With that said, there is a "huge amount of interest" in using SaaS for policy administration, according to Ellen Carney, senior analyst at Forrester Research. "Among CIOs we've talked to, they are very intrigued with the idea," she reports.
Additionally, policy administration vendors are touting their SaaS delivery capabilities to the market. "I can't think of a single core vendor these days in insurance that, if it doesn't already offer SaaS, isn't planning to," Carney says. "It's the price of admission these days."
Proponents tout advantages of SaaS: rapid deployment, pay-as-you-go pricing, access to the latest technology, among others. There also are market forces at work today that have increased insurers' interest in SaaS. Economic pressure is causing carriers to take a closer look at capital investments, even for core systems such as policy administration. Users have a greater comfort level with Web-delivered systems from their personal experiences. Additionally, insurance is being influenced by adoption of SaaS in other sectors.
"You see a definite uptick in the use of SaaS in the banking industry. As CIOs come into insurance from outside the industry, you'll see interest [in SaaS for policy administration] continue to grow," Carney predicts.
For instance, Glen J. Distefano joined SUNZ Insurance Company as its CIO in 2005, coming to the carrier with a background in the professional employer organizations (PEO) sector. "The PEO industry has grasped onto the SaaS delivery mechanism, particularly in the last five years," says Distefano, who today is vice president and COO. "Additionally, my mindset always has been to utilize a technology strategy that features easy deployment and easy delivery for our internal staff, which is what SaaS offers."
When Distefano joined SUNZ, the company already had chosen to deploy a hosted administration platform. Today, the system is acting like a "legacy" system. "The product isn't Web enabled, it's difficult to navigate, and integration is not easy," he notes.
The company, which specializes in providing workers' compensation insurance to PEOs, considered only replacements that were SaaS based. SUNZ ultimately chose the Innovation WORKS workers' compensation policy and claims administration platform from Innovation Group. The design phase began in August 2009, and system deployment is expected by March 2010.
SUNZ is willing to use SaaS not only in policy administration but throughout its operations. "Any area I logistically can use SaaS, I do," Distefano says. "I am shocked as an IT professional more products are not offered in that environment."
However, not every company is sold on SaaS. Despite the reported interest in SaaS by insurance CIOs, Carney contends an institutional mindset prevents many companies from seriously considering SaaS at all, let alone for a core function such as policy administration.
"Let's face it--there is this craftsman mentality among insurance IT professionals," she says. "Many CIOs point to those [policy administration] systems and say, 'See what we've built?' There also is fear and uncertainty around issues with SaaS, primarily security."
Paradoxically, the "low cost" benefit touted by SaaS proponents actually may inhibit its adoption for policy administration. "It's the 'Beemer [BMW] pricing' mindset," Carney remarks. "There is a psychological barrier if a system doesn't cost a lot of money, maybe it's not good enough to be a 'core' application. Paying by the drink is not an intuitive way for companies to think."
THE MARKET
Chad Hersh, principal in Novarica's insurance practice, indicates SaaS is conspicuously absent among midtier carriers, with most adoption falling on either extreme of the size spectrum.
"For smaller or startup carriers--the ones that don't have enough IT staff to run a policy administration system effectively, let alone implement one--SaaS is the ideal solution," he says. "Traditionally, those carriers have looked at BPO [business process outsourcing] options, but now they have another option in SaaS that allows them to have the advantages of BPO without giving up the business control that comes with outsourcing."
At the other end of the spectrum are large carriers that want to respond to specific market opportunities but have legacy systems that are difficult to modify or replace. "That finding was somewhat unexpected," Hersh admits. "However, for the largest carriers, part of the reason they're interested in the SaaS model is they don't have to do things such as procure hardware, and they don't have to worry whether the infrastructure of a new policy administration system fits into their existing or planned infrastructure."
Additionally, adoption is much higher in P&C than in other lines of business. "Life and health solutions aren't even remotely well suited for SaaS--let's face it, they're barely Web enabled as it is," Hersh claims. "They're too big and too complex compared with P&C solutions, particularly solutions for individual or specialty lines of P&C business."
Narragansett Bay Insurance Company (NBIC) is a specialty P&C carrier underwriting homeowners' insurance products along the eastern seaboard. The company needed to replace an ASP-based policy administration system that had been in place for 20 years. "It takes many months to implement a new rating state [on the current policy administration system]. The legacy system no longer meets our business needs," says Mike Anselmo, NBIC chief information officer.
