Insurance Networking News

INDUSTRY PRIORITIES
Keeping up with top-of-mind executive concerns

arm for Nationwide in Columbus, Ohio. For instance, some managed services and SaaS providers with which the company has worked have done an effective job of clarifying SLAs and language around limits of liability that Nationwide requires, while others have not, says Stormont.

Nationwide, which has entered into 100 to 150 such agreements over the past five years, typically uses its own contract templates for Web hosting and SaaS agreements instead of vendor-pro-vided contracts, says Stormont. The company updates its contract templates twice a year, based on experience and input it gathers from suppliers, Stormont says.

Before entering into managed services and SaaS agreements, it’s important for insurers to specify upfront what’s meant by system availability from a provider, and whether that means service between 8 a.m. and 6 p.m., or 24/7, notes Jeff Kaplan, managing director at THINKstrategies Inc., an on-demand services consultant in Wellesley, Mass.

For its part, Nationwide has taken a comprehensive approach toward reviewing the managed services and SaaS agreements it has entered. A battery of departments, including corporate security, risk management, the CTO of the business division being supported, general counsel and sometimes the company’s chief Internet officer, typically reviews Nationwide’s contracts, Stormont says. She adds that contract negotiations with managed services and SaaS providers typically take about 60 days.

As part of Nationwide’s due dili-
gence process, hosted services providers
are required to complete a questionnaire
from its security department to deter-
mine the various levels and effectiveness
of their security strategies. It’s an essen-
tial move, Stormont says, “especially if
they’re (the provider) going to be hous-
ing confidential policyholder data.”
Insurance customers should also push
service companies to provide transparen-
cy into their operations, including the
ability to view network performance to
help gauge system response times and
latency, says Kaplan. Some vendors pro-
vide customers with Web-based dash-
boards via private portals to view system
performance, he says.

ners and the insurer, and reconcile con-
tract agreements between the two,
Foster says.
Insurers and service providers also
need to pre-determine how problem
escalation will be resolved for a system
disruption, and establish a chain of com-
mand between the two organizations,
says Craig Symons, an analyst at Forrester
Research Inc. in Cambridge, Mass. This
can be accomplished, in part, by creating
a set of responsibility assignment matrix-
ent geographies. For instance, there are
different requirements and restrictions
on data retention and data transfer in
the European Union and in parts of
Latin America that IT executives have to
incorporate into their planning with
managed services providers, says
Conrad Chuang, insurance industry
marketing manager at Progress
Software Corp. in Bedford, Mass.

“If you have a prenup, and you’re
getting divorced, it doesn’t
necessarily make you happier,
but you’re glad you worked it
into the agreement in advance.”

— Jeff Kaplan,THINKstrategies Inc.

San Francisco-based Salesforce.com took this a step further a few years ago when it created a public site called trust.sales-force.com, in which customers can log in to check live and historical data on system performance, maintenance schedules and security, Kaplan notes.

Before IT leaders at insurance com-
panies start poring over contract details,
they should first consider the change
management or migration issues
involved with moving from an internal-
ly provided IT function to a managed
service, says Matt Foster, chief architect
for Accenture’s insurance software
group in Chicago. This includes estab-
lishing which staff members from the
insurer will be retained to help support
the managed service. Insurance deci-
sion-makers also need to examine the
interdependence of multiple systems
used between the carrier’s vendor part-
es or RACI charts “to reconcile where the
two parties have accountability and
responsibility,” Foster says.

THE FINE PRINT

Larger insurers such as Nationwide have greater leverage in demanding that service providers use their contracts, Kaplan says. But even if insurers use a vendor’s “paper,” customers still have the right to make recommendations and negotiate revisions on contract terminology, he says. For example, if a system outage occurs, customers should determine with providers upfront if the vendor should be penalized and whether those charges should be made in the form of credits or give-backs, says Kaplan. There should also be a fair threshold for determining under what circumstances a customer can terminate an agreement, he adds.

“If you have a prenup, and you’re getting divorced, it doesn’t necessarily make you happier, but you’re glad that you worked it into the agreement in advance,” Kaplan says.

Customers should also pay close attention to contract parameters, especially when changes need to be made. “That’s where most of the gotchas come” from a cost standpoint, Symons says.

For example, customers should know how much it would cost to add users to a 1,000-seat hosted e-mail agreement, and what the charges are to scale down its user base if needed, Symons says.