Maintenance Cutbacks a Dangerous Game for Insurance Enterprises
Insurance Experts' Forum, October 5, 2009
Have you been hearing those rumblings lately about the economy improving? Just take a look at the performance of the Dow in recent months and you might almost believe them.
Then again, take a look at the unemployment rate in our nation and you know that someone is suffering from a serious case of irrational exuberance. In fact, the unemployment rate (9.8%) continued its upward trend in September, the U.S. Bureau of Labor Statistics reports on its Web site. And with fewer workers spending less money in general, insurers, as well as other types of companies, are still determined to save their own dollars wherever they can.
One of the ways that IT folks are seriously considering saving is by cutting back on maintenance contracts and/or activities. Insurance companies, almost pathologically averse to taking risks, may see this gamble as a winner, especially if in-house resources can step up to fill the service gap. But will that actually happen?
First, let’s consider that fact that for an insurance enterprise, “maintenance” means keeping the wheels greased on systems that handle the very lifeblood of the company—customer data. There will probably be no immediate effect if, say, a maintenance contract is adjusted downward to reduce the cost. Maybe you and the contractor agree that he doesn’t need to show up within an hour for an emergency; 24 hours will be just fine.
Yet more and more, insurers are expected to respond to cyber-customers’ insatiable hunger for instant gratification. If your enterprise is unfortunate enough to have a few emergencies in which the response is not swift, some of those customers may begin to get antsy about their coverage, not to mention the competency of the company. They may get antsy enough to switch to one of your competitors who hasn’t cut back on his company’s responsiveness.
Consider also the possibility that internal breakdowns in systems (often legacy systems) that contain customer data can bring at least some of your business processes to a temporary halt. In that case, is your company okay with having those systems down for 24 hours versus one or two hours? Is it really worth taking that risk to save a few bucks on the maintenance contract?
But, you say, I have people in-house who can jump in and handle emergencies, or can take on the extra work of maintenance. Really? Are those people prepared to respond as quickly as an outside service would? Let’s remember also that, since you have a maintenance firm in place, those people haven’t been required to jump out of bed at 3 a.m., slide down a pole, and rush out to put out the fires that sometimes are sparked by IT problems.
Then there’s the problem of loading more work onto the backs of those current IT workers who are probably already heavily burdened with “having to do more with less.” That additional burden could easily translate into more IT worker stress, which leads to stress-related ailments (migraines, backaches, digestive problems, ulcers, anxiety, depression, etc.), which leads to more IT worker sick days. In the end, you may end up with fewer IT resources available to do more work.
Cutting back on maintenance responsiveness and availability is most unwise because the maintenance often involves critical systems. It’s a bit like a pro athlete cutting back his workouts from five times a week to three—the lack of “maintenance” will eventually show in his performance, or lack thereof.
Fear not, however. You can save money on those maintenance contracts by renegotiating them. Your maintenance contractor may not be willing to drop rates out of hand, but he or she may entertain a rate cut if you extend the length of the contract from, say, two years to four years.
That way, you get the immediate savings of the rate cut while your contractor gets the security of knowing that you will be a client for a longer period of time. It’s a win-win situation.
Cutting costs is fine, but beware of moves that will amount to cutting your company’s throat instead.
Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant and a longtime observer of technology in insurance and financial services. He can be reached at email@example.com.
The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.
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