A policy administration replacement project at NBIC is part of a larger technology modernization initiative named APEX, designed to improve business processes and help agent partners serve NBIC policyholders more efficiently. NBIC had initially planned on deploying a new administration system in its own data center but had included the ability to run in a SaaS model in its RFP process. Ultimately, the company chose PolicyCore from Exigen Insurance Solutions, with a SaaS-based deployment.
"As we started selecting our final vendors, we found Exigen was able not only to provide a SaaS-based system for us but provide us more service than an ASP would," says Anselmo. "Also, we're a small company, and it would have taken us a long time to build out the infrastructure needed to support any in-house policy administration system. SaaS was an opportunity to go live quickly without putting that infrastructure in place."
Beyond the rapid deployment offered by SaaS, Anselmo explains, PolicyCore itself was chosen for strengths that met NBIC's business needs. Automated, straight-through workflow and a browser-based user interface met NBIC's goals of deploying a system that was both lightweight and easy for users to learn. The system is "rules and tools" based, offering configurability even in a SaaS deployment.
"The technology set [of PolicyCore] far surpasses other systems we had considered," Anselmo attests. "Whereas our existing platform inhibited IT's ability to respond, a user-configurable platform reduces our dependence on the vendor and allows IT to become part of the business strategy and react tactically, as well. It allows us to lower our cost and ensure we are efficient, so our economics per policy are more favorable."
"This industry spends an ungodly amount of money on maintenance, and SaaS frees up that money for innovation," Carney says.
NBIC expects to go live with the new platform in early 2010. Anselmo is optimistic of the results based on his evaluation of the system thus far. "When we're up and running, we'll be ready to tell the business, 'Bring it on.' We'll be ready to increase new business significantly," Anselmo says. "I get asked how much premium this system will hold, and there is no limit."
For SUNZ, disaster recovery was a key consideration in the decision to deploy Innovation WORKS in a SaaS model. "We sit on the water in hurricane alley in St. Petersburg. We've been lucky in recent seasons, but we've seen the devastation hurricanes can cause. A SaaS deployment combined with a multiple-hosted site strategy insulates us from disruptions," Distefano notes.
SaaS also delivers economic benefit to SUNZ. "We don't have to have servers. We don't need database administrators. We can rely on the provider's expertise and pay only a fraction of the ongoing cost in a SaaS model, whereas if we had it in-house, we'd have to have several IT people dedicated to policy management. We can take the money we'd spend on an installed environment and use it to expand our service offering," he says.
SUNZ also will have access to the latest product releases in its SaaS-based model, Distefano adds, a benefit Hersh suggests should not be overlooked. "The automatic upgrade concept is a tremendous advantage, with the caveat you and the vendor have to be careful of how that affects your existing system integration," Hersh says.
Also, the Innovation Group platform solves a particular business challenge SUNZ faces with its current system. "Our existing administration system is designed by a company that focuses on general P&C, not workers' compensation," Distefano explains. "There are many aspects of business and regulatory requirements that need to be considered, and the Innovation Group has the expertise in workers' compensation and a system that is designed for workers' compensation yet easily configurable for our particular nuances," he says.
REWARDS VS. RISK
Despite the benefits of SaaS, challenges and risks still remain, and the SaaS model itself has room for improvement. The most troubling risk for insurers is that of loss of control, both of the environment and of the application. Particularly for insurers accustomed to making changes to systems themselves to respond to business demands, SaaS can present limitations.
The purist definition of SaaS incorporates a multitenant model--different insurers using the same instance of the SaaS software. This contrasts with other models, such as ASP, where a carrier owned its own version, which often was hosted on its own dedicated server.
There is significant variability in how SaaS actually is defined and deployed in today's policy administration marketplace. Some so-called SaaS solutions look more like customized, single-instance deployments. Some are individual but virtualized instances of the same solution, while others truly are a multitenant system.
In a multitenant model, customization can be difficult. However, SaaS-based policy administration systems do--or at least should--provide configurability via user-controlled rules, giving carriers the flexibility they need to fit the system to their business, not the other way around.
Insurers do need to assess how configurable a SaaS-based policy administration solution really is or whether they will be stuck with a "vanilla" version of the application. "The best solutions are what I would call fully configurable--no less configurable than if you'd run them within your four walls," Hersh comments. "However, some solutions offer far less flexibility than a code-based, in-house solution would have."
Lack of configuration was an issue for SUNZ with its legacy hosted system. "Customizations are very difficult to do, and it's an environment we have virtually no ability to control," Distefano says. "Something as simple as creating a new report in the system we cannot do--we have to pay the vendor to build it for us."
