Top Technology Priorities for Personal Lines Carriers

Jeff Goldberg

Today’s personal lines marketplace is more competitive than ever due to slow growth, intense price competition and customer acquisition costs rising.

Personal Lines insurers have always been a leader in insurance technology innovation and conversations with CIOs and research in the space shows that trend will continue, with technology playing an ever-larger role in insurers’ ability to attract, retain, and profitably serve clients. Across the industry, insurers continue to make investments across the Novarica Insurance Core Systems Map.

Novarica Insurance Core Systems Map: Personal Lines

Novarica Insurance Core Systems Map: Personal Lines

In a market with very competitive conditions and intense profitability pressures, personal lines carriers are focusing on growth strategies, expense reduction, and improving underwriting results. Below I have listed four technology priorities CIOs and business executives should consider to remain competitive.

Business Intelligence
A data quality initiative, which examines data warehousing, operational data stores, and appropriate data marts, is key before undertaking more advanced business analytics initiatives. Once data quality is ensured, carriers can then overlay business intelligence tools. Predictive analytics tools for carriers with sufficient data are becoming more popular. Small carriers should look at working with an organization that can provide pooled data and insights. All carriers can use models to improve underwriting insights, to more consistently apply pricing, and to improve claims activities. In addition, third party big-data sources are going to become more and more prevalent for personal lines insurers. Companies who take advantage of this first will have an edge in pricing and retaining business.

Policy Administration Systems
Upgrades to policy admin systems will help carriers gain operational efficiencies and flexibility in the ability to add data. Using business rules to manage workflow and predictive analytics to build pricing models can improve risk selection, risk pricing, and reduce operating expenses. Carriers should look for highly configurable solutions with product configurators, simple rules, and tools for launching new rating algorithms. They should also look for the ability for business units to make their own modifications, though practical experience with configurable systems reveals IT often still ends up managing most changes. As long as the time and cost of such work for IT is reduced, that’s still a big value.

Agent Connectivity
Extending functionality to the agents continues to rise in importance. It’s less and less about differentiation and more and more simply the price to pay to be in the game. At this point in time, most personal lines insurers have built an agent portal, and are often quite proud of the results. As a next step, both agents and carriers would prefer to receive and provide information electronically and process that information with as little human touch as possible, eliminating double entry. Real-time upload, download, and data translation deliver tangible benefits including reduced costs of handling, improved data quality, and improved turnaround time.

Claims Management
Streamlining claims management by automating processes improves customer service by speeding up claims service, providing consistent and fair best practices to all customers, and delivering personal service. On top of these customer benefits, insurers who have implemented modern claims systems report tangible speed-to-market benefits. If a carrier hasn’t already begun to upgrade their claims administration system, now is the time to start. Carriers who are using modern systems are rapidly gaining competitive advantages by improved efficiencies in claims handling and improved data leading to better outcome management. In addition, better claims processing has become a significant part of how personal lines insurers market themselves to consumers and how consumers select an insurer.

These technology priorities are based on the expertise of Novarica’s staff, conversations with members of the Novarica Insurance Technology Research Council, and a review of secondary published resources. For more information, download a free preview of our new Business and Technology Trends: Personal Lines report at: http://novarica.com/business-and-technology-trends-personal-lines/ or email me to set up a complimentary 30 minute consultation.

Related Reports

Trends in P/C and L/H/A Policy Administration Systems for 2015

Martina Conlon

In Novarica’s US Insurer IT Budgets and Projects 2015 report, survey data showed that nearly 40% of Property & Casualty and Life/Health/Annuity carriers are currently replacing or planning to replace a policy administration system.

Core-Policy-Administration-Replacement-Chart

There are various reasons why P/C and L/H/A insurers are focusing their efforts on replacing policy administration systems, including:

  • The need to improve product development speed — and enhance product capability—to pursue new opportunities, or to accommodate market demands
  • The need to improve product development flexibility to enter profitable new niches whether in Life or P&C.
  • The need to attract and retain not just top producers, but also the new generation of producers who won’t stand for the challenges presented by legacy solutions.
  • A desire to find more cost-effective ways to support the ongoing operation and management of core-systems capabilities and reduce the sizeable costs associated with simply keeping legacy systems on aging brittle, platforms.
  • A desire to real-time processing, increase automation and gain internal efficiencies
  • Increased data accessibility demands as business intelligence and data analytics become a significant part of insurers’ strategic objectives. In order to better set rates/pricing, reduce fraudulent claims, and generate other predictive models, core system data must be available for analysis, whether within the system or via export and transformation.

