Software as a Service. An alternative for composite insurers


Composite insurance companies frequently have a historically grown monolithic system based on COBOL. A number of specialist functions are located in this system, as are various non-disciplinary cross-sectional functions that have been housed there for many years.

Therefore, when replacing a system, it is not sufficient to replace only one of the core systems or one of the supporting systems. A holistic approach is needed to renew the entire application landscape. This is the only way to bring about change and achieve the usually ambitious goals of composite insurance companies in terms of efficiency and automation. But does redesigning a composite application landscape make sense in a SaaS model? What are the advantages and disadvantages and which terms are to be distinguished from each other?

A distinction to the otherwise known and classic models

On-Premises: In a model based on on-premises software, the licenses to use the software are purchased by the insurance company and run on hardware not provided by the software vendor. This means that not only the acquisition costs of the software are incurred, but also the costs for renting/acquiring the hardware as well as its operation.

Infrastructure as a Service (IaaS):In such a service model, the purchased software is operated on the virtualized hardware. In contrast to the on-premises model, insurance companies do not purchase their own hardware, but run the software on virtual clusters. However, the insurance companies remain responsible for installation and operation.

Software as a Service (SaaS): The SaaS model is based on the principle that the softwareand IT infrastructure ofa service provider can be used. Insurance companies only need end devices to use the services. The retrieval and usage usually take place via a web browser. This means that insurance companies do not have to spend resources on the acquisition of software and hardware or on IT administration. A predefined monthly fee covers the use of the software including all costs.

Advantages of SaaS solutions

Scalability and flexibility: A SaaS model allows insurance companies, especially young insurtechs, to manage the use of applications according to their needs and thus to be able to respond to organic or inorganic growth (e.g. by purchasing another insurance company) to scale. The expansion of capacities and performance is possible in a very short time in consultation with the service provider and does not require any internal technical resources other than the end devices for the users.

Cost-effectiveness:
In addition to technical scalability, a SaaS solution offers insurance companies a billing method that is based on demand and usage. This ensures that the development of costs is in line with the development of the company.

Internal IT resources:
In a SaaS operating model, insurance companies need far fewer internal IT staff resources and can invest them in developing solutions within an insurance company's core competency.

Smooth processes and maintenance:
When using a complete application landscape from a single source, insurance companies can rely on the coordinated processes of the systems and do not need individual adaptations to many different systems from different providers. In addition, the technical, regulatory and functional maintenance of the software is also "booked" as a service.

Risks of SaaS solutions

For insurance companies, particularly high supervisory and data protection requirements apply to the data storage of customer and broker data. This applies to both on-premises and SaaS operations. For this reason, particularly explicit and small-scale monitoring and control processes must be agreed with the service provider. These control and management processes must be monitored and regularly reviewed by the insurance company.

In addition to the legal challenges, a changeover to a SaaS model involves extensive restructuring of the company's own IT organization, especially for medium-sized and large composite insurance companies. In this context, it is necessary to consider which activities will still exist in the future and which internal resources will continue to be required for this purpose. This may lead to a change in job profiles and a reduction in the need for IT staff. This results in a change process that must be very well planned and closely monitored.

Why a SaaS model can make sense for composite insurance companies in particular

Composite insurance companies, in contrast to health or life insurance companies, generally have many more lines of business and thus also more differentiated requirements for the specialist functionalities of the systems, the processes and the many different interfaces with each other and with external service providers that need to be covered. For example, the German application process for a vehicle contract including electronic insurance confirmation allocations and change of insurance company requests have different requirements and processes than the application process for an accident or a residential building contract. Meeting the various requirements in the different lines of business on a permanent basis, maintaining and optimizing the systems functionally and technically, maintaining the IT infrastructure and at the same time ensuring a high dark processing quota is a regular challenge, especially for composite insurance companies. For this reason, the procurement of software and an IT infrastructure as a service from a single source is particularly attractive for composite insurance companies.

Conclusion

The decision for or against a SaaS model also depends on the orientation of the company and its size. For example, it is easier for insurtechs ("greenfield") to opt for a SaaS model for reasons of speed and cost efficiency and to outsource the IT infrastructure from the outset than it is for a large multi-line insurance companies with an existing infrastructure and corresponding internal IT resources. In cooperation with the digital insurance company andsafe, which was founded by the German Provinzial Versicherung at that time, adesso insurance solutions provided the complete application landscape including the frontend and the necessary IT infrastructure in the cloud within a very short time and started productive operation.

Nevertheless, with a view to the future, it also makes sense for medium-sized and large insurance companies to seriously consider such solution approaches. Outsourcing to a service provider ensures that both the software and the IT infrastructure are always up to date in functional, regulatory and technological terms, allowing insurance companies to concentrate on their core competencies.

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