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Digitization

Using software as a service as an insurer

by Markus Pabst / 29. April 2020

Changing customer expectations, growing competition from agile insurtechs, high cost and competitive pressure and, last but not least, the risk of major digital players entering the market are forcing insurers to digitise their business models quickly and comprehensively.

 

This, in turn, requires flexible IT structures with the right system capacity, exceptional IT expertise and clearly defined technical and organisational interfaces.

 

Insurers’ in-house IT systems can only meet the requirements of this necessary adjustment to a limited extent, or at great technical and financial expense. Consequently, the IT budgets to run the business rise and less leeway is left over for IT innovations that benefit both the customer and the product. The lack of specialists needed for an insurer to expand its own IT expertise is another obstacle impeding the rapid implementation of insurers’ digitisation strategies. Cloud-based approaches to services, software as a service (SaaS) most of all, offer a way out of this situation.

 

SaaS – definition and classification

SaaS models are based on the principle that software modules and the necessary IT infrastructure belonging to a specialised service provider can be used on a subscription basis. Unlike the traditional licensing model, where a piece of software’s terms of use have to be set out in a lengthy agreement, the SaaS model can be used and paid for with considerably more flexibility, which is exactly why it is so well suited to utilising economies of scale – ‘think big, start small and scale’, after all. Technologically, the use of SaaS requires external cloud infrastructure from which even the necessary middleware components (databases and operating systems) and IT infrastructure (networks and firewalls) can be operated. In the service provider selection stage, however, this ‘IT from the socket’ approach requires particular attention to be paid to the service provider’s compliance with data protection and regulatory requirements, which is of critical importance to the implementation of such a model.

 

Use of SaaS solutions

Besides the aforementioned technical and economic scalability, the key potential benefits of an SaaS-based IT solution lie in tied-up IT resources being made available to develop innovative applications in the customer and product segment; applications that distinguish the company from its competitors. The risks in terms of the necessary investments in IT and the costs of software maintenance are borne by the service provider.

 

A modern IT platform with flexible usage options

By outsourcing to a specialised IT provider, the SaaS user benefits from a modern, technologically sophisticated IT solution that meets all functional and regulatory requirements – without any major initial investment. According to the service principle of the SaaS model, the functional and technical business processes offered over the platform are provided as separate units in line with the requirements of the customer. The offer ranges from purchasing a single innovative service, so as to be able to react quickly to a market requirement, to a complete SaaS platform on the cloud. These flexible options make it possible to deliver tailored solutions to a wide range of customer requirements, such as testing new products, sales channels or digital customer services whilst simultaneously minimising risk and cutting the time to market.

 

With commonly used approaches in the cloud context, such as DevSecOps, new features can be delivered promptly and continuously and regulatory and legal requirements can be met in a timely, regular manner. Mixed formats involving the operation of on-premise legacy systems and SaaS-based modules are a possibility in policy management, for example, instead of taking an immediate rip-and-replace approach. This makes it easier to expand to business process outsourcing for non-differentiating processes or value-creating platform strategies in the direction of ecosystems.

 

The risks of SaaS solutions

The primary risks of a cloud-based approach and of outsourcing IT systems into an SaaS model lie in external data storage. Besides a loss of direct control over the data, the insurer remains responsible from a regulatory and data protection standpoint, and this responsibility is not easy to delegate. In some cases, monitoring and control processes can be more costly and more vulnerable with an external service provider.

 

Summary

The decision to outsource to an SaaS model is certainly a more difficult one for developed IT landscapes than for a greenfield project, one which many insurtechs have chosen in order to build their IT infrastructure. Nevertheless, in light of the reasons described above and the future competitiveness of their business models, it is urgently necessary for established insurers too to consider such solutions. It is certainly prudent not to pursue a ‘big bang’ strategy, but rather to try out SaaS models in small test fields first, such as product testing or customer journeys, and then scale them up if they prove successful.

 

Selecting an independent partner to be a service provider which, in addition to delivering the technical infrastructure, has to possess the necessary technical skills to adopt and operate insurance solutions is of primary importance for a successful start in the world of SaaS. Criteria such as meaningful customer references, a local market presence, project experience and financial stability are all important aspects. Only then can the planning, build and run processes be delivered from under one roof – a veritable one-stop shop.

 

Besides flexibility and time to market, economic aspects are factors of crucial importance to the SaaS model. Our next blog article ‘Usage-based pricing for SaaS solutions’ examines what usage-based pricing might look like on the basis of an agreed price per policy, and what advantages the various pricing models can offer insurers.