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Outsourcing to the 'Rescue' For Growing Reinsurer

Louis Berney May 2007

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.

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