Novarica’s recent research indicates that carriers continue to aggressively seek to replace their existing policy administration systems, or in some cases add a new system to the mix. The P/C policy administration market continues to flourish for those vendors with in-demand systems and reflects a number of trends most of which remain unchanged from last year.

While sales of L/H/A core systems have continued to lag the pace of their P/C counterparts, the level of interest has steadily grown, and growth in sales of core systems is likely to follow. In fact, the pattern of investment profiles for L/H/A carriers is following a very similar path to what has already happened for P/C carriers, albeit at a somewhat delayed pace, undoubtedly a consequence of the relative risks associated with implementation and the challenges related to in-force block conversions.

With a variety of vendor solutions available, choosing the right solution that best fits your needs can be a complex process. A great way to start is by checking out our latest Market Navigator Reports on Property/Casualty and Life/Health/Annuity, blog posts (links below), trends in policy administration webinar recording, as well as our vendor selection services.

To learn more the latest policy administration trends or to see how Novarica can help you with your vendor selection project, contact me via email for a complimentary 30 minute consultation.

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2015 Vendor Selection Best Practice for Insurance Carriers: Simplified vs Extensive RFI

Martina Conlon

In my last vendor selection blog post I highlighted a few best practices, one of which included using a simplified Request for Information (RFI) that was easy for the vendor to complete and for you to score. I’d like to delve into this topic more and explain why a simplified RFI can make or break the vendor selection process. A simplified RFI will get you through the vendor selection process much faster, and will help your selection team focus on what really matters – your unique requirements.

From a functionality perspective, don’t inventory the ordinary; instead focus on areas that are specific to your business. We know that any insurance application that is in production with several insurers will support basic transactions. For example, all policy systems have a new business, policy change and cancellation transactions so there is no need to spend time and focus on them. Instead, dig into features that matter to your business. Perhaps you need robust premium audit features to support your workers comp business, or you need advanced reinsurance capabilities to support your middle market commercial business. Ask questions in the areas where you may be stretching the capabilities of a vended solution.

Having been involved in over 50 vendor selection projects (rating, policy administration systems, claims, billing, agent portals, business intelligence, etc.), Novarica recommends that during the RFI phase the focus should be on discovering reasons not to consider a particular vendor (the “deal-killers”). Novarica’s experience has shown deal killers generally fall into one of four areas: Staff, Organization,Functionality, and Technology, easily remembered by the acronym SOFT.

Staff

  • Do the staff have the right skills and experience?
  • How well are they likely to understand your needs?
  • What resources are available for implementation and support?
  • What assurances will you have that the staff you meet during the sales process will really be the staff that you work with?

Organization

  • How stable is the organization?
  • Is it big enough for your company to do business with?
  • Is there a conflict in the company’s ownership (i.e., are they owned by a competitor)?
  • Who are their other clients?
  • How much of a role do clients have in product development?

Functionality

  • Does the solution support the lines of business, states, and high-level functionality that you need?
  • Which functions are actually live at reference clients?

Technology

  • Is the solution’s technical architecture compatible with your enterprise standards?
  • Does your IT staff have the skills to support it?

The typical Novarica RFI includes 100-150 questions. The typical response for 30-50 pages takes 2-4 hours to score. Your time is valuable – don’t waste days reading and scoring complex RFI responses full of information you probably already know. This simplified approach will typically allow you to narrow the range of potential suppliers in any particular solution category to 2-3 candidates much more quickly and effectively than with a large dense RFP.

For more information about vendor selection best practices, make sure to register for our upcoming Vendor Selection Best Practices webinar taking place Thursday, January 29th at 2 p.m. (ET) or send me a note at email.

