Technology pioneer Bill Lowe says insurers can reap many benefits by opting for a hosted infrastructure.

One of the most intriguing issues facing the IT community is the concept of Software-as-a-Service (SaaS). To get a sense of the concept’s present and future, Insurance Networking News turned to a technology visionary. Early in his career, Bill Lowe led the team that developed IBM’s personal computer. Lowe subsequently held top positions at IBM, Xerox, and Gulfstream Aerospace, and has extensive experience working with Tier 1 insurance carriers. Currently, Lowe is CEO of Salem. N.H.-based NEPS LLC, a provider of communications management services to the insurance, financial and health care industries.

INN: How do you define SaaS?

BL: While it’s commonly referred to as Software-as-a-Service, it’s probably more accurate today to refer to it as ‘SaS,’ or Software-as-Services. Either way, the two key components here are hosting and subscription. In a hosted model, the software runs on the provider’s infrastructure. The customer pays for access to the infrastructure on a subscription basis, and therefore avoids upfront capital outlay. In addition, since the providers’ infrastructure, support and customer service costs are shared across more than one client, each client benefits from economies of scale.

SaaS appeals to IT because of the lower number of resources needed for implementation and support, and to business groups because they’re able to get their needs met more quickly. The subscription pricing means fewer budgetary issues get in the way of procuring new applications—and, often, applications can be linked together as components one at a time. It’s no surprise then that SaaS is often referred to as “on-demand software.”

INN: How do the SaaS and ASP models differ?

BL: Many companies and analysts use the terms interchangeably. I’ve seen a number of articles stating that “ASP is now known as SaaS.” Taking a historical view, I believe that the Application Services Model (ASP) primarily consisted of software vendors putting HTML front-ends on their software to allow remote users to rent access to the server back-end. It is still comprised of hosting and subscription, but SaaS applications tend to be natively engineered to take advantage of use via the Internet instead of putting “lipstick on a pig.”

Having watched the industry evolve over many years, my take is that it’s best to ignore the acronyms, which will change next week anyway, and look at the actual hosting model and the level of services being offered by the provider. It boils down to a hosted infrastructure that can be either shared or dedicated, and services that can range from “ping, pipe and power” to fully customized applications for a particular industry, managed on a 24/7 basis by technology experts fluent with the specific code. If you’re shopping for software, services, or software as services, you have to look beyond the packaging.

INN: What are the key benefits of hosting instead of buying software?

BL: The simplest rule of thumb is if something appreciates, buy it. If it depreciates, rent it. Software and hardware depreciate, so hosting wins out on this one. But there are many other, often overlooked benefits to hosting beyond direct cost avoidance. Applications, such as SaaS, that are designed to enable remote connection from customers are typically also engineered to enable connection to other software and services. For example, a vendor providing hosted document assembly services can easily link up with a hosted e-delivery provider or a hosted archive vendor, allowing a best-of-breed solution for each customer. In addition, since many hosted service providers rent on a per-application basis, a customer can choose the best solution for each application (account statements versus policy assembly or online correspondence) rather than trying to force each application to run on the software product they happen to already own.

INN: The insurance industry has a reputation for being conservative when it comes to embracing technology trends. Will the SaaS model have to overcome cultural obstacles to gain greater acceptance?

BL: I’ve worked with major insurance firms for many years. I started my days at IBM as an account executive for Prudential, and worked on the development of an agent delivery system for State Farm based on the Series 1. In my experience, insurance companies are very careful and deliberate in making decisions—they want to make sure that what they put in place is right for their agents and customers. No doubt this is why they look to other firms in the industry to validate their technology decisions. Now that companies like CUNA Mutual and Phoenix Wealth Management have embraced the SaaS model, many other insurers are looking at hosted solutions.

