Original article appeared in Insurance Thought Leadership August 2021
By: Jonathan Boylan, FINEOS, Chief Technology Officer
Offering advanced digital capabilities to customers is a top priority for many insurers, which are now re-evaluating the core systems they’ve used for decades and looking for alternatives.
When considering the modern core systems on the market today, carriers need to be aware that not all solutions are created equal. To leverage the full benefits of cloud technology, decision-makers must understand the nuances of cloud-agnostic software models and SaaS platforms.
The ‘Run It Anywhere’ Model
Traditional enterprise software companies develop systems designed for insurers to deploy and operate on their own infrastructure. In this model, the insurer controls and operates the infrastructure.
But the time and cost to design and implement infrastructure is easy to underestimate. Even if the software is easy to deploy, the design, implementation and required maintenance of infrastructure are high-skill and -cost activities, both up front and on a continuing basis.
Operating the infrastructure also means the insurance carrier is responsible for the security and reliability of the system. This results in even more cost and pulls IT staff attention away from other projects. All security and reliability service-level agreements with the business are underwritten by the carrier’s internal IT team.
The same goes for software support. When the carrier’s employees or customers experience issues with the software, the insurer must investigate to find out whether its own infrastructure is the problem or if blame falls to the software vendor. Overall, this model results in a lot of extra work and cost for the carrier.
Software companies that follow the “run it anywhere” model are easy to spot by the claims they make. If a software vendor claims to be able to “run on any infrastructure” or be “cloud-agnostic,” it follows this model.
Using Cloud Technology Doesn’t Change This Model
In the traditional model for core systems, insurers use on-premises infrastructure. When we hear “on-premises,” we think of the insurer having their own server room in their building.
But insurers now tend to outsource the physical aspect of managing their data center. “On-premises” now usually refers to servers housed in a commercial data center. Removing the outsourced data center and replacing it with cloud infrastructure (IaaS) can provide many benefits, but it doesn’t change the essence of the model.
The carrier still takes on all the complexity and cost of designing, implementing, operating and maintaining the infrastructure to run the vendor’s software. If anything, there is even more complexity, because the cloud brings additional security risk compared with the dedicated data center.
Adding Digital Capabilities Further Strains the ‘Run It Anywhere’ Model
Any modern core system must support digital service channels and collaboration with the insurer’s ecosystem through application programming interfaces (APIs).
These connect the carrier’s digital channels like portals, chatbots, contact centers and voice assistants to their real-time core data store. Having a cloud infrastructure enables these digital capabilities and is key to providing fast self-service that is consistent across channels, as well as integrations with ecosystem partners.
But, again, making a core system available to anyone over the internet, even indirectly through a web-based cloud infrastructure, must be handled with care. This is a moving target as hackers continue to up their game.
Much of the protection insurers need comes from their infrastructure, not from the application. So, with the “run it anywhere” model, a large portion of the complexity, risk and cost is taken on by the insurer.
Insurance carriers have to wonder, is this where they want to focus their IT expertise? Fundamentally, if the carrier can “run it anywhere,” the carrier will be doing the running.
Containers Limit the Benefits of Cloud Technology
One of the enabling technologies of “run it anywhere” is containerization. When software is packaged in containers, it can run almost anywhere – on-premises or in any cloud. Containers are very useful, but they’re not the best for everything. Once an insurer is committed to a cloud provider, other useful technologies like serverless functions and cloud managed services can be leveraged.
Serverless functions are a way of deploying software without managing infrastructure, allowing software to scale from very low to very high usage without any additional effort, and only paying for what is used. The approach is ideal for peaky workloads like the APIs supporting digital service channels.
Clouds also offer managed services, large building blocks of capability that reduce the cost of infrastructure while improving security and reliability. Some replace what would otherwise be self-managed infrastructure, including file storage, backup, database management and network management. Others add leading cloud capabilities like business intelligence, machine learning and voice interfaces.
SaaS Is the True Solution to Reap All the Benefits of Cloud
Leveraging serverless functions and cloud managed services gives SaaS core systems vendors a great opportunity to embed additional value for the carrier. But because these technologies are not standardized to use across different types of infrastructures, they can’t be leveraged by those “run it anywhere” vendors seeking to be cloud-agnostic.
The goal of a SaaS company is to focus its efforts on creating one system that works extremely well, instead of creating many variations for each individual insurer that may not perform as efficiently. This goal allows the SaaS vendor to provide the most cost-effective, secure, scalable and reliable solution possible for clients.
Another advantage of SaaS is the benefit of a strong partnership with a single cloud provider. Cloud-agnostic companies that work with multiple cloud providers spread their skills and commercial influence across multiple providers. The companies weaken their internal expertise and reduce their access to support and to key resources from the cloud infrastructure partner.
When moving to cloud-based core systems to modernize their organization, insurance carriers should keep a few points in mind:
- Look for SaaS core systems to get the full benefits of cloud technology.
- Choose a vendor that allows the carrier to focus its IT resources on differentiating the business, not building and maintaining infrastructure.
- Ask if the SaaS vendor has developed a strong cloud infrastructure partner.
- Expect the SaaS vendor to leverage cloud machine learning and digital communications to help the carrier deliver leading-edge digital capabilities.
For more information or to connect with Jonathan Boylan email here.
