Insurance Start-Up Quickly Succeeds Thanks to Back-Office Outsourcing Provider | Article

Two figures placing last puzzle pieceMany new businesses, especially those in the insurance and financial sectors, quickly encounter a basic question: Do we build a complete vertical organization internally or rely on outsourcing?

For one, Universal Insurance of North America in Sarasota, Florida, the answer was a no-brainer. Outsource.

Today Universal’s U.S. Property and Casualty Group offers residents in Florida, South Carolina, and Texas a variety of services including homeowners, dwelling, fire, condominium unit owners, tenants’ policies, and flood insurance, and is now entering personal auto and personal umbrella liability coverage markets.

None of this would have been possible without outsourcing.

Its parent company, headquartered in Puerto Rico, wished to expand its footprint into the United States in 2004. In order to get from aspiring entrant to profitable venture quickly, Lora Rees, senior vice president at Universal, knew there was only one logical avenue. “We had to outsource virtually all our back-office support.” She directly cites Universal’s partnership with CGI, a provider of information technology and business process services, as a wise move that pays dividends. “That’s because we needed an experienced partner that was willing to fully collaborate and grow with us,” she adds. “We had the products and services; they had the organizational expertise.”

Rees, along with Universal Insurance president Rick Espino, brought previous experience with outsourcing providers to their new positions. That background was well served when first deciding on the back-office outsourcing approach, then crafting what would be an intricate, but solid, service level agreement (SLA) with CGI.

Russ Pass, a partner at the Chicago-based management consulting firm Bridge Strategy Group, suggests that open and useful discussions between outsourcing partners occur when specific metrics produce honest give-and-take toward shared success. But he adds, “Both parties need to focus on the long term and areas where they can build expertise and competitive advantage.”

A carefully crafted SLA defined the partnership

The seven-year agreement valued at between $45 and $75 million finds CGI providing policy and accounting business process services (BPS) for Universal’s personal lines of homeowners, dwelling-fire, auto, and umbrella liability coverage in Texas and Florida. Specific services include data entry and management, Web front-end and IT processing, template underwriting, customer service, and cash processing payables and receivables. “About the only things we’ve completely retained in house are financial reporting, non-template underwriting, and risk management,” says Rees.

Both sides went into the relationship with eyes wide open and an understanding of what they needed to do in order to have a functioning organization in place within a year. But that didn’t make things any easier or less intricate.

Rees’ previous insurance outsourcing experience came in handy in developing the SLA and its definition of both parties’ roles. “I was involved in a Managing General Underwriter (MGU) relationship. It ended up being a case of that provider housing and managing all the data but not being in a position to capably share much of it. We had to avoid that trap.”

That memory produced an SLA that was quite extensive and took a lot of time to craft. “It involved more than just a few bullet points,” Rees adds.

George Schwab, vice president of CGI, also notes that the intricacies didn’t end with the SLA. The very nature of developing a universal database that is now the bedrock of all product, service, and management tasks from the ground up was first a tedious chore, then a rewarding breakthrough.

“We had to convert a lot of data,” he admits. “But we were also developing a process that we would replicate for Universal as more states and products came online. We needed about seven months to get them up and running.”

“It ended up taking longer than we had hoped,” counters Rees. “But it was much less than the 12-18 months it would have taken had we done it in house. There were about 60 days of pain. We knew there was going to be some. But it was worth it in the long run and, to be fair, because CGI did have experience in setting up legacy systems, the pain was less than it could have been.”

Today, Rees sees that period as an investment because not long ago Universal entered its third state, South Carolina. Total ramp-up time shrank to 110 days.

“It’s easier to bring other states and products on line because we took the time to do it right back then. So in retrospect it was a good trade-off,” she says.

Efficient outsourcing provider of back-office “Web workers”

With an engagement that is entering its third year, Universal and CGI have settled into an efficient rhythm. There are two data and customer centers in Tampa, Florida, and Ft. Worth, Texas, which provide redundancy.

Furthermore, where appropriate, CGI recently began decentralizing some of its workforce for Universal. A growing number of its workers serve Universal from their homes or small satellite offices, the latter practice known as “office hoteling.”

“At the end of the day, you’re creating a service that you’re offering to the customer,” says Sridhar Rajan, a senior manager with Deloitte’s Outsourcing Advisory Practice. “So the question is, ‘What kinds of services can you really take out of your four walls?'”

This innovative method of service by CGI creates a strong impression on Rees. “Their ability to have people in lots of different locations has underscored our feeling that in some cases, a centralized office isn’t always necessary,” she says. “They have people working on our accounts not only in centralized locations but less traditional environments. It certainly proves that it’s not important where they do the work so much as it gets done.”

Schwab’s explanation is simple. “There’s no drop-off in productivity, and it helps us keep our costs down, which in turn helps reduce Universal’s costs.”

He also feels that communication is key in an outsourcing partnership. “When you’re just a supplier, you’re not involved in decisions that affect your service. But they gave us responsibility for the back office from day one as well as the respect that a partner deserves.”

Further expansion in product and service lines as well as additional states is in Universal’s plans. According to Rees, CGI has earned the right to grow along with Universal. “We structured our SLA to account for this expansion so we don’t have to go back and get pricing. Plus, it makes better sense since things are now moving so smoothly.”

Lessons from the Outsourcing Journal:

  • Diligently crafted service level agreements (SLAs) are important in outsourcing relationships because they include clear metrics by which to measure performance against objectives. They also facilitate productive outsourcing relationships and can create a sense of shared purpose between partners.
  • When creating an entire back-office management structure in a new business or new market, balance speed to market with an ability to replicate those newly created processes because eventually you may add more lines of business to the engagement. This can, in many cases, shrink incorporation time from months into weeks.
  • BPO providers and buyers are learning it doesn’t matter where the provider fulfills the services. This is giving rise to the explosion of the remote worker in many areas of outsourced processes for service fulfillment.

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