How do insurance providers develop an agile IT infrastructure?

Insurers have always faced the challenge of taking products and solutions to market faster and doing so at lower cost. The sources of this challenge are not new – changing partner and customer expectations, increased and new competition and demanding regulators with perhaps the addition of the current financial climate.

Insurers have risen to each challenge, offering new ways to interact with their customers, offering new products and tracking their processes against new requirements. However, warning signs loom as insurers are increasingly finding that each of these solutions involve adding something new, encumbering their infrastructure with the latest systems, applications and integrations. Insurers already suffer from heterogeneous and complex IT landscapes and many are in the throes of large, costly programs designed to simplify and reduce costs.

The challenge today is a little more specific from those in the past: How can an insurer increase in agility, speed to market and flexibility while keeping the support and maintenance costs manageable?

Insurers are increasingly realising the benefits of a Software as a Service (SaaS) approach for some parts of their IT landscape. The promise of being up and running on an out of the box solution can be very appealing for activities that don’t differentiate the insurer or are well understood. While these solutions continue to be additive, they don’t increase the load on the IT infrastructure team beyond the due diligence exercise. However, many of the areas that need the greatest speed to market are differentiating and require customisation – how can insurers achieve that without increasing complexity?

Is Cloud the Answer?
There has been much discussion about cloud and how this is changing the way start-ups and businesses deal with their IT infrastructure. Insurers exist in a heavily regulated environment and are rightly hesitant to jump on the latest technology fad to solve their problems. However, dismissing the developments in cloud and SaaS propositions altogether for their core operations may be throwing the baby out with the bath water, along with possibly the bath as well.

There is value in considering cloud-thinking or a cloud style approach to problem-solving when considering the insurer’s infrastructure. Central to enabling cloud is simplifying, standardising and above all automating activities with IT infrastructure. Once the common activities one needs to do are automated this frees up costly team members and time to look at other problems. Through automation one can keep adding new applications and solutions to the IT landscape with a lower impact on support and maintenance costs, enabling an insurer to remain flexible, agile and keep their costs manageable.

It is time for the IT department to look internally and apply the same automation and efficiency thinking of their business counterparts to their own operations. Regardless of an insurer’s position on cloud, there is value in applying cloud-thinking. Consider how automation and simplification can increase predictability, supportability and quality in IT Operations. If appropriate, take that learning and move some services to the cloud.

In practice this approach doesn’t simplify the IT landscape and move everything to one “cloud” way of doing things. Rather it accepts the insurance industries need for complexity, for flexibility in approach and seeks to enable a fast and cost efficient approach to deliver it.

 

Ace buys Chubb: what it means for insurance technology

Today’s blockbuster announcement of Ace buying Chubb will have a lot of industry ramifications—some of which will play out in the IT sphere. No doubt there has already been an IT assessment element in each insurer’s due diligence efforts. Between now and the effective date of the merger, there will be a lot of planning focused on:
  • Efficiencies and platform rationalization–aka “let’s figure out what is the right number of core systems, which core systems will be the survivors, and how data conversion and integration will work”
  • Cloud, SaaS, data management/stores, and analytics
  • Professional service and SI support capabilities that can scale to the new Chubb
  • Which systems will best support a digital roadmap
Some seemingly redundant systems may survive—at least over a 1 to 3 year period. For that to happen, the business (and/or various geographies’ compliance) requirements of the operating units using these system will be too divergent or too difficult to quickly build into a single surviving system. All this reinforces the reigning market message to insurance technology firms. If you want to be around in 10 years:
  • Design highly configurable and agile systems that feature ease of integration
  • Have enough scale to meet the needs of bigger and bigger insurer customers—grow, merge, or wither
 