2015 Tech Trends: Thoughts for Insurance CIOs

Tom Benton

As I was preparing a blog post on technology trends for 2015, I came across Chris McMahon’s article in INN, “Top 5 Tech Trends for 2015”. The five he chose were: core systems modernization, analytics, mobile computing, the Internet of Things and the digital customer experience. These are certainly great choices, so here are some further thoughts on these trends and their impact on the insurance CIO.

Core Systems
As mentioned in the article, interest in core system modernization remains strong for 2015. A survey of Novarica’s Research Council members last year (with results presented for both P&C and LHA insurers) found that the trend is toward faster deployments via SaaS or hosted solutions using an iterative deployment approach. Vendors are developing track records of implementation completion and are finding ways to reduce the risks of these large implementations. CIOs who are considering core system replacements should get an update on potential vendors and their current offerings, and Novarica’s latest Market Navigator reports will be available in February for LHA and P&C policy admin system vendors. 2015 may be the year to consider a replacement and prepare using lessons learned from previous successful implementations at other insurers.

Analytics
Analytics continues to be a hot area of discussion at insurers. Novarica’s report “Big Data Technologies for Insurers” notes that insurers should focus on the need first, based on business demands and strategy, before investing in specific technologies. While there have been some initial uses of big data for analytics at insurance carriers, few have integrated analytics into core insurance processes like underwriting and claims. Insurance CIOs should work with business leaders to define a strategy and the “big questions” that need to be answered by improved analytics capabilities.

Mobile Computing
Novarica’s report on “US Insurer IT Budgets and Projects 2015” noted that mobile technology is still considered an “emerging technology” area at many carriers. Insurers are struggling to leverage the “3 C’s” of mobile technology (convenience, camera and coordinates) to provide better engagement with producers and customers. CIOs need to look beyond specific mobile strategy to consider flexibility of their systems for the next wave of mobile technologies, including wearable and Internet of Things, along with the analytic capabilities needed to leverage the data these systems will generate.

Internet of Things
Just as 2014 was the year of wearables as a consumer focus, 2015 promises to be the year of Internet of Things, including connected home products, drones and smart devices. The key for CIOs is considering what data from these devices can be leveraged for improved insurance products and operations. Information governance will be a key capability for 2015 and into the future.

Digital Customer Experience
Interest in engaging customers through digital technologies is driving insurers to reconsider their customer engagement and digital strategies. Novarica’s report “Preparing for Digital Transformation” provides a checklist that includes reviewing current capabilities, strengthening project prioritization and other best practices, and adopting an appropriate culture for transformation. Many customer-focused organizations outside of the insurance industry are creating Chief Digital Officer (CDO) roles to lead these efforts. In essence this move is to provide a focus for meeting the demand for improved customer engagement using technology tools. CIOs should consider taking the lead in efforts that a CDO role would address – CIOs with a good track record of meeting business needs through effective technology deployment should be in good position to do so.

These five technology trends provide a good starting point for discussing your IT strategy for 2015. As always I welcome your feedback. To send me a note or set up a complimentary 1 hour consultation, contact me via email.

Silicon Valley Ventures

Rob McIsaac

I recently had a chance to spend a week in the San Francisco Bay Area, which offered an opportunity to combine business and pleasure. My son and daughter in law are scientists working for startups, which gave us a chance to get better perspective on the elements driving the local economy. It also proved to be a bit of a dream trip for my “inner geek”, as we explore the history of Silicon Valley. What application do I see this having for insurance? Plenty it turns out.

The Valley is a hotbed of activity and the path to getting from its birth to today is surprisingly clear. According to the California Historic Marker, the birthplace is actually at the garage where Bill Hewlett and Dave Packard began their famous collaboration. Their first major customer was Walt Disney and the garage is only a few blocks from Stanford University. HP was where Steve Wozniak worked when he and the other Steve began the Apple journey and the garage they worked in is a short hop from HP’s. There’s an energy in the air that recognizes and rewards both innovation and risk taking.

