost advantages. ASPs allow carriers to lower their initial up-front capital expenditures in software. They do not have to pay for licensing, installing, housing, maintaining and upgrading software inhouse. Instead, they “subscribe” to applications often based on the volume of business they process. they also reduce hardware costs. Remotely hosted applications run on the provider’s computers, spreading the hardware costs across a broad base of customers. An ASP allows carriers to reduce the costly expense of IT personnel. With a good technical support agreement, carriers have access to hardware and software application experts whom they might otherwise not be able to employ.

Advanced systems. ASPs allow organizations to access secure, state-of-the-art technology through remotely hosted applications over the Internet, available 24 hours a day, 7 days a week, from any location. The applications available today are more sophisticated and intelligent, allowing carriers not only to automate transaction and underwriting decisions that have traditionally been paper-based and labor-intensive, but also help insurance professionals – agents, underwriters and claims adjusters – to make the best decisions with their particular business process, i.e. quotes, underwriting and adjusting.

Although ASPs are just beginning to break into the insurance industry, technology consultants with Gartner Group expect robust growth for the ASP market, estimating that their use will produce a US$25 billion market by 2004.

COMPETITIVE ADVANTAGES

By utilizing an ASP, smaller-sized insurers can effectively compete with their larger counterparts. These hosted applications allow them to achieve a significant amount of market agility. For instance, a new entrant can start operations and expand rapidly with the same high-tech capabilities as large companies, but without incurring the cost or delay of buying or building it.

ASPs also offer highly scalable services, allowing companies to handle either quick growth or loss of business on a “just-in-time” (JIT) basis, meaning the insurer only pays more as it needs more, particularly if it pays on a per-transaction basis. If the company had bought or created its system, it might be forced to stay with the application long after the “fit” was gone – a very dangerous scenario for a small operation or a company caught in an economic slide.

LABOR RESOURCES

Those who work in some aspect of insurance can attest to the fact that their jobs, on average, have become more difficult over the last three decades. Underwriters are being asked to issue more quotes than ever before. Risk managers are faced with exposures that have exponentially increased. Claims adjusters face more complex laws and heavy caseloads. The core challenge each person faces is the ability to make prompt, quality decisions regarding their particular role. Insurers are utilizing ASPs to provide their staff members with the appropriate tools to make these decisions and to thereby do their jobs more effectively.

For instance, decision management technology available via an ASP model allows agents to access real-time quotes via their phones from the field. ASPs can also automate the risk evaluation for underwriting and pricing a policy. This level of sophistication represents a significant value proposition.

In addition, ASPs can help carriers better cope with the scarcity of expert insurance professionals and the significant “brain drain” in the pool of experienced employees. Many segments of the insurance workforce are aging and retiring. New entrants are difficult to attract and do not receive the same extensive training as their predecessors. By deploying ASP systems, insurers have discovered additional human resource benefits – the ability to utilize a telecommuting workforce, improved proficiency in leveraging the human resources they do have.

UNDERWRITING ASSISTANCE

Across North America, insurers are struggling to make an underwriting profit in light of reduced gains from investments. Some insurance carriers are losing billions of dollars each year because they cannot identify which claims should be reviewed and how these claims should be considered in pricing and offering policy renewals.

In today’s market, insurers need access to critical information that can help them properly and profitably assess client exposures, and thereby get them back to underwriting basics. Approximately 85% of the time, underwriters miss the opportunity to appropriately adjust policies. Consequently, policies are renewed that should not be renewed, and at rates that are too low.

Today, ASP technology with automated decision management can immediately detect the critical data most important to underwriters, allowing them to focus on the riskiest policies and to improve underwriting profitability.

EXPANDED CAPABILITIES

To achieve even more effective economies of scale, some carriers are choosing to outsource not only the technology component, but also the associated business functions in which they do not have a core competency. This allows them to improve the overall quality of that particular operation.

For instance, an auto medical liability insurance carrier could utilize a vendor’s bill review ASP to automate medical bill re-pricing. In this case, the insurer’s employees would still ultimately be in control of its bill review process, but utilize the ASP technology to re-price medical bills according to fee schedules in various jurisdictions, and to determine if proper codes and procedures have been utilized. Today, bill review ASP technology also utilizes the most advanced tools such as optical character recognition (OCR) to scan bills, and a sophisticated decision-making engine to automate medical bill review. Or, if needed, route bills automatically to the right specialists.

Detecting the appropriate complex bills for review can be difficult amid hundreds of bills and thousands of variables. As a result, by utilizing an ASP with advanced decision management technology, carriers can automate up to two-thirds of bills reviewed and processed, and can identify the one-third of bills that need special handling. In this way, not only is the actual cost of doing business lowered with an ASP, but also the losses from claims reduced.

SENSITIVE INFORMATION

Many insurers have been wary to trust an ASP with their highly confidential information, but ASPs have information security experts that ensure the proper security measures are in place to protect the integrity and privacy of information. In fact, these experts are often more knowledgeable and capable of implementing the latest security methods and procedures than internal IT staff, and can even help an insurer put together a data recovery and contingency plan.

Market pressures have given insurers more incentive to put their faith in ASP technology to help reduce costs and improve profitability. Many insurance companies, at first hesitant to adopt external applications, are now finding ASP products “productized” for insurance, specifically designed by subject matter experts – including underwriting, applications processing, risk management, bill review and claims management. All in all, ASP technology enables carri
ers to access more sophisticated software than they could afford to purchase or build.