Life in the Cloud – vendor activity is high

Few technologies are talked about as much as cloud computing. Cloud services may top the list of technology buzzwords used in corporate board rooms, by Wall Street analysts, in the trade media and within insurance IT organizations, but it often is talked about as an emerging technology – one that is potentially transformative but still little used. The level of general interest in cloud computing is understandable. It promises tremendous flexibility, tempting economic advantages, and unending operational efficiencies. To that end, insurance carriers are dependent on the cloud offerings available. Only if vendors are offering products on the cloud can carriers take advantage of them. So where are the vendors? Do all vendors have cloud applications? What options are available for insurance carriers and are they aligned with carriers on the importance of cloud apps? What challenges do vendors face, and what are their plans for the future? I surveyed 41 vendors to provide answers to these questions as well as to understand pricing models, platform investments, and their expectations of where the market is going. Cloud has grown from an emerging trend to the way of doing business for most vendors in a remarkably short time. While vendors may believe they are leading the competition by offering a cloud solution, the reality is that cloud options are now the norm. Vendors have moved swiftly to create cloud offerings and those that don’t have some type of offering are rare. Although these offerings are common, that doesn’t change the very real and significant concerns that carriers have, particularly around privacy issues and performance. Yet carriers interest in cloud computing continues to gain traction as a way of managing costs, improving efficiencies, and offering opportunities to transform the business. Despite the high interest, vendors who wish to be successful in selling cloud options to carriers will have to address concerns in three key areas: privacy and data integrity, reliability and performance, and may want to provide tools to help carriers learn to manage and govern their cloud offerings. This rapid evolution is not without its challenges for vendors. Customer-facing challenges are of high concern for vendors include issues such as managing the release cycle across multiple clients balancing front end, customer facing features reliability and performance enhancing features, and the impact of a changing target market customer base. Vendors are also concerned about identifying the right pricing model. Managing the shifting business model from license and professional service fees to subscriptions is formidable for many vendors. In addition, cloud creates notable organizational challenges, especially competing for scarce engineering resources. Cloud is expected to generate significant levels of revenue, and vendors that have not put their cloud plans together may want to begin to build a roadmap for the future. Check out the report – Life in the Cloud: Vendor Plans and Priorities

Celent Predictions for 2014

It’s clear that my colleagues and I see 2014 as something of a tipping point, a water shed for established and new technologies  to take hold in the insurance industry. I’ll try to summarise them succinctly here. Expect to see reports on these topics in the near future. Celent’s 2014 prediction focus on:
  • The increasing importance and evolution of digital
  • The rise of the robots, the sensor swarm and the Internet of Things
  • An eye to the basics
The first topic area is labelled digital but encompasses novel use of technology, user interfaces, evolving interaction, social interaction (enabled by technology) and ye olde customer centricity. Celent predicts vendors would market core systems as customer centric again, but this time meaning digital customer centricity. Celent expects to see core system user interfaces to acquire more social features along with a deeper investment in user interfaces leveraging voice, gesture, expression and eye movements. A specific digital UI example was the wide spread adjustment of auto damage claims (almost) entirely done through photos. In addition, gamification use for both policyholders and brokers will be adopted or increase in use for those early adopters. Celent further predicts greater investment in digital and that comprehensive digitisation projects would start to drive most of the attention and budgets of IT. The second topic I’ve called Robots and Sensors, while digital there is a significant amount of attention and specificity. The merger or evolution of the Internet with the Internet of Things accelerates with devices contributing ever more data. Celent predicts this rise of the Internet of Things or the sensor swarm, will push usage based insurance policies to other lines of business, not just telematics based auto policies that UBI is currently synonymous with. Celent further predicts that the quantified self movement and humans with sensors will in 2014 yield the first potentially disruptive business model for health insurance using this data. As an aside the increasing use of automation, robotics and AI will see broader adoption in the insurance industry. For those reading my tweets, Celent predicts 2014 will see drones used for commercial purposes. I hope we won’t have the need, but wonder if we’ll see drones rather helicopters capturing information about crisis stricken regions in 2014. The final topic I’ve called the basics. Celent predicts insurers will continue to focus heavily on improving performance of the core business – a good counterbalance to the hype around digital and a good pointer to where to focus digitisation efforts. At Celent we have noted a pragmatic interest in the cloud from insurers and we predict increasing complexity in hybrid cloud models, to the benefit of the industry. A little tongue in cheek but finally, Celent suggests that industry will finally find a business case for insurers adopting big data outside of UBI. Avid readers of the blog will be happy to see we haven’t predicted an apocalypse for 2014.   A special thanks to Jamie Macgregor, Juan Mazzini, Donald Light and Jamie Bisker for their contributions.  

