Policy systems take to the cloud
Hosted environments and SaaS services make multiple PAS deployments more practical for insurers.
In what represents a tipping point for the highly conservative insurance industry, most new policy system deployments have begun taking place in the cloud. Although new PAS implementations rose significantly during 2017, on-premise deployments fell to their lowest level in seven years, according to research by Strategy Meets Action. They were supplanted by cloud-based deployments, which this year will account for an astonishing 59 percent of new core systems, up from 31 percent of new systems in 2015. While this is an industry-wide trend, SMA notes that it is especially marked among smaller insurers with under $250 million in premiums.
“Cloud deployment is quickly becoming a fundamental requirement for digital transformation,” explains SMA partner Karen Furtado. “Together with real-time analytics, the cloud lets insurers consume large quantities of both internal and external data, and increasing cloud adoption is part and parcel of making the most of new digital technologies.” “An increasing number of insurers are willing to consider implementing policy systems in the cloud via a Software-as-aService (SaaS) model,” agrees Novarica’s Martina Conlon. “The line between cloud hosting and SaaS has grown increasingly blurry.” The SaaS model is one of two different types of cloud deployments that insurers are using for their new PAS systems. Both approaches are increasingly popular, but the preferred option is a single-tenant cloud environment that hosts
data from only one insurer. With SaaS, data from multiple insurers is processed within the same cloud environment. Insurers are turning to cloud deployments for their policy systems to control costs, take advantage of best-in-class computing facilities, gain greater scalability and to stay current with new software upgrades and APIs as they become available. When speed-to-market is a priority, cloud-based PAS solutions can be rolled out far more quickly, affording insurers a fast track for launching new products or entering new market segments. Cloud-based systems can also streamline the adoption of new, dataintensive technologies, including analytics, artificial intelligence and the Internet of Things. These advantages have made it easier for insurers to deploy more than one PAS, notes Furtado, with the shorter implementation times prompting
them to deploy multiple systems to address their assorted product requirements and diverse lines of business.
The fly in the ointment may be the tradeoffs that come with a cloud-based approach. “The newer PAS solutions have been designed for the cloud from the ground up and have flexible technical architectures,” concurs Deloitte Consulting’s Amy Sherman. “But they are also missing a lot of the functionality that traditionally has been included with a policy admin system.” Cloud-native systems, she says, generally consist of an underlying data model that supports policy administration. But for additional functions—such as billing or claims—the program usually needs to be integrated with another point solution for that set of features. For the most part, Sherman adds, these best-of-breed solutions have been brought to market by smaller vendors that only offer the one product, and she acknowledges that the
“From a timing standpoint, sometimes it simply doesn't work for a carrier to synch up its enterprise PAS with a new product that they are trying to get to market.”
Karen Furtado, SMA
carriers who deploy them are taking a risk by “placing a bet on an up and coming provider,” While Sherman sees many advantages to the best-of-breed approach—especially for midrange and larger insurers—she concedes that “There's some safety to be gained by going with a vendor who supports a full suite of applications.” On the other hand, she argues that even larger carriers can only absorb so much new functionality at one time. If it takes them one or two years to implement a new PAS, by the time they are ready to add additional functions, new products and technologies from other vendors will have already reached the market, and “A best of breed approach gives them much more to choose from.” More generally, Sherman says, the success or failure of a new PAS deployment depends less on whether it's a best-of-breed solution or part of a suite and much more on the insurer's strategy for providing “faster, better, cheaper insurance.” When implementing any PAS solution, she points out, “The carrier has to avoid simply repaving the cow path.”
Some of the newer PAS solutions allow for ready integration with different technologies and can be reconfigured within seconds to support a given insurer's specific requirements. But to realize the full benefits of these capabilities, Sherman says, the carrier has to have a carefully thought-out business strategy. “It sounds obvious,” Sherman admits, “but there are very few insurers who take the time to work through what they really need from their systems. Such efforts,” she adds, “require a great deal of organizational fortitude.”
Karen Furtado SMA
Martina Conlon Novarica