According to a recent Forrester Research study, North American insurance carriers spend about 70% of their software budgets on the care and feeding of their core processing applications. Let’s face it, that’s just too much money spent keeping the “lights on” and not enough spent to support IT that introduces better policyholder experiences.

A lot of that operational spend is explained by the industry’s legacy of developing big core applications in-house supported by big IT organizations. But when technology vendors bring up the idea of moving policy admin or billing into the “cloud,” as in Software-as-a-Service (SaaS), carriers typically have the same knee-jerk response, “The economics of SaaS and cloud are unbelievable, but the insurance business is just too complicated for us to consider it.”

No doubt, there are big distinctions in the infrastructure, business applications, regulations and even customer interaction that affect industries such as banking, pharmaceuticals and, yes, insurance differently. Banks did suffer the consequences of a declining economy sooner than insurers, which definitely increased their earlier interest in solutions that would reduce IT costs.

Yet, the banking industry, “complicated” by its unique, continuous transactional data streams and (soon to be more stringent) regulations, is further along the move to SaaS. Carriers who can shift IT budgets to new SaaS deployment models can spend more on creating better experiences for their policyholders by creating opportunities to sell more while reducing transaction costs.

But how do tech vendors get carriers to overcome their angst over SaaS? Make it easy by offering flexible deployment options that let carriers benefit from the technology in a way that reflects what’s going on with their business—SaaS for specific times, and when something changes, offer the ability to shift to a classic enterprise license agreement.

Also, don’t forget that vendor education also plays a big part in overcoming concerns about migrating insurance core applications to a SaaS model. It’s time for SaaS vendors to invest in educating their insurance customers and prospects about how cloud can help them overcome their business challenges.

Ellen Carney is a senior analyst with Forrester Research. She focuses on how the financial services industry researches, procures and deploys business technology, and is responsible for developing the global forecasts for IT budget and spending forecasts for insurance and banking. She can be reached at

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