Standard software is a game changer
New opportunities for insurance carriers to improve performance and lower costsThe paradigm shift is slow but certain: Automation and digitalization are constantly increasing demands on core processing software. At the same time, fewer and fewer companies possess the resources for expansion or new development within their IT systems. Finally, development of in-house core processing software no longer provides a strategic advantage. But insurance carriers now have access to new opportunities: tried and tested standard software significantly improves performance and key performance indicators, such as black box processing or automatic fraud detection.
Many IT system architectures have been around since the 1980s. Changes that should have been made years ago are now expensive, engaging high numbers of personnel and taking a long time. Unfortunately, it is exactly these resources that many companies are lacking; sometimes the project is abandoned, or priorities and framework conditions change.
For this reason, IT systems are usually renewed in pieces only. New areas are created, existing areas are expanded and enhanced one after the other. But the growing number of front-end and back-end connections developed in this manner are usually incredibly inefficient. In many cases, teams in different areas have similar tasks, but end up developing isolated solutions. This creates redundancies, which transform the system into a slow, maintenance heavy, and in particular expensive ‘dinosaur’. An increasing number of systems now have deficits so severe that they cannot be corrected. Many companies have only two ways out of this software morass: On the one hand, complete new development of in-house core processing software, or, on the other, the use of tried and tested standard core processing software.
One thing is clear: The development of new core processing software is based on the demands of tomorrow. The main issues are easy to predict for the insurance industry: continuing low interest rates, stricter guidelines introduced by Solvency II, changes in client behaviour, increasing demands for data security, and intense competitive pressure.
To add to all that, digitalization is here to stay in the insurance business – the clients of tomorrow live in a fully digitized world. All you have to do is remember that we already have robots that can augment our thinking, self-driving cars, or predictive diagnostics. In general, autonomous systems are being created that carry out business processes without any interaction with the consumer. Here, too, the insurance industry has to ask: What does that mean for us, our business in the future, and for the development of new insurance offers? And of course, the key question in terms of IT: What core processing software can we use to meet these challenges head on, now and in the future?
Powerful standard software
Current McKinsey studies prove: Step by step changes to IT systems can dangerously slow both growth and competitiveness within companies. According to McKinsey, the best way to move forward is with comprehensive renewals and end-to-end modernization. When developing new IT structures, therefore, it pays to ‘think big’; for example, systems have to meet a variety of demands, such as omni-channel compatibility and ability to cull information from large amounts of data. The good news: The performance of standard software for insurance carriers has improved dramatically over the last few years. For example, insurance carriers can already, today, increase their STB rate (black box processing rate) from 10 to 20 percent to over 85 percent, simply by using standard software for core processes.
Standard software on the in-house cloud – SaaS
It goes without saying that standard software can be implemented on site at your own business. However, some of the most important instruments for utilizing the digital transformation successfully are IT solutions from the cloud. The large majority of companies around the world are already using cloud-based applications for numerous functions, from email programs to sharing documents to payroll applications. Cloud services such as SaaS (‘Software as a Service’) are no more or less than a delivery model. The software itself is located in the high performance computer centres belonging to the provider, and is provided online to company computers.
There are many reasons that companies are increasingly deciding to go with an SaaS solution. According to current surveys from Gartner and BARC, cost savings are the primary reason. And indeed, the costs for purchase, adjustment, introduction, and continuous support are significantly lower as compared to regular applications. An additional advantage for many insurance carriers: SaaS providers are able to spread the costs for maintenance and upgrades over a broad client base, meaning that more money can be invested in keeping monitoring and security measures current, at amounts that are simply unrealistic for an individual system operator.
Big Change, Big Chance
Another important issue for the insurance industry is smooth introduction of new software. Standard software is available immediately, can be implemented quickly in comparison, and is configurable. Not only that, standard software for core processes is fully scalable, so that step by step migration of contract bundles and company sectors is possible; the switch to new core processing software is now easier than ever before. Migration risks are also significantly smaller.
And it would be a mistake to underestimate the cost saving potential inherent in standard software. McKinsey studies from 2015 show cost savings of up to 25 percent, insurance carriers today are talking about cost savings up to 50 percent. The impact of the paradigm shift must be clear at this point. Standard software will help many insurance carriers prepare themselves for the digital future. Whether or not these comprehensive changes are strategically desirable from a company policy perspective is something that every company must decide for themselves. In many cases, renewing core processing software is connected to a significant change in company culture, affecting the entire business.