Smaller insurers lean on partners to navigate disruption

Register now

Digital disruption affects insurers of all sizes, not just industry giants. But as small-to mid-sized insurers try to keep up with the technology required to address changing business requirements, many are blinded by the fast pace of technology itself, and few have the time, money, or capabilities to build or customize their own systems, much less maintain them. They have trouble understanding the types of technology, like analytics, cloud platforms and artificial intelligence that are required. In many cases, they don’t even know what they don’t know, which can be simply overwhelming when companies are already under pressure to create efficiencies and reduce costs.

“Insurers continue to struggle with limited IT resources, capabilities, and access to specialized skills while they face increased demand for modernization, innovation, and operating efficiency,” notes Tom Benton, VP of research and consulting at Novarica. “Most insurers are focused on three things: running IT for the organization, projects that help the organization grow, and transformational projects. Most small carriers don’t have budget or resources (including talent) to apply to transformative projects.”

For these insurers – those under about $5 billion in direct written premium – reducing costs and streamlining operations also involves moving core insurance systems to a cloud computing environment, which introduces another set of challenges: It changes many of the insurer’s standardized processes, as well as existing roles—especially those of the IT staff—from day-to-day management of systems to more of a business consulting role.

In a research report, “Cloud/SaaS in Insurance Core Applications,” Novarica notes that more than 40% of the participants believed having experience in vendor management was “very important criteria.” The report further states that, “This experience leads to better definition of service levels and roles. More importantly, it represents the skills necessary to discuss issues and negotiate outcomes.”

Moving to a digital, cloud-based environment, changing architectures and embracing automated processing can be scary propositions that affect the footing, usefulness and longevity of the relationship between an insurer and a technology provider. Once in production, insurers also worry about uncertainties, such as a change in vendor personnel assigned to an insurer’s team or project, a potential drop in service levels or even an actual service-level disruption that damages relationships downstream.

Scary propositions

In its "Vendor Relationships: An Important Part of a Digital Strategy” report, which surveyed 108 insurers, Accenture concluded that “existing vendor relationships are not all structured optimally.”

Although very few insurers were “dissatisfied” outright with their third-party digital vendors, only 28 percent reported being “very satisfied,” which Accenture interpreted as leaving some room for improvement. “Interviewees commonly cited communication and post-project support as areas where vendors were lacking, though their experiences varied across vendors,” notes the report.

“This is why the relationship between the insurer and the solution provider should be a stepped approach that requires consistent and frequent two-way communication, mutual respect for both the insurer’s business and technology objectives as well as the service provider’s capabilities, and a shared desire to see the insurer be successful,” says Jim Leftwich, CEO and founder of insurance management technology company CHSI Technologies Inc. “The technology solution provider wants to earn their way, moving from approved vendor to preferred supplier to solutions consultant, strategic champion, and finally to achieve the coveted trusted partner status.”

CHSI points to its relationship with Michigan-based Manufacturing Technology Mutual Insurance Company (MTMIC) as an example of success. Servicing 883 member-owners with workers’ compensation insurance, MTMIC operates with only 14 employees. But their company culture supports a fast-moving agenda with growth at its core. When MTMIC’s board of directors (nine of 10 of them are member-policyholders) approved the search for a new cloud-based policy management system from CHSI, MTMIC President John Karlen knew the modernization project would require a unique relationship that would withstand the test of both time and technology issues.

“We consider our technology providers partners, although we do place demands on them,” admits Karlen. “Because in order to cost-effectively rate, underwrite and issue our policies, we need reliability and efficiency in terms of being able to access the right data when we need to. That said, our staffing is predicated upon that system working well,” says Karlen, “so if it goes down or we experience reliability issues, we all know that we’ll be sitting around just drinking coffee, waiting to be able to get back to servicing our policyholders.”

Karlen says the relationship works because CHSI “is in tandem with us,” responding quickly to requested changes. “They don’t require the six months that other technology vendors do to accommodate our requests, and we value the partnership we’ve established.”

Finding a fit

For insurers of all sizes, the process behind decisions to engage with this type of “trusted partner” is now considered a risk management issue, because if it is not a win-win, the organization’s vital operations and even reputation may suffer. “At its core, what IT solution and services partners are providing is the implementation of best practice policies, organized and structured in processes and supporting procedures,” says Novarica’s Benton. “Finding the right provider to develop, deliver, and maintain certain core applications can play a big role in supporting some of the common challenges faced by insurance IT organizations.”

In its report, Novarica notes that investments in core systems modernization can be “painful, expensive and necessary,” but “the difference between a smooth and challenged project comes down to people and process, not technology.”

Benton explains that in cases where insurers are less happy with their vendors, “it’s mostly vendor staff and organization issues, not functionality and technology issues that are driving their poor experiences.”

A recent follow-on report, “Insurer Experience with Vended Core Systems,” noted that when overall average satisfaction scores were seven or less, the low scores were in project management, responsiveness, and staff knowledge.

“We found that during vendor selection, insurers focused more on technical specs, feature and functionality, and were very satisfied,” notes Benton. “Of course, during implementations, staffing and organization shift and change, and most often, the insurer ends up working with a new team. The biggest complaint we found is that the project manager assigned by the vendor doesn’t fully understand the insurer’s business. The carrier expects you to know more about them, and actually apply that knowledge transfer to the staff.

The takeaway

From the insurer’s perspective, it’s recommended that they join ecosystems with partners whose capabilities complement their own.

“It’s important for the insurer to find a technology solutions provider that shares a similar focus related to size and scope,” says Stan Smith, predictive analytics leader for Gradient AI, a business unit of Milliman. “Do they specialize in smaller projects or large, multi-national implementations? Answers to these questions will go a long way to establishing the right relationship.”

Further, bringing all vendors to the table is a way to solve efficiency issues by taking one day (instead of several) to meet with solution providers. It also allows the vendors to meet and learn how to collaborate to better serve the insurer’s needs.

“In a previous career at a small carrier, we found holding vendor summits to be a best practice,” Benton adds. “This forced all stakeholders to sit together and discuss common issues we were facing, avoid finger pointing, and team together to come up with joint solutions. In the big picture, the insurer does not want to be the middle man when it comes to disagreements or disputes.”

As more critical business capabilities are delivered and even maintained by external solutions providers, evaluating and managing vendors will remain a vital capability for insurance organizations. The technology solution provider that represents superior quality in both product and service and can provide expert communication, insights, agility and responsiveness has the opportunity to become one of the insurer’s most valued, trusted partners.

For reprint and licensing requests for this article, click here.
Vendor management