In terms of cultural obstacles, yes, some companies will struggle to get their minds around why they should do business differently than they have in the past. First, management must make the leap and embrace SaaS as a way to better manage expenses and to operate more efficiently; next, employees must embrace changes in the way they work in order to get the most out of the SaaS relationship. Of the two, the senior management hurdle today is the easier to clear since many insurance companies are already outsourcing much of their IT to India and China, and thus already have made the mental leap to virtualization. So the real key to SaaS success is understanding and working closely with the people who have to manage the day-to-day activities—and finding a vendor that reflects this need in its offerings and approach. After all, it’s “software as a SERVICE,” not just “technology through a pipe.”

INN: Does the SaaS model appeal more to smaller and mid-sized companies than large ones, which may have a greater ability to make significant capital investments?

BL: Analysts at the Yankee Group estimate that 50% of software purchased by small to mid-size companies in 2008 will be delivered as services. The assumption used to be that only small and mid-size companies will adopt this model, much as was the case with service bureaus in the ‘70s, but I don’t think it’s that cut and dried. In the old days, back before Wang and Data General offered their shared logic systems, and well before we introduced the PC, IBM had a group called the IBM Service Bureau that provided computer services for companies that didn’t want, or weren’t able, to buy computers and staff them. At the time, large insurance companies had their own in-house computer services departments, and the smaller firms might have used this group.

These days, the Software-as-Services model is appealing to companies of all sizes, though perhaps for different reasons. As before, smaller firms may not be able to afford their own operation, while bigger companies may not want to afford one. Insurance firms of all sizes now look to outsource such major aspects of their operations as policy assembly, correspondence and statement production because their legacy document management solutions can be upgraded more quickly and economically via SaaS. Let’s face it: even big companies want to avoid making large capital investments where they can. If even a fraction of software purchases within a fraction of large firms follow the path of the small to mid-size firms, SaaS will be a huge market.

INN: In what instances can SaaS be most effective?

BL: SaaS can be especially effective where a premium is placed on the ability to make quick changes in order to keep pace with a fast-moving market. One perfect example is at large insurance companies that have to deal with a complex set of regulations in every place they do business. Because these regulations are constantly changing, and are not consistent from place to place, it can be extremely difficult to ensure every document complies with the latest regulations. Compliance-tested forms libraries, document composition tools, correspondence systems, and sales and suitability reporting are all making their way to the SaaS model.

INN: Does SaaS introduce new security issues into the equation?

BL: Short answer: no. In many respects, the issue is the same as it was when the argument raged over outsourcing. Technologically, there’s no reason at all for a SaaS-based system to be any less secure than one built on a conventional computing model. The key is to choose a provider that not only has solid technology, but one that is committed to a policy of data protection. In our case, we’ve found that our security policies are actually more stringent than those of some of our customers, so they trust us to protect their most sensitive information. Ironically, one of the applications often outsourced to SaaS providers is network security management because it is so complex to administer and manage, is such a huge drain on IT resources and doesn’t provide competitive differentiation.

INN: Given your unique place in the industry, what about today’s IT landscape surprises you the most?

BL: I recently took part in the festivities celebrating the 25th anniversary of the Commodore 64, and seeing Steve Wozniak and Jack Tramiel reminded me that our fundamental goal was to make information available to everyone, everywhere, to the greatest extent we could. All these years later, I’m glad to see that companies invest a lot of time and money to make a lot of information available in a timely fashion. But I’m continually surprised that they do so little to discriminate between what’s important and what’s not. This is a big problem because there isn’t much time between an event taking place and the time it’s reported, so there’s not much time to put the information into perspective before it’s passed on. This can easily lead someone to draw the wrong conclusions and to make a bad decision, and that’s not good for either a company or an individual.

An important part of managing information the way we do is ensuring the information that’s passed on is well structured, well positioned and put into context. This is especially important in industries like insurance, where providing appropriate information at the appropriate time is critical to meeting compliance requirements and competitive goals. We see our job as conditioning our clients’ communications in this way so they can be nimble and successful, and we see SaaS as a key enabler of this objective.

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