Google is a short distance away, adjacent to Moffett Airfield, home of the Ames Research Lab (NASA) and the site of many aircraft innovations from the early part of the last century. This is also the home of the famous Hanger One, where the US Navy kept monster airships in the 1930′s. What do you do with an 80 year old building designed to house Zeppelins? Google is taking it over so they can fly things indoors, of course. And test self-driving cars with advanced features and capabilities away from prying eyes.

For the better part of a century, the area has been a focal point for innovation and creativity. Each new advance and breakthrough is a combination of new ideas built out by the next generation of technologists on a foundation that was framed by those who went before them. The next innovative idea may come from a big company with a long track record of success or a small one that is scrambling in the same mode as Hewlett and Packard … or Jobs and Wozniak … or Brin and Page.

In any case, people are surrounded by an environment of creativity, risk taking and a willingness to tackle big problems. Watching as an outsider from “back east” is engaging, particularly when you consider the financial, technical, educational and legal structures required to keep the engine of innovation running. There is clearly a case of a rising tide lifting all ships. If you want to see what the future may hold, visit The Valley.

Clearly, some others are catching this message. Pharmaceutical companies are setting up and / or investing in research labs. Auto manufacturers are moving work into the area, with BMW now being one on Google’s new neighbors. At least one P&C carrier has an operation there, putting them in close proximity to leading edge thinking and access to technical resources. It turns out things like the application of Big Data Analytics are unencumbered by notions of industry specific barriers.

Some remarkably innovative banks are also located in the same area. While my trip to Silicon Valley started as a family vacation, it became a thoughtful point of introspection on insurance.

Seeing the interaction of business elements, combined with the life changes spawned by technology advances, calls into question the potential viability of legacy systems, operations and processes. While the changes may not happen with the flip of a switch, the best defense, as always, remain a good offense. The list of companies that failed to heed this advice reads like a roll call of spectacularly failed brands. Even recognizing that changes were coming, and in possession of capabilities that could have changed their trajectories, companies like Kodak and Polaroid and DEC (to name but three) found that they could not trade the comfort of the past for the potential of future success. This Success Trap issue is one that should be a point of concern for carriers, as they contemplate both the potential for new forms of competition and the demographic shifts now underway in traditional markets.

Recognizing the value of the phrase “seeing is believing”, Novarica is in the early stages of planning a Research Council meeting to be held in Silicon Valley. We will be targeting mid-year for an event that promises to be both thought provoking and perspective expanding. To quote William Gibson, “the future is already here, it just isn’t evenly distributed”.

For more information on the Silicon Valley meeting, drop me a note at email or give me a call.

Baked Ham and How “Best Practices” Reflect the Best Available Technology…

Rob McIsaac

Both organizations and the people who comprise them are, to a significant degree, a function of their experiences. As time progresses we learn what works, and what doesn’t. We explore strategic alternatives and consider decisions which reflect an appropriate balance of risks and rewards in order to allow us to optimize results based on a specific set of criteria.

Both insurance companies and their employees also learn from their mistakes. The corporate form of “don’t touch that stove” may actually tie to business ventures gone sideways, technical investments gone bad or M&A events that spectacularly failed to hit their mark. No matter what it is, these experiences inform future decisions unless (or until) they fade from the conscious memory.

Of course these events have a corollary which focuses on what worked, and these “winning” strategies and tactics also form a foundation for future success. In fact, for many organizations, the past many times is deemed to be a predictor of the future, so long as it gets put into the right context. This also means being in a position to draw the correct lessons from past experience, and avoiding the temptation to confuse “correlation” with “causation”.

The correct lesson extraction may, in fact, be the tricky part.

I heard a story recently which brings home the point. In prep for a holiday dinner that involved a ham, a spouse noted that the ham had been cut in half before put in the oven. Why?

“Because that’s what my mother did” came the reply. Asking the mother-in law-why she did it produced a similar, inter-generational,: “because that’s the way my mother did it”.

Blessed with the opportunity to ask the grandmother-in-law why the ham was cut on half got to the root of the matter. And the response for the ages: “because my oven was too small for a full ham to fit!”

