Federal Government or Insurance Carriers- who will be first to get out of the time warp?
In many ways, the current debate about US healthcare reform is similar to the twin debate expected in near future about retirement benefits reform – the two legs of the crippling public finances the US faces in the next few decades. For far too long, the decision makers on these topics have been more “men” than “statesmen”- able to comprehend and address only the immediate time span for their lives/ careers and ignoring the longer term impacts reaching beyond for the state and its future citizens.
For insurance professionals- the challenge is only too familiar as we grapple with legacy processes & technologies many of which date back to the earliest days of the computing platforms from 25+ years ago. It has been immensely challenging to break out of the morass of continuing to do small tweaks to get by because of the high costs of comprehensive improvements which would bring insurance processing into the modern times. Workarounds and small projects seem to deliver what is needed for now (1-3 years), but continue to make future changes more complex and costly leading to a spiral downwards in terms of flexibility and time to market. Just like the larger US public institutions seem to be in the most trouble from legacy policy overhang (Federal & California governments), so too the largest insurance companies seem to be the ones with the most outdated processing platforms. Similar to the debt burden being loaded onto future generations, insurance companies are in essence carrying debts into the future that they will need to begin paying down soon.
The federal government cannot reasonably project today’s situation into the 2035 timeframe without any action (and seem to be understanding the imperative at least for now), so too insurance companies cannot afford to assume they can live with already outdated platforms for the next 25 years and beyond. Who will be the first to get rid of legacy overhang- the next few years will tell and at the least, reputation for the Insurance sector is at stake. Those leading from the front are likely to be the most influential “statesmen” who will leave a “legacy” rather than simply passing on the inherited legacy from prior to future generations.
Comments
Innovation and climate change will transform the way insurance companies do business in the next two/three decades; of course as usual legislation will play catch up. In my opinion these three key aspects will determine how long the old platforms can be flogged.
Homogenous exposure unit insurance business(home, health care, automobile etc) in the near future will be processing more real time information than BBC is doing today and will look like media companies, consuming information not with an intention of publishing. Legislation will play catch up trying to ensure that the insurance companies don’t use this real time information to gain unfair advantage on policy holder. Does the old platform cope?
Climate change increases the probability of colossal losses, forcing more global level re-insurance transactions. To de-risk, legislation will force re-insurance transactions into exchanges (just like a stock exchange today). Possibly insurance companies could be buying up re-insurance from a regulated global or may be a continental insurance exchange. This will change the very nature of the technology platforms required by insurance companies. Does the old platform cope ?
Insurance companies will be forced lead the fight against climate change, corporate sure will join in; after all they will have to pay for the loss making incidents in the long run (through higher premiums etc). This will make insurance companies work with government, quasi-government and NGOs in trying to actively combat climate change. Does the old platform cope?
Industry will move into a phase where co-operation (through re-insurance) will replace competition as the key game changer, thus re-defining the existing business rules and hence IT platforms. Does the old platform cope?
The thrust for changing will be because the existing platform won't be able to handle the business challenges of the 21st century.
The next generation non trivial insurance company technology platform will need (and hence have) totally different characteristic from the current ones and it will evolve over a period of time.
I am sure one is already working on these solutions knowingly or unknowingly.
Posted by: Vallinayagam S | August 30, 2009 4:48 AM
It has been correctly surmised that private corporations have been strapped with legacy systems & processes. Without the momentum of standardization, these cannot be shed easily. And it will take some entity such as the government to enforce such standardization. Akin to events of the World Wide Web, companes will be forced to comply and therefore change or else fade into oblivion. The entity (aka government) will have to provide the first start-up for the ignition chamber of this car (by mandating consortiums of standardization regulations) and then it will gather speed from its own mechanisms without the government's aid.
Posted by: Snigdha Mitra | September 2, 2009 8:08 PM