P & C Technology Blog

Disaster Recovery

One of the observations offered in this blog is the opinion that there is a new and better breed for vendor in our market space and that as a direct result of their success the “legacy” vendor have upped their game.  Both trends are good news for the carriers that buy software and services.  So the vendors, I believe, are getting better, but what about the carriers?  Are they getting any better at selecting and implementing appropriate software and services?  Hard data is all but non-existent in our market but generally accepted estimates are that more than 50% of all core - PAS, Claims, Billing - system implementations fail either partially or completely.  Obviously neither the carriers, nor the vendors, are interested in publishing their failures let alone offering them for future learning so it’s hard to know whether there are fewer disasters than before. 

But, although there is no evidence to support the view, I get the sense that carriers are getting better at selecting and implementing core insurance systems.  As much as anything I base this on a lack of data; that is, a lack of disaster stories circulating in the industry.  In past years there have always been several protracted failures widely known amongst the vendor community.  Obviously you have to be careful in buying into these anecdotes because vendors are only too happy to pass alone the failures of a competitor, especially to those of us who influence carrier buying decisions.  However, it has not proved difficult in the past to independently verify disaster rumors and by and large they have been shown to be substantive.  So, where are today’s disasters?  You know the ones where the carrier wastes millions, nothing gets implemented and the CIO loses his job.  The answer is: “Apparently, no where to be found”.  I still hear of troubled implementations and unhappy carriers, but the “Titanics” of our industry seem to have slipped over the horizon. 

I do know of one carrier that, in the rush to do too many things at once, made an inappropriate PAS selection.  However, in that instance a failed proof of concept saved the day and avoided a costly implementation debacle.  I think this story is instructive.  Carriers are getting better at recognizing and mitigating the risks inherent in major software acquisition and implementation projects.  More carriers use formal vendor selection methods, employ project based risk mitigators such as proof of concept, and negotiate contract based mitigators such as pay for performance to control the operational and financial risks.

If there are there fewer major project failures, is it because the carriers are getting smarter?  The answer is an unqualified “partially”.  Certainly, the trends identified above play a significant role but the other major factor is the point we started out with, which is that the vendors in general are better at software delivery and project execution than at any time before.  So, the reality is that improvement on both sides of the selection and implementation process, supported by a much stronger “partnership” orientation seems to have significantly reduced the number of project disasters in our market.     

Irrational Exuberance

In 1996 then Federal Reserve Chairman Allan Greenspan famously suggested that the American stock markets were suffering from “irrational exuberance”.  In other words stocks were generally overvalued and investors were ignoring the sober analysis of stock price fundamentals.

I feel that its time to take the contrarian position on all this talk of the superiority of new generation systems and warn the buying carrier population of irrational exuberance.  Anyone who has read this blog consistently is probably reaching for the “flip flopper” label as we speak, but let me explain.  I absolutely believe that new generation of systems are better designed and built and the new vendors are more capable.  I have said as much here and elsewhere. But, these systems, particularly the new policy administration systems, are mostly in their adolescence.  They lack all kinds of detailed functionality which the current legacy systems have.  I have been saying to clients for years that when it comes to new core administration systems their choice is between technology and functionality.  This is less true today than at any time before, but it is still true.  The P&C business is a Rubik’s Cube of exception conditions fueled and maintained by the fifty state regulatory environment within which our industry operates.  Building out the rate/rule/form, processing and reporting variances for one product over fifty states is challenging enough.  Now try it for multiple products written by multiple companies within the same group.  These kinds of complexities are conquered by vendors one client at a time.  So if you happen to be the second fifty state work comp carrier to purchase System X you are in infinitely better shape than the first carrier.  It takes years for a system to have been implemented at enough clients that a critical mass of detailed functionality is available “out of the box”.

My point is not that carriers should avoid new administration systems; to the contrary, carriers should look at new generation software to solve their business needs before they look at the legacy vendors.  However, we need to compensate for the now steady drip feed of articles and press releases which paint a positive and uncritical picture of life beyond the legacy world.   There is no doubt that the new administration systems hold more promise for ease of use, speed to market and reduced maintenance but there are some unavoidable realities to be born in mind; including:

·                    the new system you buy will probably have less “out of the box” detailed line of business/state specific functionality than the legacy it is replacing

·                    because of the first point above, the implementation will probably involve line of business and/or state build outs that add time and cost to the initial and subsequent implementation

·                    regardless of how good the new software is you still have to do all the other vital and mundane tasks to  replace the legacy system, including change specification, quality assurance testing, administration setup and data conversion and migration.

The promised of the new administration systems and software vendors is a better world, when you get there.  Getting there is still risky, expensive and hard and will require a sober gap analysis between the functionality the carrier wants and the capabilities the software offers.  Don’t be lulled by the press and publicity.  Curb your irrational exuberance and make sure you know what you are and are not buying.