When Jefferson Pilot Financial Insurance Company (JPF) acquired Guarantee Life Insurance Company in December 1999, it also acquired its outsourcing partnership with a third-party administrator (TPA) for a block of individual life products. JPF had no tradition of outsourcing and could have, as a matter of course, severed the relationship with the TPA, Westfield Services, and brought the insurance policy administrating duties it had performed for Guarantee Life into the cozy confines of its own corporate offices in North Carolina.
Instead, JPF, which has $28 billion in assets and $210 billion worth of insurance in force at last count – decided to take a closer look at the outsourcing approach and keep Westfield Services on as the administrator of the Guarantee Life Insurance business. In the process, the service provider proved that, with proper due diligence, even an inherited outsourcing partnership can flourish.
When To Hold ‘Em, When To Fold Them
JPF’s acquisition of Guarantee Life hadn’t been the first time Westfield Services played the role of “legacy outsourcing partner.” As a wholly-owned subsidiary of the Westfield Group, Westfield Services, Inc. had been providing insurance policy processing for its parent company’s life insurance operations when Westfield Group decided to sell to Guarantee Life of Omaha, Nebraska. Bill Glazer, a senior executive at Westfield Services, tells how his company was able to continue servicing the block of business Guarantee had just purchased back in 1998. “At that point in time, one of the things that Guarantee said was [they] didn’t want to convert the business and [they] didn’t have the people to manage it. So we developed a proposal to continue to do the processing.” Westfield Services’ processing consists of handling customer service inquiries, policy changes such as addresses and beneficiaries, and payment of claims and commissions. Rather than attempt to absorb this new business, Guarantee decided to outsource it.
When Jefferson Pilot purchased Guarantee Life, it decided to continue Westfield Services’ “after pretty significant due diligence,” says Charles Ingram, vice president-In Force Operations, for Jefferson Pilot. “We visited with Westfield Services to determine what they were doing. We were pretty well satisfied that they were providing a high degree of customer service to these policy holders.”
Due Diligence: The Key To Making The Right Match
Ingram admits to having only limited experience in outsourcing. However, the fact that the newly purchased company, Guarantee Life, had already been enjoying the services of a TPA made the merging of the two businesses easier. Westfield Services already had a more than acceptable track record providing customer service for Guarantee, so JPF didn’t have to wrestle with any migration/conversion issues. Even if it decided to bring the Guarantee business in-house at a later time, it knew it would be in good hands for the time being.
As it turned out, it decided to contract with the service provider for the next five years. gram explains why. “Guarantee Life Insurance Company established the performance metrics concerning quality and timeliness statistics. We investigated those again as part of due diligence and found that they were very robust and we agreed to continue with the same metrics.”
Sue Cook, who oversees Westfield Services’ management of the JPF business, recalls how her company withstood the careful inspection of its newly acquired customer. “The audit was an in-depth review of our policy practices and procedures,” Cook says. “Not only did their customer service management team research our policy-processing procedures, they reviewed our complaint handling procedures, our systems capabilities, reinsurance processing, premium processing, and claim payment activity. This really was a detailed view of our operation.”
JPF added one more metric it used to measure its own business: the administration cost per policy. This allowed the company to measure its own internal cost versus what a third-party administrator might charge. The comparison to what it cost to retain Westfield Services was favorable and contributed to the decision to extend the existing agreement.
The business philosophy of JPF management has always been to look at outsourcing as nothing more than a temporary solution. Over the last four or five years, managers have been active in purchasing other life insurance companies. In each case, they have brought the acquired block of business in-house to be serviced by their own employees. Ingram sees this pattern changing as JP grows and evolves. “As we continue to look at other blocks of business in other companies, I think we will probably begin to view [outsourcing] more as a strategic tool and, particularly with the successes we’ve had with Westfield Services, view it in a little different light and perhaps even consider it more robustly in future acquisitions.”
More Sophisticated Metrics
Westfield Services’ Glazer sees a shift in how companies view outsourcing as well, citing economics and quality as drivers. Another factor in this shift is the increased sophistication in setting up metrics that protect a customer’s investment in outsourcing. “I think that the consultants or attorneys companies use are becoming more sophisticated and they’re demanding those metrics upfront,” Glazer observes. “They also have their own metrics that they require a TPA to meet or exceed.” Special-need situations, such as closed or run-off books of business, are tailor-made functions that a service provider like Westfield Services can manage for a client like Jefferson Pilot, freeing up the insuror so it can direct its full attention to more revenue-generating initiatives.
Glazer points out another reason why an insurance/financial organization would benefit from outsourcing its insurance policy processing: “If you want to enter a new market, a TPA, many times, will get you up and operating quicker than you can do it yourself.”
Though they didn’t originally choose each other, Jefferson Pilot and Westfield Services are enjoying a mutually beneficial outsourcing partnership. JPF, rather than immediately bringing the policy processing in-house, recognized added value in retaining Westfield as a TPA. Westfield, in turn, garnered JP’s trust by remaining committed to its philosophy of not only meeting but exceeding the expectations of its customers.
Lessons from the Outsourcing Journal:
- A legacy outsourcing partner can be of great benefit during a merger.
- Exercising the proper due diligence can greatly contribute to the decision to retain a service provider or bring a business function in-house.
- A company with established internal business function metrics can better measure how well a legacy outsourcer has performed the same function.