12 Free Gifts from Celent

Reprising last year’s 12 Gifts of Celent on 12/12 I thought it was worth looking at free gifts offered, namely the most popular posts from 2013 on this very blog. I’ve gone for most popular blogs or blog sets by page views, which of course favours the older blogs because they’ve had longer to accumulate the views, but let’s work with this data anyway. It’s been a busy year and it’s not done yet, but here are some useful discussions you may yet have missed. So in the style of a new years top 10 count down, here are Celent’s top 12 blog posts: In at number 12 is a new entrant (well, a recent post) musing on the sentiments from ACORD’s Insurance Technology Congress in London this year. There was a sense that attitudes towards technology change even in some of the oldest parts of the global insurance industry were thawing, boosting optimism that useful, quick change was achievable. At number 11, a new years post asking how the insurance industry should respond to the growing openness in government departments and the availability of ever more data. At number 10, not the UK’s Prime Minister, but clearly as important, a write-up of Celent’s initial UK CIO Roundtable discussing technology in the workplace and innovating with suppliers. Innovation proves a popular subject in the top 10. As we enter the home straight of single digits at number 9, fast followers also have work to do. Celent’s Mike Fitzgerald observes, from conversations at IASA this year that even if a company chooses not to be the innovator, there are challenges in following the right innovations effectively. A number 8 the theme stays with innovation, this time looking at the role of mobile technology – particularly in emerging markets. A change of subject at number 7; we discuss balancing domain expertise, delivery capability and technology in new insurance core systems. Back to innovation at number 6 with a discussion on what it takes to become a Chief Innovation Officer. Is this the new role for a CIO? Something the CEO does? An adjacent role or something different? A look at what’s involved and some pointers for further reading. Topping the final 5 we continue the discussion started last year on the end of auto insurance with a look at the work of others. Although it’s not in the top 12, another blog on the subject from Donald Light is available here. Donald argues that the key variable is “when”. At number 4 we discuss social data and specifically, realising the ROI of social media. A longer post supported by a report in our library on the same topic. The second runner up at number 3 is our write up of Creative Disruption London, some great disruptive case studies from around the globe. While it was perhaps too recent to make it into the top 12 it’s worth revisiting the write-up and content from our event in  San Francisco, “What’s next: The Search for Disruptive Innovation” and the roundtable the night before – Making Innovation Happen. Number 2 is actually a collection of blogs chronicling the consolidation of the market in 2013, including Insurity and AQS, Guidewire and Millbrook and, SAP and Camillion. And finally, the moment you’ve all been waiting for or just skipped straight ahead to (it is a blog after all), our number 1 is: Innovation – What can the insurance industry learn from Steve Jobs and Apple? some views and actions from Celent’s own SVP of Insurance, Jamie Macgregor. So there you are. One not on the list that I thought worth highlighting was SaaS Policy Administration Systems: The Time Is Now, because it is a thought to take into 2014. If I missed one you particularly liked do let me know. Maybe I can find a home for that too. Happy Holidays from Celent!

Mind the Gap. Are Insurers and Vendors in Latin America on the same page about SaaS and Cloud Computing Usage and Adoption?

Almost with the end of the year around the corner we are yet immersed in some very important reports for all of us which, by the way, will be produced integrally with Latin American focus for the first time. The CIO Report and the Policy Administration System ABCD Vendor View Report are on their way.

From our past and recent discussions with Insurers and Vendors about different topics around technology, architecture, trends, features and functionality something has been driving my attention: It seems to be a gap in the perception about usage and adoption of SaaS models and Cloud Computing in Insurance, at least in Latin America. While the detailed reasons and how large is the gap between Insurers and Vendors will be part of a report next year, initial findings point in the direction that Vendors perceive more benefits from adopting these models while Insurer’s CIOs do not feel the pressure and do not have it as a priority.

