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What Carriers need to know about SaaS

WHAT CARRIERS SHOULD THINK ABOUT WHEN CONSIDERING SAAS FOR CORE BUSINESS SOLUTIONS

According to Accenture, 85% of insurance carriers believe that retaining a competitive edge will require them to innovate their business processes at an increasingly rapid pace. [i] Additionally, given the mutually dependent relationship between insurance business processes and technology, it is critical that the applications that support the insurance industry innovate at a similar pace. 

One area that reflects this continuation of innovation is the availability of solutions and acceptance by carriers of the Software as a Service (SaaS) model to address core business activities.  As carriers search for applications that enable them to reduce risks, save time, and accelerate their ability to improve the customer experience, it’s highly likely that more and more of these applications will be delivered in a SaaS model.

As the VP of business development for the AURA Underwriting Decision Support solution, I often receive questions about this model for AURA specifically, as well as the overall benefits of SaaS. I thought I’d share answers to a few of the most common questions we hear.

What is SaaS?

Simply stated it’s similar to ‘pay as you go.’   Instead of paying a large up front license fee for the right to use an application in perpetuity, SaaS solutions allow you to “rent” the use of the application for an annual or monthly subscription fee, with the solution provider being responsible for the hosting and ongoing maintenance.

What are the benefits of a SaaS application? 

There are a number of inherent benefits of using SaaS over licensing the application and implementing it in an on-premises data center. Here are a few that have been cited frequently by the carriers I’ve worked with:

Infrastructure costs and IT resources  

Before SaaS, carriers had to carry the full burden of personnel IT resources, as well as the equipment, system software, security, and maintenance costs of environments for the applications.  In a SaaS model, the solution provider absorbs these costs and is able to spread the amount across its customer base – allowing them access to the same solution as an on-premises deployment, but often at a lower cost. 

Additionally the solution provider is responsible for ensuring the availability of the environment.

Also beneficial, the SaaS model is typically a monthly payment that carriers can treat as operating expenses. This frees up capital, and for many organizations, comes with favorable tax benefits as well.

Reduced IT risk

Historically, core insurance applications required a significant one-time license fee, paid up front, which allowed the carrier to use the application on-premises indefinitely.  If the application was kept current by the vendor, the utilization could be a long time.  However, if a major technology change occurs and the vendor is not able to adjust, the insurer in an on-premises model can quickly find themselves on an expensive and potentially obsolete application.  

Immediate access to the latest solution capabilities

In a traditional on-premises deployment, it is the responsibility of the carrier to install and test upgrades to the software, usually provided by the solution provider on an annual basis.  Given the effort involved, it is not unusual for carriers to quickly fall 2, 3 – if not more – years behind.   Which in turn, reduced the value they received from their maintenance fees.

In a SaaS model, the solution provider is responsible for maintaining the currency of the solution being provided.  This has the added benefit of not only ensuring all the enhancements are available to the carrier, but also on a much greater frequency, typically quarterly. 

Scalability – it goes both ways  

In most discussions, a key benefit of the SaaS model is that it supports the efficient growth of a carrier’s utilization on a pay-for-what-you-use program.  In many cases, as the business utilization of the carrier grows, there is a transaction fee uptick or even a bandwidth increase. 

However, another key feature of SaaS, is that it enables the solution provider to offer the same comprehensive solution to smaller carriers at a lower subscription cost.

So what’s the catch?

Historically, the biggest concern with SaaS has been in the area of security. The insurance industry, more so then many other industries, is dependent and responsible for the storage, transmission, and protection of significant personal information. Carriers must be confident that the hosting provider of the chosen SaaS offering is certified to the highest levels of data security.    WHAT CARRIERS SHOULD THINK ABOUT WHEN CONSIDERING SAAS FOR CORE BUSINESS SOLUTIONS

It is recommended to have a well-defined Business Associate Agreement (BAA) in place for any third-party providers that are processing your customer’s personal data. These agreements do not absolve carriers completely in the event of a data breach, however organizations have been fined for not having a signed agreement.

System availability has also caused carriers to hesitate when moving to a SaaS model.  However, in 2019, the sophistication and technology advances that hosting firms can provide around this particular risk – including failover, backups, and redundancies – has been mitigated almost completely.  No hosting vendor can guarantee 100% uptime, but you’ll want to ask them about their uptime track record and their disaster recovery strategy. Look for components such as UPS systems, backup generators, and automated failover strategies. 

Where is my data stored?

SaaS vendors use various cloud approaches. For example, after detailed vetting and analysis of the AWS system availability, security, backup, and disaster recovery, we determined that our solution would best be hosted on Amazon Web Services (AWS). Additionally, we have optimized our solution to leverage the management and maintenance tools specifically to manage the environment most effectively on behalf of our SaaS clients.  You can read more about the decision behind our choice here

Is now the right time?

The trend is clear:  over the last five years, there has been increasing acceptance of SaaS-deployed solutions for the core business processes in healthcare and among life insurance carriers. In fact, Black Book Research found that 93% of hospital CIOs are actively acquiring the staff to configure, manage, and support a HIPAA-compliant cloud infrastructure.[ii]  Choosing SaaS solutions, developed by solution providers that appreciate and recognize the unique security and requirement to constantly improve, can help you cost effectively accelerate innovation and be more responsive to your clients.

Have a question I didn’t cover? Feel free to reach out to me directly.  

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Sources:

[i] The Rise of Insurtech, Accenture, January 2019

[ii] Next-gen cloud computing: How healthcare can prepare for the future, Healthcare IT News, August 2018

Written by: Bruce Bosco

Bruce Bosco has 30+ years’ experience in the global insurance solutions marketplace. Throughout his career, Bruce has developed sound operational knowledge of the core insurance business processes that drive the insurance industry. These include: product development, new business & underwriting, and policy administration, as well as the multitude of applications that serve those core business processes. Complementing his operational knowledge, is a keen historical perspective on how the solutions and the industry have developed over the years as well as a forward-facing view as to what is on the horizon.