Which gets back to many insurance carriers as they consider options for future business process changes and the technology investments, including core systems, that will support them. As carriers look to replace platforms from an earlier era, rather than focusing on what is possible to do with modern tools , they continue to plan for a world that was heavily informed by what worked in the past, failing to appreciate the limitations created by the environment of a different day. Rethinking business processes and related structures can dramatically improve operational and financial results, but not if they are arbitrarily constrained by legacy limitations.

As carriers embark on technology stack replacements they need to understand their own half-a-ham stories and proactively work to explode them for the myths that they are. Getting outside of the company, perhaps outside of the industry, can be particularly helpful and instructive for CIO’s and their teams today. Last year, I had a chance to visit the BMW assembly plant in Greer, SC. This is an amazing facility that is essentially business process and industrial choreography on steroids. The last time I’d seen a plant like this was in the late 1960’s watching Chevys come down the line. This was like Star Wars (my new experience) meeting Charles Dickens (my recollection from a bygone era). It was hard to imagine that these were the same types of places.

Building a state of the art, 21st century car, in a plant rooted in the lessons of Henry Ford, would be impossible. Insurance carriers face a similar dilemma as they get ready for a new and every more competitive environment. Game on!

Core Systems Selections… It Isn’t Like Riding a Bike!

Rob McIsaac

Or, in retrospect, maybe it is. The old adage that “we never forget” key life skills from an earlier time may have some instructive elements for CIO’s to be aware of. And to beware of.

I recently really did return to riding a bike and, while there haven’t been any medical emergencies, it hasn’t exactly been what I’d call “smooth”. While I understand the concepts and the physics, the act of putting all the pieces together into a smooth and fluid motion that is safe requires more than just fond memories of an earlier time. It requires practice and a surprisingly high level of dedicated time to get it right. A success metric built around the phrase “didn’t crash” seems to be dubious at best.

My wife recently took up the piano again with very similar results. Knowing where the keys are is helpful but not enough to make visions of Carnegie Hall dance in anyone’s head.

All of which, of course, then begs the question about how an insurance carrier can best go about selecting … and hopefully implementing … a new core system. The reality is that for many carriers this is something that they have very limited recent practical experience with, even if they have some vague recollection of the key steps. There’s no muscle memory that they can rely on or institutional capacity that has been recently exercised in order for them to have a leverage able asset. Once again, “didn’t crash” is a pretty low success bar to achieve. For many carriers, making these kinds of investment decisions are only pursued a few times in the course of a generation, so thinking that there’d be notable carryover from one experience to another would really stretch credibility.

Beyond that lack of recent experience, the changes in technology from one era to another can also add daunting new level of complexity to the issue. I also learned this the hard way when rekindling the interest in biking. It turned out that all of my experiences were rooted in the 1980’s and 1990’s; the technology has changed dramatically since then, creating a multi-dimensional learning event. Unless my goal was to optimize around solutions that are 30 years old, thinking differently and being open to outside influences proved to be pretty important elements for building to ultimate success.

For carrier CIO’s, finding a way to gain both organizational muscle and institutional knowledge fast is also a critical factor for success. As increasing numbers if carriers across a range of lines of business are finding, a system strategy the addresses replacement of core capabilities is a logical enabler for future success. It isn’t just for P&C anymore.

To that end, using a process like what Novarica offers our Advisory clients is a way to both speed up the selection process and to reduce the risks associated with these initiatives. The experiences built up over many efforts across multiple carriers helps to position these assets to be immediately leveraged for success. The idea of “didn’t forget” something is rather different from “didn’t stop doing”.

As exciting as “On the Job Training” can be, the IT equivalent of open heart surgery is likely not a practice with an appropriate risk / reward profile. Happy trails!

Getting at the Root Cause Helps Avoid “Ready, Fire, Aim” Events

Rob McIsaac

The idea of finding a root cause to a problem, before going into “action” mode for fixing symptoms related to issues, is a tried and true methodology. In the calm, when there’s no particular problem to address and no sense of impending doom caused by the pressure to actually get something done, the rationality of the approach makes perfect sense. The logic of being clear on what problem is being solved, identifying the cause, then (and only then) moving to action is compelling.

This helps avoid the self inflicted wounds that inevitably come with “ready, fire, aim!” events.