A SaaS approach, applied to a Policy Administration System for example, appears as a perfect fit to the business model of many Vendors. SaaS enables Vendors to target small and medium Insurers as they can consistently manage a single scalable version of the solution and offer support very cost effectively with prices that fit smaller Insurers wallets.

On the other side, CIOs seem to feel more comfortable with on-site, self-controlled environments. Hardware and communications prices are more accessible to them providing more processing power and bandwidth for their dollars that a few years ago. In some countries even regulation presents a challenge to these type of offering as regulators still question where the system and the data needs to reside.

Something to consider is that Insurers in this region have yet not been exposed to much SaaS and Cloud offering so the perceived associated benefits and the price difference between traditional on-site and the new alternatives is still a discussion to mature.

Another aspect that might help to build the bridge and cross the gap is that core system replacement is starting to show increased trends and it will expose Latin American Insurers to new architected solutions with technology and functionality much more flexible and robust but at the same time more complex to administrate. Specially smaller Insurers will need to consider how to remain competitive, improve processes and deliver better quality products and services through diverse and new distribution channels at a cost they can bare.

Interesting times to come as we unveil what to expect in the region. In the meanwhile if you are interested in participating in the Latin America CIO Report or the Policy Administration System Report please let me know. Also feel free to reach me at jmazzini@celent.com with your comments and thoughts around SaaS and Cloud Computing usage and adoption.

Happy Holidays!

Strong Step Forward for Life and Annuity SaaS Solutions

Every now and then a strategic alliance occurs that makes a lot of sense. Today, McCamish Systems, an InfoSys BPO company, and Pegasystems announced a strategic partnership that will leverage the best of both their solutions, namely, McCamish’s VPAS Life and Pegasystem’s BPM technology. (See http://www.businesswire.com/news/home/20111207005172/en/McCamish-Systems-Infosys-BPO-Company-Announces-Strategic for full announcement.) McCamish VPAS Life is a policy administration system driving their BPO offering. VPAS Life provides full end-to-end processing from new business fulfillment and underwriting STP to claims. Pegasystems BPM technology is a robust BPM and case management solution providing configurable business process solutions, standards based integration solutions, strong rules capabilities and process metering and monitoring.

VPAS Life was evaluated in a recent Celent NA Policy Administration Systems report, with a solid showing in advanced technology, breadth of functionality and customer base. (See http://www.celent.com/reports/north-american-policy-administration-systems-2011-life-health-and-annuities-abcd-vendor-view for the full report.) However, it was also noted that “with a mature data model and an older code base, there are limitations to what can be achieved via configuration–for most applications, customized coding will be required.” In addition, while customer feedback was positive, the front-end, case management and workflow capabilities are not best of breed solutions.

Pegasystems has been a leader in the BPM and more recently case management solution space, providing a powerful, configurable platform on which to build insurance processes and applications. While they have provided a framework in which large insurers have begun to wrap and build core solutions through their Insurance Industry Framework, there is still a lot of work to do to create system of record core systems. In addition, due to the robustness of the framework, Pegasystems’ solutions require high level skill sets.

This all leads back to the McCamish-Pegasystems partnership. Each solution compliments the other’s perfectly to provide a potentially, industry leading, and possibly changing, life insurance and annuity solution. McCamish will leverage the Pegasystems framework to provide a configurable and powerful BPM, case management insurance framework to enhance their already strong insurance experience and solution. McCamish will be able to take advantage of the speed to market Pegasystem Insurance framework provides, addressing some of the hurdles that small to mid-size insurers face with framework solutions by providing it as a SaaS offering and through InfoSys already has a strong Pegasystem BPM center of excellence.

While the actual implementation is yet to completed, and thus true benefits realized, Celent views this alliance as a potential game-changing partnership that will greatly enhance the SaaS options for all insurers, but especially for small to mid-size carriers in the life insurance and annuity market.

