Software as a Service (SaaS) is a model that can deliverbusiness functionality while circumventing traditional issuesrelated to the development, deployment, and support of largeenterprise applications. SaaS is closely associated withcentralized, remote architectures, cloud computing, andapplications delivered via the Web and accessed via Webbrowsers.

Typically, SaaS vendors offer the enticement of lower deploymentcosts, with access to software on a subscription basis, and ongoingcosts based on usage rather than outright ownership.

A deployment model as attractive as this surely meritsinvestigation by the insurance industry. As a starting point, it ishelpful to consider two fundamental aspects of the SaaS businessmodel. These are the twin needs of the SaaS vendor to maximize uservolume, while minimizing deployment costs. For an Insurance companyseeking to deploy enterprise business intelligence under a SaaSdeployment model, the SaaS business model has seriousrepercussions.

Customization vs. Profitability

The first key issue to consider is that the business model ofSaaS vendors exerts a pull towards less customization just as SaaScustomers exert a pull towards more customization. The lesscustomization there is, the more profitable the SaaS model becomes,as this strategy indeed reduces aggregate deployment costsoverall.

In fact, a high degree of customization decreases the viabilityand applicability of the SaaS model. Eventually, market dynamicsdefine a zone of equilibrium in which SaaS vendors can sustain aviable business model and SaaS customers see enough advantages inthe model to pursue this type of deployment, while understandingand accepting the inherent limitations. On the other hand, the SaaSbusiness model and marketing approach are diametrically opposed tothe idea of offering a high degree of customization.

The Customization BalancingAct

Within all SaaS vendor/customer relationships there exists afine balance between the degree of customization demanded bycustomers and that provided by the vendor. From an enterprisecustomer perspective, customer competitive advantage increases witha higher degree of customization, whether an application isdelivered under a SaaS model or not.

A high degree of customization allows the enterprise customer todeploy unique applications that would not be available to otherplayers in the market.

For example, a policy underwriting and administration system maybe customized to support usage-based insurance, thereby enhancing acarrier's product offering to its clients and prospects, providingcompetitive advantage in the marketplace.

Top 4Impacts:

1)   Customization costs – Fundamentally, outside ofthe zone of equilibrium, customization (which drives competitiveadvantage) is extremely costly under the SaaS model if notimpossible altogether. This is like the old Fram oil filtercommercials where the mechanic says, "you can pay me now or you canpay me later", where "later" definitely means it will cost moremoney.

2)   Remodeling Business Processes – Because customersare driven towards the use of standard applications under the SaaSmodel, business processes must be remodelled to fit what is beingoffered. This is generally unavoidable under the SaaS process.

3)    SiloOperational Reporting – True business intelligence for aninsurance company requires the integration of multiple datasources, such as claims or finance—not an obvious task in the SaaSworld.

4)   Ownership Limitations – Generally, transfer ofintellectual property (a long-held practice in the insuranceindustry) runs counter to the SaaS vendor's business model.