The P&C insurance industry is approaching a cloud adoption tipping point. Insurers are migrating strategic applications to the cloud in addition to non-core applications such as email and web conferencing that have become commonplace. The potential for cloud-based claims technology to create new value and competitive advantage is emerging. The potential for insurers to misfire and select second-rate technology looms.
According to Aite Group, a $36 billion opportunity exists for American P&C insurers to embrace innovative claims technology. Advances in mobile devices, wireless connectivity and cloud software including mobile apps, all combine to present P&C Insurers with the opportunity to re-think and re-define the claims settlement experience in 2014.
Some early adopters of cloud-based claims technology are already tapping into the billion-dollar opportunity through automation, real-time collaboration, re-wired processes and integrated mobile working. However, some insurers are experiencing sub-standard services as established P&C claims software companies migrate legacy platforms to the cloud. Technology companies that have traditionally realized success in the P&C claims sector are struggling to roll out cloud services–showcased by repetitive downtime and reverting to earlier software versions.
Not all clouds are created equal
With billions at stake–claims, purchasing and IT leaders need to exercise caution in their P&C claims technology partner selection. Fundamental differences exist in data ownership and management, technology integration capabilities and pricing and subscription models.
Given the transformational shift that cloud computing offers, organizations are naturally concerned about the potential risks from a move to the cloud. But, cloud-based claims technology deployments are inevitable. Without significant upfront effort from the most senior and strategic claims decision-makers, benefits of enhanced collaboration, scalability and accessibility will be replaced with downtime, sluggish integration with spiraling costs and data limitations.
P&C technology companies that are new to the cloud are unfortunately turning their customers into guinea pigs as they work through software bugs to find their way in the cloud and migrate from legacy technology environments.
Migration from the local data center to the cloud can be complicated: error-prone, time consuming and costly for traditional technology companies. The migration process requires a lot of conﬁguration update operations and even one incorrect update can cause the whole system to fail. Dependencies among the many enterprise system components are complicated and can be very easily broken in the migration process–creating security threats.
Fixing bugs and updating patches in the cloud requires a different development mentality and culture than a traditional software licensing model. In the license model, the process of fixing bugs and updating patches is more predictable and linear. In the cloud, each update affects all customers and in turn forces the software developer to become much more process and quality conscious in addition to increasing agility.
Outside of the insurance industry, a similar struggle is taking place with traditional technology companies that are trying to catch up to younger, faster and more innovative ‘born-in-the-cloud’ players. Oracle is a prime example. In an attempt to remain competitive in the cloud, it has spent over three billion dollars in the past three years alone, to battle Salesforce and Workday.
If it was simple and straightforward for a traditional technology company to change gears, migrate to the cloud and create a cloud culture–Oracle would have figured it out–rather than repeatedly opening its check book.
Getting the Basics Right
A traditional client-server licensing and pricing mentality is lingering in the P&C claims sector and is restricting innovation. Believe it or not, some P&C claims technology providers aren’t offering standardized cloud services in line with today’s norms like ‘pay-as-you-go’ usage-based pricing. The status quo for claims technology purchases has been to lock insurers into long-term rigid contracts. Insurers that are duped with sales tactics to stay-the-course with traditional pricing will suffer.
Data Ownership and Control
Insurance claims and related data are being generated at an unprecedented rate–and this trend is expected to continue for the foreseeable future.
The current value of claims data for Insurance carriers is untapped. The future value of claims data and related insight is somewhat unknown. As a starting point for all strategies, carriers must have full ownership of their data to realize its future potential. Relinquishing any ownership of data to a cloud technology provider is similar to paying a mortgage with no hopes of ever owning the land and building–or prospering from future on-site activities.
The ownership and control of data should include reporting, database queries, interaction through APIs and any transfers to external environments such as a data warehouse.
Drastic fluctuations in claims volume and ongoing regulatory and monetary changes require a flexible data management approach to maintain customer satisfaction and increase loyalty. Carriers must be wary of technology providers that restrict data ownership, access and usage.
API: The Achilles Heel of Technology Integration
Application Programming Interface (API)–The API is the Achilles Heel of technology integration and should be evaluated in detail.
Integration with major first notice of loss (FNOL) and claims management systems (CMS) such as Accenture, Guidewire, SAP and custom in-house systems should be evident with any cloud-based claims technology installation.
Data should automatically synchronize so it is always up-to-date across devices and locations. Validation of data quality and sources will increase accuracy of the claims data. Strategies to create a bi-directional data flow with CMS can reduce data entry and human error.
Increasingly sophisticated techniques such as workflow notifications and queue mechanisms, defined by industry and business requirements can help avoid delays and backlogs between claims stakeholders.
Integration of a cloud-based claims estimating and processing solution should generally require a carrier to dedicate one or two IT staff–with an average integration realized in 10 weeks. The mention of third-party systems integrators should set off alarm bells and raise immense doubts about the cloud technology.
Technology Adoption & ROI
Implementation of new technology will require an integrated strategy to convert new users and engage key stakeholders. A trend related to successful deployments is the emergence of an internal champion with the ability and authority to drive the technology implementation.
Success and ROI however, will be determined by the ability of insurers to evaluate, understand and expose the gap between the true P&C cloud technology leaders and companies that are only engaging in "cloud washing" marketing campaigns.