I was reminded of this recently when suffering an intermittent Wi-Fi outage. Some machines seemed to be impacted while others were not. A phased rebooting of equipment and a lengthy experience with the Telco eventually restored service … which then immediately failed. The real root cause? A Wi-Fi on / off switch that was hung on the tipping point of turning itself “off”. Once discovered the problem was quickly and easily solved, although I will never get the lost time back.

A far more serious event occurred in one of my data centers a few years ago when a SAN controller suddenly went into a freeze state, bringing all core processing to an immediate and agonizing halt. An immediate thought: let’s reboot / IPL everything and see what happens! Cooler heads prevailed and we did the hardest thing possible … nothing! … until we really understood the issues.

Once the issue was understood, we learned that the controller had done exactly what it was supposed to do. As the result of a fault in the original configuration (years earlier) that had hit just the right set of conditions, it stopped processing. Armed with that insight, we engineered a proper recovery which lost no data along the way. If we had followed a more action oriented approach, perhaps rebooting the device, we would have lost all the data that was in flight at that moment. The only word to describe that would have been “ugly”. By taking the more planful and thoughtful path we were able to recover with no loss of data and in a better business state than would have been possible otherwise.

Taking the time to do this was the smart thing to do, but it certainly ran counter to a human emotion that said “just do something!”.

Of course we see that “do something” mantra happening at many insurance carriers on a range issues. Whether it is because they are so close (perhaps too close?) to their own issues, IT teams frequently misunderstanding the real underlying causes for systems and operational issues. As a result, they may go after treating symptoms, which can actually mask the underlying problems. This can actually create a bigger problem with more significant, and unfortunate, long term consequences. Taking the time to do the root cause analysis, which may include bringing fresh eyes in to look at old issues, can ultimately be a faster and cheaper approach to real resolution. As counter to an action orientation as this may be, getting a plan framed and communicated can avoid all the collateral damage that can go with poorly conceived plans or a lack of proper context.

Setting context and framing issues can be a powerful way to get resources and organizational commitment to go after big issues too. This allows for proper education on issues, options and ultimately gaining organizational commitment to go after the right issues in the right way. This isn’t, however, something that is universally appreciated. In recent times, I’ve even seen some carriers shop for technology solutions to problems they don’t have … clearly not an optimal investment of assets. This can happen to organizations are too quick to jump to conclusions or somehow fail to frame issues in the correct, holistic, context for their specific organization.

Taking the time to plan things through early can avoid turning a modest problem into a nightmare scenario.

July Acquisitions in the London Market

Catherine Stagg-Macey

In a recent blog on the evolution of core software in London market, I suggested that changes were afoot. (http://blog.novarica.com/?p=2470/) And so they were.

At the beginning of July, Xchanging acquired two insurance software companies within a week of each other –
AgencyPort Europe *(http://www.xchanging.com/news/xchanging-acquires-agencyport-europe/) and Total Objects. (http://www.xchanging.com/news/xchanging-acquires-total-objects) A week later, HG Capital, a private equity firm, announced a co-investment in Sequel Business Systems. (http://www.hgcapital.com/news/hgcapital-announces-investment-sequel-business-solutions)

Whilst the deals are very different in nature, they speak to the buoyant view of both software companies and private equity firms alike. With the consolidation of vendors, it also offers a more distinct choice for insurers.

The Xchanging acquisitions fill out their portfolio of offerings with the addition of a cloud based bordereau management system (TotalObjects), MGA systems (TotalObjects and AgencyPort), a risk aggregation tool (AgencyPort) and a system for Health Insurers (AgencyPort). The deals bring with them some duplication – two broker systems, two reinsurance systems, two MGA systems and two underwriting systems for both syndicate and company’s.

Xchanging has made it clear to all users of all these products that they will continue to support all products for the foreseeable future. That said, we would expect to see some consolidation of the product portfolio in the coming years. At a minimum, this is needed to streamline the market messaging and at an operational level, it would not be surprising to see some reduction in duplication to reduce current operational costs and future product investment.

