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When commercial auto-lines carrier Canal Insurance Co. decided to outsource its subrogation claims in early 2006, it was looking for a vendor to handle the entire process. As part of the business process outsourcing strategy, Canal turned to the application service provider model, a technology delivery platform that, while hardly new, has continued to grow in the property/casualty insurance business.

In essence, by using an ASP subrogation outsourcing solution from Trumbull Services, Canal, in Greenville, S.C., could hit the ground running in its efforts to subrogate claims, because the carrier didn't have to invest in any technology due to the nature of ASP.

In the past few years, a new term--software-as-a-service, or SaaS--has begun to be used interchangeably with ASP, though there are subtle technical differences between the two similar platforms.

Canal is just one example of how the ASP/SaaS delivery model is primarily being used in the insurance technology world. So far, according to analysts, the ASP/SaaS model has been used more for ancillary services like first notice of loss or subrogation, rather than critical core processes, such as policy issuance, claims processing or underwriting.

"My perception is that for core insurance systems, like underwriting, policy administration and claims, there is still a relatively small level of activity in ASP," says Donald Light, a senior analyst at Boston-based Celent Communications LLC, a technology strategy consulting firm. "The exception is with a startup or takeover situations, where smaller P/C companies may want to try and run in very 'skinny,' cost-effective mode."

According to Light, apart from first report of claims and subrogation, other prime areas for ASP vendors are in "focused" applications, including billing and rating, litigation management, license management and similar insurance processes.

"The subprocesses and tasks have gained a level of traction for ASP within the insurance industry," Light says. "Those applications, while not core processes, may be complicated, so the carrier wants to focus on ease of use."

"SaaS and ASP are great for hosting complex, complicated business processes, but so far, they typically are not being used for services that create a true competitive difference," adds Karen Pauli, a senior analyst in the insurance practice at Tower Group, a research and advisory firm in Needham, Mass.

"For example, ASP/SaaS is a good solution for data security," she says. "Security systems are complicated, require a powerful application and are a drain on IT resources, but they do not provide a real competitive advantage."

Chuck Shields, vice president, sales and delivery, at Trumbull Services, headquartered in Windsor, Conn., says the company's customer base is evenly split between those who use both BPO and ASP and those who simply use the ASP platform (the latter uses its own staff to handle the subrogation business process via the Trumbull Services ASP platform).

Shields' view is that, while ASP technology started with niche products not mainstream processes, the growing push for faster "time to market" for products and overall cost control is resulting in ASP becoming more mainstream.

"In the old days, a carrier might outsource assigned risk, but keep core business and processes in house," says Shields, who is based in Trumbull's Columbia, S.C., sales office. "While the adoption rate from a sales perspective is moving relatively slowly, we are starting to see a shift from ancillary applications to more mainstream applications."

Shields attributes that trend to improved reliability in the underlying ASP/SaaS technology, as well as improved communications that comes with that technological improvement and reliability.

"With wireless technology, redundancy protection and things like fiber optics, the underlying ASP technology is much more reliable," he says. "It used to be that 96 percent uptime was good, but in the last few years, 98 percent uptime is the rule. And that's another reason I believe carriers are considering the ASP platform for more mainstream processes and products."

Esurance Inc., the direct-to-consumer auto insurance company based in Sioux Falls, S.D., also recently chose an ASP application, this one from Innovation First Notice Inc., for its claims-reporting system.

First Notice's ASP platform is designed to integrate with the carrier's policy and claims systems and can be accessed by loss-reporting representatives and supervisors to handle claims intake for auto physical damage and bodily-injury claims.

"Our ASP model appeals to clients because it is designed to provide equal or greaterscalability, configuration flexibility and extensibilityversus what they may have by deploying the same application in-house," says Greg Powers, vice president of sales and business development at Innovation First Notice.

Powers adds that ASP/SaaS clients today are demanding "legacy system-type application performance" in terms of speed and horsepower,combined with the flexibility and information-technology maintenance benefits inherent in Web-architected systems.

"They're also looking for strong metrics and performance history around change controls, where application enhancements made by the ASP provider require strict turnaround times," he says.

Powers explains that the benefits of ASP/SaaS delivery versus in-house packaged application deployments areproven in terms of speed-to-market, mitigation of up-front investment,short- and long-termsourcing flexibility, and the ability to dedicate resources to the more critical core area of focus for carriers, such as new product development.

"Our typical ASP/SaaS client is a lower Tier-1 to Tier-4 carrier or third-party administrator," he says, adding that most of the top 15 carriers still believe in the "packaged deployment model," whereby source-code ownership needs to be part of the contract, despite the longer implementation time frame.

Powers agrees with analysts that, for the foreseeable future, most core processes will remain within the confines of the customer's IT environment.

"Million-dollar-plus deployments of ERP (Enterprise Resource Planning), CRM (Customer Relationship Management) and even CMS (Claim Management System) platforms will likely not migrate to ASP environments anytime soon," Powers says.

But, he quickly adds, the success of niche horizontal applications such as Salesforce.com, which markets its platform as SaaS, has helped to make large and small carriers more comfortable with the concept of "leasing software."

Tom Gaillard, vice president and general manager of Bottomline Technologies' transactions services group, says his company's success at providing "legal spend" management services via ASP is due in large part because litigation management is the perfect fit with ASP delivery.

Bottomline, a Portsmouth, N.H., provider of payment and invoice automation solutions, acquired litigation bill management ASP vendor Visibillity in 2006.

"There is very little required of the insurer's IT staff," Gaillard adds. "It's really the old 'build versus buy' thing. Very few companies are looking at doing something like legal spend management from scratch. They just don't have those resources."

According to Tower Group's Pauli, the ASP solution got off to a relatively bad start in the late 1990s, but today, after continued success stories and a better track record, the outlook is good.

"Carriers did make some purchases that went bad because the technology wasn't mature enough and organizations were not skilled enough to manage an ASP, but that's changing," she says.

As for the larger processes, Pauli says that for most carriers taking a look at legacy systems and what it would take to replace them with ASP/SaaS technology, it's just too daunting of a challenge.

"If they are smart, they would break down their systems into many smaller business processes, determine what's mission critical and what isn't, and let someone else do the latter," she says.

"That's where the ASP/SaaS model can really have an impact," she says. "Certainly, this is an area that is not hugely pervasive yet, but it will grow more as carriers recognize they need it to be competitive or, in some cases, to even stay in business."

"Certainly, ASP/SaaS has gotten a lot of buzz," notes Celent's Light. "And the big software vendors, the Oracles and SAPs, have given a nod toward the concept. But so far, there have been only a few real success stories?Salesforce.com, some HR administrative applications and the narrow applications within insurance. It will continue to grow, but I would be surprised if that growth was anything more than modest."

TOM STARNER lives in Philadelphia.

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September 1, 2007

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