Of Gas, Groceries, and Application Development: Getting Past Big Up-Front IT Costs

Despite the cost of gas these days, we don't think much about jumping in the car and driving down to the grocery store when we need an item -- especially an item like ice cream, which, after all, rivals flour and sugar as a household staple.

But what if gas cost $10,000 a gallon? How would your behavior change? You might reason that a single pint of ice cream wouldn't be worth it, that it would make more sense to buy all the ice cream in the store on that trip because you can't afford to drive there very often. Of course, once that decision is made, you'd need to buy several more freezers for storage, and build an addition to your house for the freezers. And then you'd have to wire that addition appropriately so the freezers could run. To cap it all off, you'd probably also have to buy a truck to haul your ice cream home.

It sounds a little ridiculous, right? Yet this, in essence, is typically how IT projects work. For businesses in any industry -- including insurance -- the cost of the new technology or system or peripheral itself may not be expensive, but the cost of implementing and integrating it is so astronomical that you change your behavior just to call it your own. (And by the way, "cost" includes internal resources, external spend and aggravation.) But is there any way around it? Insurance carriers and other businesses have approached IT projects this way for so long, it's difficult to think there is any other option. But there is, and it's called "appification."

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Indeed, so much opportunity for streamlining and optimizing internal insurance processes remains untapped because of outsized implementation and integration costs. But appification in the insurance industry makes these benefits more attainable: Insurers are now able to buy reasonably priced applications in order to tackle common challenges with ease. Take, for example, a comparative analysis app that provides real-time operational benchmarks from peer insurers. Another example is a mapping app that enables managers to visualize policies and claims geographically with weather data in order to assess risk distribution and to allocate resources effectively in a catastrophe. Or how about an app that enables an executive to evaluate the operational impact of internal decisions such as business process changes, product innovations or capital investments, as well as external events such as regulatory changes or catastrophic events. When the upfront costs of implementing an app are low (or zero), insurers have the flexibility to easily sample them on a trial basis to experience first-hand whether and how they address their specific business needs.

But before diving in, it's important to remember that the prerequisite that makes these apps easy and inexpensive to implement is the adoption of a common, shared platform, similar to the iPhone's iOS. The common platform creates economies of scale: App developers can build once and benefit many. In addition, the community of customers on that common platform creates a deep base of standardized data that causes the information gained through the applications to be richer, more detailed and more useful.

So much opportunity in the insurance industry is never realized because of prohibitive implementation and integration costs that serve as barriers. Those costs can be reduced and even eliminated among insurers that share a common platform and data model. And through appification, these insurers have the power to effect change. These "instant on" apps enable carriers to take unnecessary costs out of the picture, ensuring an unobstructed path to immediate business benefits.

About the author: Eugene Lee is senior director of new initiatives at Guidewire.