I was recently listening to keynotes at Pegaworld 2013, and after hearing Eric Martinez, EVP of Global Claims, Operations and Systems at AIG P&C, talk about his experiences in business and IT consolidation, it sparked a thought about the insurance software business in general.

The average age of insurance core technology systems across the industry is quite high, arguably because of the amount of insurance-specific intellectual property found in those systems. This has led to a real technology risk for those systems in terms of flexibility, cost, and ultimately, viability. They continue to hold the high ground against business process management (BPM) vendors with lightweight industry-specific frameworks, as insurers did not want to re-invent the IP wheel, so to speak.

However, there are a number of new insurance core systems vendors entering the U.S. insurance market either as startups or from overseas, creating configurable off-the-shelf (COTS) software based on new technology with great interfaces, easy-to-use configuration tools and integration with the latest trendy stuff (i.e social, mobile, holographics, time travel, etc.).

The only thing they are generally light on is insurance-specific, regional intellectual property and functionality, assuming customers will quickly and easily configure those insurance business rules in the vendor's amazingly user-friendly config tool. I am guessing these vendors have never implemented U.S. life insurance Reg 7702. These vendors are at great risk of losing differentiation from technology platform vendors with industry vertical process frameworks that will tend to have better rules and tools simply because their broader addressable customer base can drive larger R&D budgets.

Building good COTS industry-specific software is always a trade off between investing ahead of the curve, to include specific regulatory and product functionality, and also meeting the technology standards set by the industry to ensure usability and integration. However, as my colleague Craig Beattie said to me recently “Once you meet that technology bar, forget it and worry about domain knowledge and delivery.”

Bottom Line: Carriers seeking new solutions must dig deep into the IP supplied with modern insurance software solutions to be sure they understand the commitment required by IT and the business experts to fully deploy these solutions. Insurance software application vendors must continue to walk the line between technology investment and domain investments to win market share. The BPM technology vendors will win a significant number of deals, continuing to enhance their vertical frameworks, meanwhile, the bar keeps getting higher.

This blog has been reprinted with permission from Celent.

Chuck Johnston is a research director in Celent's insurance practice, and can be reached at cjohnston@celent.com.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

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