SAPPOV: You have nothing to lose but your chains

[former_member181921]

Guest post by Steve Hancock, Industry Principal, Insurance, SAP

There’s lots to be learned from the way new insurers in emerging markets are structured. Today’s ungainly legacy systems can be restructured, but in replacing them, don’t just create a problem for tomorrow.

If you were to start a new insurance company, what would it look like? Chances are, you’d be well ahead of your competitors just  from the fact that you were starting from scratch, implementing modern IT solutions rather than being bogged down by a confluence of old legacy systems.

Legacy Systems

By maintaining aging IT environments today’s insurance companies can become their own worst enemy.  Over the years insurers have developed a number of ways to service customers and run their business through maintaining or “modernizing” legacy solutions.  In addition, insurers have often added to this complexity by the introduction of new or best-of-breed solutions that are integrated with the legacy environment.  Rather than creating a path to modern, and less complex environment, this approach usually accentuates the problem creating what will quickly become another version of the legacy environment.

Best-of-breed Solutions

This is not to say that the “best-of-breed” or “in-house-development” approaches have not been successful in bringing new capabilities to the insurance environment.  These approaches remain viable options where new functionality is in high-demand or where budgets are tight.  However  while these solutions create a chain of good intentions it doesn’t take long for old problems to resurface. Individual solutions need to be maintained to stay compatible with the rest of the environment creating a web of integration that is complex and costly to maintain. It creates a new legacy environment that’s extremely tricky for some insurance companies to manage. Plus, when it comes time to replace another one of  the components – for instance a policy, billing, or claims system – extracting the old one and putting in the new one with all the integration points creates the problem all over again.

Need for Insurance Suites

In response, we’re seeing more of a demand for what we call an insurance suite, a tightly integrated family of solutions on a single platform, all using the same new technology with data managed in a single place and integration built in. When done right, it  shifts products from being complex to being easy to maintain and service, easy to deploy and easy to adapt as per the market’s requirements.  It also moves the insurer’s focus away from the IT infrastructure allowing the company to focus on their core competency:  insurance. A real game-changer for the insurance industry is the more recent phenomenon of demand to not just have core insurance applications on a single platform but to have the entire IT infrastructure on a single platform!

Emerging Markets

The best place to see this demand is in emerging markets – Asia Pacific and South America – where new companies are setting themselves up with this type of environment which allows them to really focus on their business as opposed to the IT environment. They recognize that there are solutions out there to meet their needs and address the pitfalls that affect many larger multinational competitors today.

In more established markets, we’re seeing companies moving cautiously, choosing to address a single slice at a time, but with a strategy that moves them to a less complex single platform from which they can run their business. These strategies often focus on one of two approaches:

1. Small slices or books of business, a few at a time, perhaps by geographical area or line of business, that are established or converted to the single platform.
2. One application at a time, usually based on immediate need or based on a strategic approach to fund the transition, but with the end goal to move to the single, integrated, platform.

These approaches allow insurers with costly legacy systems to move to the cost effective and efficient environments that are being deployed by new market entrants in both existing and emerging markets. While these concepts are new to the long established insurance market, competitive and financial pressures are forcing CIO’s to take a lesson from the “young guns” of insurance and move to true platform-based solutions rather than maintaining or creating their next legacy system.

To learn more about we can help you with your business challenges please have a look at SAP's Solution Explorer for the Insurance Industry.

What do you think about the issues discussed here? Continue the conversation in the comments below and on Twitter @SAPforInsurance