While ranking their vended software products, 59% of insurers would definitely buy them again, 41% range from muted enthusiasm to outright regret. What could they have done differently?
Although the insurance industry has a long history of building its own technology solutions, the pendulum has been firmly paused on the "buy" side of the "buy v. build" spectrum for the last decade. Insurers are looking for proven solutions built by expert software development organizations that benefit from the best practices created by serving a broad range of like customers, as well as the support and R&D that external vendors can provide.
Like the carrier marketplace that it serves, the insurance technology vendor marketplace is large and diverse, with more than 100 significant players offering enterprise and stand-alone software products across multiple areas of insurance core systems. Insurers use several yardsticks to evaluate potential solution providers, but the single most important factor is references - understanding the real-life experience of the vendor's other comparable customers.
Our Average Customer Experience (ACE) Ranking program surveys insurers on their satisfaction levels with individual vendor solutions. In a recent analysis of nearly 300 insurer surveys covering nearly 50 different products, we were able to pinpoint some of the key areas that differentiate the solutions about which insurers are enthusiastic from those they have some (or many) regrets about relying upon.
The ACE Ranking questionnaire asks for degrees of agreement or disagreement with 35 statements about the vendor solution. Among these 35, eight had a notably high spread in agreement levels between those insurers that would definitely buy the solution again and those that were neutral or negative about doing so.
In aggregate, insurance software gets good, but not great, grades from its customers. While 59% insurers ranking their software products would buy them again, 41% range from muted enthusiasm to outright regret. Clearly there is room for improvement, both in insurer's abilities to select partners that deliver strong business results, and in vendor's products and capabilities.
Insurers considering a new vendor partner should focus significant attention on these eight questions during the evaluation process in their discussions with the vendors and their references:
1. Vendor invests aggressively in improving technical performance through new releases and fixes.
This was the area with the largest spread between the high-satisfaction and low satisfaction groups. It is something that is difficult to evaluate during a selection process and must be carefully researched through references and detailed questions into client experience. Continuous improvement is supposed to be one of the major advantages of a vended solution over an internally developed one.
2. I have great faith in vendor's senior management and overall vision.
This one is correlative rather than predictive. We hope that insurers in the low satisfaction group are reporting a loss of faith, which they presumably had at the time of product selection, rather than a purchase of software from a team in which they had no faith at the time.
3. Product is an elegant solution to our business problem and product is well-liked by business users.
These may also be correlative, but there may be an element of caution here too. Products that are selected without sufficient business involvement and "personal investment" from the business side are much more likely to be regarded as less valuable solutions.
4. Vendor provides effective training and documentation to my business and technical staff.
This is a universal weak point for vendors. Even the high satisfaction group ranked this area lowest among all 35 questions.
5. Product is easy to integrate into our overall infrastructure.
This is another area that can be overlooked during selection. Insurers may focus too much on a solution's capabilities or technology, and not understand how difficult it will be to integrate it into their environment.
6. Vendor aligns its business interests with mine, and vendor has my business success as a top priority.
This is another area that's difficult to evaluate in advance without detailed reference checking and understanding of the vendor organization, corporate structure and even compensation schemes.
7. Product has significantly enhanced productivity. In addition to being a symptom of a sub-par product, this also may be a symptom of poor upfront analysis and expectation-setting. Insurers should carefully understand and model the impact that they expect new systems to have on productivity, and then iterate those models based on experiences in pilot programs.
8. Product uses technology that fits our long-term technology vision.
Many of the solutions that received low rankings in this area were older, mainframe-based solutions. Insurers are actively looking for solutions that fit these long-term visions.
WORKING TOGETHER
Insurers must be careful to look beyond feature/function mixes and technology stacks and to carefully consider their potential vendors' track records in getting clients live, delivering measurable business results and enhancing their products to keep them current. If the track record of the company and product is short, process maturity, leadership capabilities and other similar factors can be used as proxies. But insurers and vendors must work together to make sure that purchased software continues to deliver high business value. If not, the pendulum will start to swing back, which would obviously be bad news for vendors, but would also be bad news for insurers, few of whom are really equipped to build the technology enabled capabilities that their business operations require.
Matthew Josefowicz is director of the insurance practice at Novarica, New York. He can be reached at mj@novarica.com.
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