Despite Downturn, Insurers Remain Committed to Core Systems Evolution
Current market conditions will put pressure on smaller, niche software companies that are backed by venture capital, according to Harris-Ferrante. These vendors will lack resources to provide software and services and to fund research and development, she commented in the report.
“We’re hearing that the number of life companies buying systems has slowed down and purchase decisions are being put on hold and being scrutinized more now,” Harris-Ferrante tells I&T. “P&C vendors are better able to sell their systems because there is less risk associated with the implementations. However, carriers are exercising more caution in contract negotiation and looking more stringently at proofs of concept to ensure that projects will be on time and on budget.”
Harris-Ferrante suggests that budgets with insignificant increases signify a departure from spending envisioned before the financial crisis struck. “We’re not seeing many companies executing the full budget they had originally projected for 2009,” she remarks. “There is less to spend.”
That being the case, insurers will place more focus on the financial viability of vendors and be less inclined to take a risk on suppliers that have attractive technology offerings but a dearth of reference-able customers, according to Harris-Ferrante, who notes that with increased scrutiny on vendors, sales cycles are being stretched. “The vendors are hungry to sell, but fewer buyers are ready to sign on the dotted line,” she says.
Carriers still must move in the direction of more-agile and more-flexible systems, Harris-Ferrante acknowledges. But now they are more likely to depend on the incremental approach afforded by component systems, and they increasingly will look to software as a service (SaaS) and application service provider (ASP) delivery models, she asserts.
New Policy Admin Systems to Support New Business Requirements
Those decisions, however, are more likely to spring from the urgency to increase revenue quickly in troubled times than from mere caution, according to Andy Labrot, group chief technology officer, Innovation Group (Newton, Mass.). “As [insurers] evaluate their current application portfolios to meet their demand, they are finding in many cases that the existing systems are too costly to modify and will take too long to adapt to the new requirements,” he says. “Speed and cost are now the driving factors rather than technology.”
Carriers are looking for new policy admin solutions to address particular pain points; at the same time they are exploring new delivery models whereby vendors assume a greater proportion of the implementation risk, Labrot asserts. These models could include completely outsourced platforms to write new products — with, for example, the option to bring the solution back in-house after some period of time.
“These models are seen as significantly reducing risk through a kind of ‘try before you buy’ approach,” Labrot comments. “The view is, ‘If it works, great; if not, we can just shut it off.’ Both the cost and time are significantly reduced in this approach.”
But Dirk George, insurance practice lead, BearingPoint (McLean, Va.), cautions against generalizing insurers’ core system modernization strategies too broadly. “It’s difficult to isolate trends because many companies are going about this for the second or third time,” he says. “Oftentimes they want to try something different than what they’ve done before.”
Carriers that experienced failure working with a large-scale systems integrator running the project may be inclined to work directly with the systems vendor, and vice versa, George elaborates. Those that failed trying to implement a product suite may try the best-of-breed approach. The variety of approaches itself, however, signals the larger trend that policy administration continues to be a top priority issue for carriers, he points out, noting that activity in BearingPoint’s policy administration project pipeline has increased.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio
Tweet This