The SaaS Revolution and Insurance Distribution: Using SaaS-based Distribution Platforms

By John Peto, Deloitte Consulting

Insurance companies across the country are under intense pressure to reignite growth, or at least defend dwindling revenues. To do this many are investing heavily in a range of initiatives focused on increasing or retaining share of book in the independent agent and broker channel, increasing sales in the higher-margin captive agent channel, and launching new direct sales channels.There are a multitude of challenges to overcome in making any one of these investments successful, by far the least of which is the constraints imposed by the existing application, integration and data environment. The enabling technology for distribution channels has evolved over decades and has become increasingly complicated and rigid due to traditional, product-centric silos, organic growth of old technologies, and additional technology and data "islands" due to M&A activity.

However, new Software as a Service (SaaS) offerings have evolved to the point where robust and flexible marketing, sales, and service capabilities can be delivered quickly and safely to large numbers of users without the kind of capital investment and demands on the IT organization that such efforts have typically required. For those firms needing to make technology investments in support of growth objectives, SaaS solutions should be on the list of those to be evaluated.

The "Model" Insurance Firm & Its Technology Implications The "model" insurance firm drives revenue and reduces cost of sales through three dimensions: quality and capacity of the distribution channels, quality and volume of marketing and sales activities, and efficiency of quoting and application activities

As a subset of these dimensions, the model firm understands the importance of providing an integrated multi-channel experience. It focuses on improving the quality and capacity of all distribution channels through emphasis on recruiting and training of sales agents as well as targeted incentives and retention initiatives.

As insurers review their current operations against the model firm, they should note how many of their processes and activities are buried under archaic and fragmented customer interaction management, policy, claims systems and the like. True, there are some dependencies, but a lot less than often perceived. Focused efforts on a few of these areas can make a real business impact within a few months -- and do not require enterprise-wide re-architecting.

The SaaS Revolution The traditional response to revamping the distribution channels has been to implement large-scale On-Premise sales force, service, and marketing automation solutions. Some of these have been successful - but not without significant financial and time investments, and challenges. These solutions typically involve high initial capital outlays and heavy involvement from the IT department. The burden on IT typically extends timelines and slows time-to-market, increasing the risk of putting in obsolete business cases and further reducing ROI. And in the end the solution often is complex, difficult to use, and poorly adopted.

But there is an alternative. The rise of Software as a Service (SaaS) vendors is changing the game. Unlike large-scale On-Premise solutions, SaaS technology is easier to develop and deploy, and generally considered easy to use. It is generally less expensive per user and has a far flatter capital outlay pattern, which allows for an iterative approach and reduced financial risk. Furthermore, it can support full integration with legacy systems and often offers capabilities that are even more robust than On-Premise solutions with far less performance tuning and other complex efforts required.

With SaaS based distribution platforms, it is possible to deploy a solution to thousands of users in 4-6 months for a price that can range between $50-$100 per user per month (plus implementation costs). Contrast that to the traditional approach that would take many months longer and an up-front investment of millions in software, hardware and support; not to mention implementation costs.

Given that, it is no surprise to see strong growth, even in a tough overall market for enterprise software (e.g., some analysts, like IDC, are predicting growth rates for SaaS that are roughly 4 times those of On-Premise solutions).

Don't Neglect The Basics While SaaS can truly be a game changer, it is critical to remember that basic rules of business transformations still apply, including the importance of business process redesign, change management, and data quality. Remember that SaaS will not solve the business problem for you; it can help speed up the implementation of your business solution. Invest in defining that business solution; don't support the same bad processes with newer technology. In addition, preparing the affected parties for change through communication and training is critical to the effective implementation of the new business solution. Finally, getting your customer data clean and keeping it clean, remains a critical priority, as well.

Watch Out for New Challenges As with any new technology, SaaS does introduce a few new challenges. Here are a few key issues to consider addressing early in your SaaS activities. First, embrace an iterative methodology. SaaS encourages you to plan for quick wins and early returns - which are vital to encouraging user adoption. Traditional organizations struggle to give up their heavy design and implementation methodologies focused on crossing every 't' and dotting every 'i'. The new model allows you to try, learn and refine, without the traditional sunk costs.

Second, do your Total Cost of Ownership (TCO) homework. While SaaS solutions are generally less expensive per user over 5 years, in environments with very large user bases and/or low On-Premise operating costs and over longer time horizons, this advantage can be reduced or reversed.

Third, develop a comfort with exporting enterprise data. SaaS is an externally hosted solution, possibly requiring you to export sensitive data outside the enterprise for the first time. This requires a new set of conversations and planning sessions with particular sensitivity to security and privacy. Fourth, analyze any concerns you have about being locked-in to a new technology. Many SaaS providers are relatively new, some not yet even making a profit. Vendor viability assessments and business continuity concerns are very valid, requiring careful risk assessment and contingency plans.

In Conclusion SaaS offers insurance companies the opportunity to make some real improvements to their distribution channels, with faster returns and lower up-front investments than ever before. It is, however, still more than a simple flip of a switch. A successful implementation still depends on getting the basics right and being aware of what new challenges need to be addressed.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

John Peto is a Seattle-based senior manager with Deloitte Consulting LLP, a subsidiary of Deloitte LLP.SaaS offers insurance companies the opportunity to make some real improvements to their distribution channels, with faster returns and lower up-front investments than ever before. It is, however, still more than a simple flip of a switch. A successful implementation still depends on getting the basics right and being aware of what new challenges need to be addressed.