In his book Who Moved My Cheese?, Spencer Johnson famously asked what you would do if you were not afraid. Yet things haven’t always been that black and white in the world of insurance, where taking risks and driving change have traditionally required significant capital outlay.
When an insurer spends, say £10m of capital on a new system, the investment also brings with it a high risk atmosphere where failure would be a costly option. Under these circumstances, there often isn’t the chance to try out new ideas in case they don’t work, and the speed to market for new products is compromised.
Now more than ever, with the introduction of Solvency II looming, insurers are feeling worried about their capital and are spending less. Yet, as the industry becomes increasingly digitised, they cannot afford to let improvement and development become an afterthought. For example, as people start to download music onto their smartphones and tablets, how do you insure both the device itself and all the data on it?
If insurers are not rising to meet these challenges and are just staying still, then sooner or later, their market share will begin to be eroded.
We have already seen various sectors moving in a new direction as they look to create an environment that enables change. Google is a perpetual beta that is undergoing constant development, such as the introduction of Google Maps with satellite imagery and panoramic views of streets. By continuously testing, learning and generating data all the time, Google can then get a handle on the ideas that work and develop those, while dropping the ones that don’t succeed.
Such capability is now filtering through to the insurance industry, as providers look to transform their customer operating model to get products to market quicker and enable ongoing transformation. Yet, with the majority of insurers transacting policies throughout their lifecycle in exactly the same way as everyone else, how can they achieve this?
The answer lies in a different way of thinking that provides an effective foundation for change and innovation. Software as a Service (SaaS) is an alternative solution based around the commoditisation of insurance. With this model, rather than concentrating on their IT, insurers are able to focus on what really makes them an insurer, such as using data from multiple sources to accurately assess risks, so that they can be priced accordingly, and developing their business to attract and retain new customers.
By thinking of what delivers true value in their business, insurers can focus on the areas that actually make a difference in order to make more money and spend less of it. If an event doesn’t happen very often, then there will be no financial benefit from focusing on that.
SaaS provides an environment that allows insurers to concentrate on these issues and to build ongoing instant change into the heart of their business, making innovation part of the ongoing running costs. While doing this, they are safe in the knowledge that their IT provider has all their technical needs covered on a transactional cost basis that allows for predictable revenue streams. Moreover, with this approach, the IT provider shares the risk with the insurer in a mutually beneficial arrangement.
Already we have seen greater adoption of the SaaS model, with research by Ovum showing that at least a third of all insurers are already fully deploying or trialling such solutions. Nearly all insurance providers agree that SaaS will have a significant impact on both the industry itself and individual insurers in the next five years.
So why is SaaS considered so revolutionary for the insurance industry? The main thing to note is that it solves a business problem rather than an IT one. As a usage-based model, it provides the ideal environment for change. By being able to do things quicker and cheaper, insurers can try out new things more often.
Taking our earlier example of the £10m capital expenditure; if the cost of each new project is now £100,000 of operational expenditure, then insurers can afford to try out a hundred things for the same outlay, and without waiting for the funding to be signed off. This creates a low risk environment where there are far more opportunities to be successful, so insurers can afford for some of their projects to fail.
Consequently, insurers can make lots of smaller changes to their business rather than one massive one, and make these changes more frequently. In an environment that enables change, such as SaaS, solutions do not need to be perfect before they go live. Rather, insurers can focus on building the core minimum required to go live, and then the bells and whistles can be added later when it is certain that this is a viable proposition.
Having this minimum viable plan that is good enough for launch enables insurers to get this into motion quickly and then change and adapt in response to market conditions.
As adopting this approach moves the responsibility for change away from the core IT and more into the business itself, it becomes a firm part of the business on an ongoing basis. This leads to a process of continual refinement, putting the business in charge of the changes made.
A further benefit of the SaaS model is that it doesn’t need to be an all or nothing approach. It also enables insurers on mainstream platforms to try out something new in the smaller lines of business they write that would not traditionally be supported by large amounts of capital expenditure through moving these onto SaaS.
Already we are seeing lots of attraction from people for the SaaS model as insurers ask for a real alternative to legacy modernisation that provides the capability they want really quickly. This removes the fear of failure, so there is no risk in being innovative and trying new things.
Indeed, large scale adoption of SaaS could turn what is traditionally considered as a less agile industry into one that is more dynamic and successful — and insurance leaders need to start challenging the norm.