SUNZ is addressing this issue with the conversion to Innovation WORKS, beginning in the design phase. "Because we're getting in on the ground floor, we can become a charter partner and help design the direction the product needs to go," Distefano indicates.
The deployment will be a multitenant model--a common code base across all clients--that provides a virtualized instance of the system per client as well as a rules-based system configuration. "As we come up with unique challenges in supporting the PEO industry, we're finding nuances that are different from other insurance carriers," Distefano says. "Because the [Innovation WORKS] solution is rules based, we can make changes to address those idiosyncrasies easily."
Besides concerns surrounding control and security of the application itself, carriers worry about issues with providers--anything from financial stability to service disruptions. Of course, in-house systems can have their own failures, but SaaS tends to exacerbate users' frustrations when problems arise.
"CIOs dread a conversation where their CEO says, 'Why can we not process any new policies right now?' and the answer is, 'I don't know,'" notes Hersh. "Because the next questions are, 'How can you not know? What have you done?'"
Despite this risk, Hersh asserts SaaS offers insurers good stability and security. "[SaaS providers'] networks and security are far better than your average insurer," he says. "But there always are things that are beyond their control."
Carriers also should have a SaaS exit strategy, Hersh advises. "You need to assess the potential difficulty in bringing the model back in-house to save on future cost or gain control of the solution. You want to make sure as a customer your provider has a clear path to an on-premises model."
Because the Exigen platform supports a range of delivery models--from truly multitenant SaaS to hosted to in-house--Anselmo believes NBIC has the platform flexibility it needs to respond to future business needs. "We mandated redundancy in data centers--one on the East and one on the West Coast--and we also mandated a process of changing the SaaS model as we see fit during our life cycle, so we can go to a perpetual license if we need to," relates Anselmo.
NBIC also has crafted its own backup plan. "We're building an environment here for PolicyCore if, in fact, SaaS does not work," Anselmo says. "It's a much lighter version of the environment, but it will work from day one if we have problems."
Any migration of a policy administration system presents conversion challenges, but SaaS can have unique integration issues. "It's much harder in a lot of ways to integrate a solution outside your four walls that you have little control over," Hersh points out. "It's a different skill set for nearly all carriers. In most cases, it requires updating other legacy systems at least to handle Web services. So, integration is possible but challenging."
Also, the more SaaS offerings you use, the more integration is required. On the upside, Web services and SOA have made it easier to do the integration--provided the solution is architected appropriately.
Anselmo agrees integration is a challenge but says solving those challenges now will give NBIC competitive advantage going forward. "The conversion process is forcing us to look at our interfaces," he says. "On the legacy environment, we built more than 40 interfaces, and they weren't documented well. We have to clean that up, but that will let us greenfield everything and create a well-defined integration process where it's easier to grow organically or through acquisitions in the future."
Finally, while SaaS vendors often tout cost as a benefit, Hersh maintains there is a flip side to a pay-as-you-go license structure. "Carriers are used to paying an initial license fee. In contrast, if business sees the cost of SaaS continue to increase with growth in usage, the model can be seen as penalizing growth, which for many carriers is difficult to swallow," Hersh says.
Managing the risks of SaaS comes down to due diligence. "Keep your options open. Do peer reviews. Understand what you're getting. Put SLAs around your agreements, and keep as much of the solution vendor agnostic as you can," Anselmo advises.
THE FUTURE OF SaaS-BASED ADMIN
There still is room for improvement in SaaS-based policy administration offerings. "Some providers are 'there' in terms of having a capable and mature solution that can run as SaaS. What needs to improve are solutions sold as SaaS but that have issues around licensing or the way the software runs," asserts Hersh.
Insurance consumers will have as great an impact on SaaS-based policy administration as any other force, Distefano believes. "As buyers demand more, you're going to need quick deployment of products, and you get that in a SaaS model," he says. "Also, the more sophisticated the buyers become, the more important it will be for carriers to stay up-to-date with the technology they use."
The movement to SaaS for policy administration will take some time to gain momentum, in Carney's view. "Nobody wants to be the guinea pig," she says. "However, the insurance network is very active, and once people start deploying SaaS and get more comfortable with it, we definitely will see greater adoption."
In fact, she anticipates a greater level of SaaS adoption is inevitable. "Just as insurers became comfortable with turning over a 'core' function such as payroll to a service provider, you'll see them gain more confidence with SaaS for policy administration," she predicts. "They love the economics and the intrigue; they're just waiting until it seems baked enough to feel comfortable with it."
For his part, Distefano can't imagine doing business without SaaS. "As long as SUNZ Insurance Company maintains its address in Florida, we'll have SaaS," he concludes.
