Life insurers are operating in a difficult environment. Interest rates are low, affecting returns on assets under investment, and many consumers are finding traditional life and/or annuity products hard to afford. Life insurers are under pressure to bring new products – such as policies with lower face value – to market more quickly, and to speed up the underwriting process to reduce the chances of a new customer withdrawing his or her application.
In trying to deal with these challenges, however, life insurers are working within the limitations of outdated systems – often a patchwork of legacy systems stitched together following a series of mergers and acquisitions. The costs of outright system replacement can be daunting, and customized solutions can be both expensive and imprecise. However, the benefits of automated systems for new business and underwriting – in terms of speed, accuracy, cost reduction and improved service – are compelling, as well.
Under such circumstances, it is not surprising that the software as a service (SaaS) delivery model is gaining in popularity. The growth of SaaS models for automated systems might best be described as slow and steady. Recent surveys have indicated that more than a third of insurance customers currently use some form of SaaS, and 20 percent plan to adopt such a model within the next 12 months.
Buying software with a SaaS licensing options is attractive to insurers that do not need a customized solution, as companies can leverage pre-defined templates and pre-existing configurations based both on best practices and on the experience of the SaaS provider. The SaaS approach can also shorten implementation times and provide ready access to IT maintenance and monitoring capabilities, eliminating the need to hire specialized expertise.
We see four key benefits to the SaaS model for automated systems:
1. Faster Deployment and Upgrades. The SaaS model provides a rapid rollout of new business and underwriting capabilities. Combining an existing infrastructure with out-of-the-box functionality makes implementation of projects shorter and more cost-effective. Because the SaaS provider manages all updates and upgrades, there are no patches for customers to download or install. The SaaS provider also manages availability, so there’s no need for customers to add hardware, software or bandwidth as the user base grows.
2. Reduced Costs and Risks. Cost savings are rooted in several capabilities of the SaaS licensing and delivery model. A cloud-based deployment option reduces redundancies and achieves economies of scale in run and maintenance costs. Initial costs are also reduced because there are no license fees involved; SaaS applications are subscription based. Having the SaaS provider manage the IT infrastructure also results in lower IT costs for hardware, software and the people needed to manage systems over time.
3. Greater scalability. As an insurer grows in terms of products, markets and customers, a SaaS licensing product grows with it. The SaaS product can also give an insurer important and even innovative out-of-the-box functionality to sell new products. SaaS vendors can scale indefinitely to meet customer demand, and many offer customization capabilities to meet specific needs. They also provide application programming interfaces that let insurers integrate with existing ERP systems or other business productivity systems.
4. Higher employee productivity. The SaaS system provides cross-channel access to new business data entry processes, helping customers, brokers and internal sales and support teams. Employees can also get help faster through integrated help desk capabilities that are part of the standard service.
Until recently, data security has been the concern cited most frequently for life insurers’ reluctance in adapting SaaS models for new business and underwriting, but there are other barriers as well. Many CIOs wish to point to their own success in creating customized, on-premise systems. It has been noted that the low price of SaaS may be a deterrent to adoption, as some insurers seem to think that a low-cost system may not have the functionality they need. Companies should also be aware of the extent to which a SaaS application could force them to adopt particular workflows or processes that may not currently be in place. Some carriers will also seek to create a hybrid of on-premise and SaaS approaches, and this more complex IT environment may require the skills of an experienced integrator or managed services provider.
[For more industry insights from Mitch Ludwig, see Speed to Market Becoming Critical Issue for Life Insurers .]
While there are challenges to implementation, the benefits of SaaS-based automated systems for insurance processing – in terms of speed, accuracy, cost reduction and improved service – are compelling. These benefits can, in turn, provide life insurers with new paths to profitable growth.
About the Author: Mitch Ludwig is life insurance product line lead for Accenture Software.