The Game Has Changed. Why Haven’t Insurance Companies Adjusted?

Sep 19th, 2011 | Posted by

I find it somewhat amusing and somewhat frustrating that insurers are still trying to solve their business problems with new technologies using antiquated methods. It is analogous to trying to use a 1950’s football strategy of just giving it to the running back and banging it up field. They seem to assume that because the players have newer uniforms and better equipment, the old playbook will still work. Other industries have realized that the “west coast offense” is much better, but insurance fails to recognize this. The West Coast offense was first used by the San Fransisco 49’s football team to utilize short passes to replace the running game to control the ball in the mid 1980s. It totally changed the approach to winning football games. Insurers need to realize that the old playbook that they continue to use will only net a few yards with a lot of effort. Newer playbooks exist that allow carriers to move forward at 20, 30 or more yards a clip. It’s time to rethink how to attack your IT problems.

Several carriers have already started to leverage new approaches to technology with great success. The first example is Tokyo Marine. Tokyo Marine a few years back moved away from a committee decision process in which little gets done because committees rarely make big decisions. They took on a strong leadership and accountability approach and used a “Bappan Kaikaku” approach to their IT strategy which means “going back to the root”. They didn’t use the old playbook to solve current problems. They addressed current problems by evaluating root issues and moved forward incrementally from there. Their focus was on simplifying products and processes, in addition to renovating agency and employee systems. When the tsunami hit and caused the great damage in Japan recently, they were able to quickly acquire 1400 terminals and provide immediate support for their claims process due to their investment in mobile and cloud technologies. They never would have been able to respond to this disaster as effectively if they had not taken a new approach to IT years before the disaster hit.

A second example can be seen through FAST company’s approach to addressing IT gaps and core system modernization/replacement. They do not approach the problem with the typical platform solution approach, incrementally rolling out lines of business over the years, hoping to eventually retire the legacy system with the new modern one. They provide a strong BPM/SOA approach to building services, implemented in Java or .NET, (vendor’s choice) to fill the business gaps and replace parts of the legacy system that are bottlenecks to meeting the business goals. The new solution is designed so it may be replaced itself (or parts) easily at any point in the future when better IT solutions come along. The old components can be swapped out with newer, better solutions without impacting the overall system. Several other vendors are also taking framework solutions to allow more flexibility in complimenting, supplementing and/or replacing legacy systems. The systems can now be designed in the first place for retirement. This should be a key principle of any enterprise strategy.

Cloud computing provides another new approach carriers are just beginning to explore. Celent believes every application developed internally or from a vendor should be cloud based. Even if a carrier hosts the application on premise, the application should be more easily upgradable, as well as replaceable later if desired. Also, if the situation changes and hosting externally becomes a better option, the effort to do so will have been minimized.

The old insurance IT playbook was focused on decisions by committee; internal development with a lot of customizations; tight coupling or IT system dependencies between systems resulting in high integration and maintenance costs; line of business centric solutions and approaches; and from an IT perspective, the playbook called for long and expensive rip and replacement projects. We still see many carriers still using this approach to the annual projects.

The new “West Coast Offense” for carriers is focused on agility, speed to market and lower TCO (total cost of ownership) options. The plays that are being successfully employed today to better achieve the desired results include: strong, enterprise leaders (not business segment, committee decisions); SOA approaches focused on location independence (Cloud/SaaS), implementation independence (focused on business function), component-based or framework solutions that allow for flexibility (as opposed to rip-and-replace solutions), and design for retirement from the beginning (as opposed to the traditional design to last forever – because they tend to do just that!). The new West Coast Offense for carriers still allows for planning for replacing or modernizing core systems, as the run was still employed in the football version. It just becomes more effective.

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  1. Bruce Hicks
    Sep 21st, 2011 at 09:40
    Reply | Quote | #1

    Actually, the West Coast Offense was based upon different elements introduced decades earlier by Coach Paul Brown and the Cleveland Browns….so it really isn’t new.

    IMO, I think IT persons could use a little more humility and own up to how they created the situation in insurance. For decades IT really did not come close to living up to the greatest expectation; that automation would drastically reduce expenses. I believe that early IT solutions often overpromised and under-delivered in various areas as insurers tried to incorporate it into their operations.

    A lot of valid points are made in this article, but perhaps it would be far more productive to discard the admonishments and focus on how current solutions may actually live up to their performance promise. If insurance companies lack faith in technology; doesn’t much of the responsibility lie with those preaching IT’s dogma?

  2. Dharam Pal Jairath
    Sep 25th, 2011 at 08:50
    Reply | Quote | #2

    Change is the essential component of survival and enhancement of business. technology is definitely the game changer but insurers need to adopt “customer first” principle. Only then, the technology will enhance business and trust. In INDIA, we had a catastrophic flood situation in one town(Gorakhpur in Eastern U.P.) and as many as 55 claims were settled by one surveyor & adjuster ( myself) within 35 days.

  3. Curtis van Coevorden
    Sep 25th, 2011 at 22:22
    Reply | Quote | #3

    Can’t say I agree entirely. The game hasn’t changed, just the coverage. Insurance (I’m talking general here) hasn’t really changed in a hundred years. Sure, what’s being covered has progressed but it’s still the same basic risk vs reward game. The only real changes have come in how it’s delivered. Technology can deliver you a slicker marketing package and better access, but it won’t deliver you better business practice.
    Throwing technology at your problems will make a software companies and IT consultants wealthy, and that’s money hard earned by your company. Before you start parting with that hard earned you need to work out where your future business opportunities sit, and then work out the best way to reach them. Sometimes putting your head into cloud technology might just obscure your view.

  4. bmoreland@celent.com
    Dec 19th, 2011 at 13:39
    Reply | Quote | #4

    Thanks everyone for the responses. Couple of comments to the replies.

    The current complexity and legacy system environment that exists today is the joint responsibility of IT and Business. Neither one can point the figure at the other as each is equally guilty of the current situation. It will take a business lead, business-IT partnership to drive forward to better pastures.

    The game of delivering automated solutions has changed. Newer, more modern solutions are configuration-based, as opposed to development-based. Business is taking a larger role in development and maintenance, as it should. SOA is allowing the focus to return to business models and business processes, which is where it belongs. SOA is an IT solution to business needs, not a business solution. (See my BOA report.) Carriers are more focused on policy holders and self service than ever before. STP is becoming more a norm than a dream, even for small commercial new business. While “insurance” itself has not changed much, the automation of the processes and intelligent decision making and customer self-service are new from an industry perspective.