The co-investment in Sequel Business Systems, a competitor of AgencyPort and Xchanging, will bring with it an injection of cash. No details have been published on where this might lead the company, but in conversations with clients of all these software companies, initial responses were mixed. A spate of deals like this always introduces uncertainty and it takes time for customers and prospects to embrace and understand the impact of these deals on their own technology investments.

One of our critiques of this sector of insurance software over the years has been the underinvestment in the solutions. These deals suggest show this is changing and insurers can be optimistic in the future evolution of London market software.

NOTE: Agencyport Europe has been separated out from Agencyport NorthAmerica in the recent years. This acquisition does not impact AgencyPort NorthAmerica.

For more of our recent research on the London Market see our CIO Survey and our Business and Technology Trends report.

Accelerating Pace of Change Requires New IT Planning Paradigms

Rob McIsaac

One of the realities of IT in any industry is that “truth” related to technology is a fleeting thing. The best system or technology to deploy can evolve with surprising speed, making it important for CIO’s and their organizations to determine with some precision what a roadmap toward a future state should look like. Increasingly, CIO’s and their team should carefully consider just how long they think they will be in that future state too. This has implications for both the technologies to be deployed and the financial mechanics used to pay for them. Missing either of these key points can create the IT equivalent of “The Hangover”. Unfortunately, aspirin alone won’t cure this one!

There are parallels in other parts of our personal and professional lives. As a frugal minded sort, my typical approach to cars was to buy them and drive them long after the warranty and that new-car smell were gone. While the shapes and sizes until recently changed like fashion statements, the essential technology remained pretty stable.  Parts evolving slowly over time and had surprisingly long useful lives. As a result, parts and skills remained in a pretty consistent supply. A few years ago I finished restoring a 30 year old BMW (ok, so being frugal has its limits) and the only limiting factors were time and money. Parts and skills could be bought, because essentially the same vehicle had been in production for nearly 15 years.

Try that trick with a new car. They are better in every way. Faster, quicker, safer, better fuel economy, less maintenance. The list is long. But the challenge is that the technology used is fleeting. A two or three year old vehicle may have technology embedded that looks nothing like what is in production now. When the parts run out, there may be no clear path forward. As a friend of mine said, “I don’t think I could afford the risk of owning a new one when the warranty runs out!”.  Relatively small parts failures could lead to catastrophic financial events.  Leasing starts to sound like a pretty decent idea; about the time problems begin to set in, give the keys back and start over again.  It is an appliance, not an investment.

That’s hardly unique to cars. Is anyone paying real money to fix an iPhone 4?  Of course not. They were the height of cool a few years ago and helped to change the world we live in. Now they are disposable.

Large flat screen TV’s are the same way.  When a circa 2008 model expired recently, it was cheaper to get a new one (that was far better) than it was to fix the old one.  Turn them and burn them when they’re done.

There’s a good chance my next car will be disposable too. I will lease it, use it for a specific period of time, then replace it on or around a known date. I won’t depreciate it, won’t fix it, won’t treasure it like a friend. I will consume it and move on.

The same should be true of future core systems at insurance carriers. The systems and their vendors will evolve quickly using the “best” available technology at a moment in time. Then they will move on. Rinse and repeat will be their model.

And while carriers have built, bought, modified and embraced systems from the 1960′s to the 2000′s (a surprising number of 40-50 year old systems run major workloads every night), that’s a model that has a foreseeable end. Anyone pining for that “state of the art 2009 platform” now?  Of course not; we would have had a challenging time describing some of the things that would be key drivers for business success five years later.  That will be even more true as we think about 2019 or 2024.

Rather than acquiring and depreciation systems for a protracted lifespan, implementing with an eye toward “replacing the replacement” appears to be a more viable and effective model. This impacts skill sets, depreciation schedules and even the future state IT discussions. It may no longer be a “buy versus build” dialogue. For the future it may be “buy versus rent”.

A variety of factors have now come together to make this a viable option. If email for large / complex / highly regulated companies can live in the cloud, a host of other things like policy administration, claims, distribution management and financials can too. Pun intended.

I never thought I’d lease a car either, but we’ve crossed a risk / return tipping point that makes that a pretty attractive option. Of course I will keep my ’84 Bimmer for fun and pleasure. Sure wish the A/C worked better, however …