SaaS Activity in 2010 Insurance Software Deals

Every year, Celent conducts a survey of software providers which details the activity in the insurance automation market (http://www.celent.com/reports/north-american-insurance-software-deal-trends-2011-lifehealthannuity-edition and http://www.celent.com/reports/north-american-insurance-software-deal-trends-2011-propertycasualty-edition). The latest snapshot showed a 14% growth in SaaS across all categories. This increase was expected based on conversations we had last year with both insurers and vendors. It was good to get some numbers that defined the level of activity in this area. What was surprising was that billing was one of the leaders in the move to SaaS in terms of percentage of deals. Thirty percent of the reported insurance billing systems sold in 2010 were delivered through some type of hosted solution. This demonstrates both the desire of companies to upgrade their billing service and reduce the cost involved in delivering these new capabilities. Look for increased activity in this area in 2011.

EC2 Troubles Must Be Taken in Context

Proponents of cloud computing aren’t going to like the fact that Amazon had issues that resulted in outages among its EC2 customers’ sites. The know-it-alls out there are probably already saying, “If Amazon has issues like this, imagine what would happen if you placed your bet on a less-experienced cloud vendor!” The gravitational shift toward the cloud for both core and non-core systems has surely slowed down.

But the fact is that most insurers have their own outages when they host applications internally, in some cases with more frequency and severity than we’re seeing here with Amazon. It’s interesting to note how some of the customers who are known to be affected have reacted. “We wouldn’t be where we are without EC2,” said one. So despite the horror of having their public-facing site go flighty for a day (or two–we’re hearing the problems are not completely resolved), there’s apparently a reserve of goodwill that has built up over many months of near-flawless operation.

Instead of putting the industry on red alert, Celent believes this event should focus the discussion on the relative reliability of various approaches, and the tradeoffs between them. Should you know your vendor’s architecture and reality-check their DR and failover strategies? Absolutely. You should also run the business case for change, especially if gaining scale quickly, moving nimbly into new markets, or handling seasonal spikes in activity are issues for which you have few answers. Outages caused by a vendor are never a good thing, but they are probably not your biggest, baddest problems either.

Is Your IT as Good as You Think It Is?

During a recent interview with a senior level leader within a large P&C insurer responsible for their outsourcing efforts, he made the comment that they plan to increase their use of BPO and explore SaaS solutions. However, he then went on to state that the biggest hurdle that they face in using SaaS is they do not really know how good they are to be able to compare if any vendor can do a better job than they can. This struck me as very on target and reflects the state of many insurers, although most will not admit it.

I’ve worked in IT for over 25 years with some very large and distinguished companies, as well as smaller, not so well known ones. In each case, I was fortunate to work with some very qualified and intelligent people. In most cases, we usually believed that “our” IT team could do the job better than anyone else. This is a great attitude to have from a team perspective and fitting to some degree for companies at the time. However, this can no longer be acceptable with the maturation of BPO and SaaS. You can no longer delude yourself into thinking you can do IT solutions (soup-to-nuts) better than any SaaS vendor, especially into today’s market where utilization, agility, speed to market, lower TCO are key business drivers. An insurer’s IT team may know the business and their IT systems better than anyone, but it doesn’t mean that they can support business solutions going forward better than anyone else.

I’m not suggesting that BPO and SaaS vendors can always support insurance applications more effectively and efficiently than an Insurer’s IT support staff, but insurers have to begin determining how well they actually perform to be able to decide if a SaaS or BPO vendor is a better long term solution. It would be like creating a baseball team that does nothing but practice and play games among themselves and believe that they have the best team around. Within most sports, the metrics to compare already exist. They do not exist within most IT development and support staff today. What is your current support level for your current applications? How much control do you really have over your applications and infrastructure? How secure is your data today? These are valid concerns stated by insurers today with respect to BPO and SaaS, but they should be the same questions insurers are asking of themselves.

BPO and SaaS are beginning to mature in the insurance space. The economy and competitive forces will drive these solutions forward. Those insurers that know how well they do IT today and can compare their own capabilities to potential vendors will be the ones that are able to make the smart choices with respect to what to outsource and what to keep in house. Those that do not will be the “lessons learned” stories over the next several years. (See “Approaching the Boiling Point: BPO, SaaS in Insurance” Celent report, due out December, 2010.)