Stamford, Conn. — Although Software-as-a-Service (SaaS) may appeal to life insurance IT organizations because of the lower number of resources needed for implementation and support, it’s still not a mainstay element of their policy administration systems. But as the market heats up, competition and expansion into new markets may force life insurers to rethink their SaaS decisions and, as they do, vendors will need to step up, according to new research from Gartner, Stamford, Conn.

Gartner’s research included interviews with approximately a dozen U.S. and Europen life insurers, as well as vendors of policy administration systems. In its report, “Impact of SaaS on Life Insurance Policy Administration,” life insurers and pension providers point to several reasons for holding back on a hosted solution commitment, especially for management of policy administration.

“Many organizations developed these policy administration systems themselves in the past, but they are now increasingly implementing off-the-shelf packaged applications,” says Juergen Weiss, principle research analyst with Gartner in Frankfort, Germany. “Many vendors of these policy administration applications are offering these solutions as SaaS; however, only a few life insurers and pension providers have selected such offerings.”

Gartner’s research revealed that insurers have concerns about the vendors’ long-term execution on SaaS offerings, architecture challenges for insurers to integrate SaaS systems in existing IT landscapes, and concerns about data security and availability.

“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,” Bill Lowe, CEO of Salem. N.H.-based NEPS LLC, a provider of communications management services to the insurance, financial and healthcare industries, told INN in March. “No doubt this is why they look to other firms [such as CUNA Mutual, Madison Wisc., which has implemented SaaS] in the industry to validate their technology decisions.”

Some vendors are offering open source as the secret sauce to integrating SaaS and on-premises software, and others are promising integration with the more popular on-premises applications offered by Oracle E-Business, SAP and

Weiss maintains that as technology issues are addressed and competition heats up, life insurers may decide to give SaaS its due.

“Markets are saturated because of demographic changes, consumers' increasing price sensitivity and growing competition from non-insurance players, which is forcing life insurers and pension providers to become more innovative than in the past,” Weiss says.
“Organizations that can't offer and manage innovative products with existing policy administration systems and that lack the time, skills or budget to implement a new on-premises system will start to consider SaaS. It is an option for these insurers to quickly get access to new functionalities.”

Further, Weiss points out that because many life insurers and pension providers are still using legacy systems, IT departments often face challenges to develop a convincing business case for management to modernize these systems.
“Organizations also often lack the skills and the time to initiate and manage legacy modernization projects, which often run several years themselves,” he says.

Lowe believes there also are cultural issues with which insurers must contend. “Some companies will struggle to get their minds around why they should do business differently than they have in the past,” he said.

“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, Lowe said, the senior management hurdle today is 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.

Selecting a SaaS offering for a policy management system will be an option for these organizations to quickly utilize a modern system and to have full cost transparency right from the start, adds Weiss, adding that Gartner believes that SaaS will become a viable option for life insurers and pension providers in continental Europe and North America during the next three to five years.

“Vendors must be able to solve the data conversion problems to extract legacy data and move it into the SaaS-based application. Insurers will expect an end-to-end service. Providers that don't have sufficient skills should consider partnerships with data conversion specialist firms,” says Weiss.

Lowe, who led the team that developed IBM’s personal computer, brings a seasoned perspective. “The real key to SaaS success,” he said, “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.”

Sources: Gartner, INN archives

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