The 3 Top Challenges for Insurance Firms

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1 The 3 Top Challenges for Insurance Firms and how Application Integration can help solve them Abstract: To achieve growth, insurance firms must move from multiple isolated applications to service-based integration. Systems such as billing management, policy management and claims management must be made extensible to support new applications. By doing so, firms can augment existing distribution channels and capture new business; more deeply serve and engage their customers; and develop new products to address market whitespaces. The net effect is more effective customer acquisition, retention and profitability. Learn how utilizing a lightweight, standalone Enterprise Service Bus (ESB) lays the foundation for insurance industry growth. MuleSource and the MuleSource logo are trademarks of MuleSource Inc. in the United States and/or other countries. All other product and company names and marks mentioned in this document are the property of their respective owners and are mentioned for identification purposes only. info@mulesoft.com MULE-OSS All contents Copyright 2008, MuleSource Inc.

2 1 Determinants of Growth and Market Share in the Insurance Industry The insurance industry is in a period of seemingly unprecedented flux. In recent years several firms have gained market share from competitors and delivered impressive revenue growth. Incumbents who have adapted rapidly to these shifts and kept pace with new entrants have also improved their position. Just as many firms, however, stumbled along the way. The fundamental difference between success and failure in the insurance industry is being able to rapidly respond to change. Technology and specifically application integration technology is absolutely core to being able to react and maintain sustainable competitive advantage. A 2011 report by the consulting firm PricewaterhouseCoopers identified three top issues impacting the growth prospects of insurance firms: Enhancing distribution Customer-centricity Product and service innovation, customization and simplification. Application integration is core to each of these key insurance industry imperatives. While insurance firms generally have a well constructed IT infrastructure tuned to their traditional lines of business, this infrastructure is often rigidly tied to particular business processes and difficult to adapt to new opportunities. For example, legacy systems are often tightly coupled with a particular distribution model such as agent-based direct sales. The opportunity for customer interaction is often both limited and gated by specific interaction models including agents or call centers. Most importantly, the existing infrastructure is ill suited to quickly change and adapt to the needs of new product offerings, new interaction models, or new consumer technologies. Three Main Determinants of Growth! Enhanced Distribution! Customer-centricity! Product and Service Innovation, Customization and Simplification In recent years, the speed at which firms have been able to adapt their businesses to emerging opportunities has defined success in the insurance industry. New competitors have emerged from nowhere and niche players have grown to become serious threats to incumbents due primarily to their agility. MuleSoft has worked with numerous insurance firms, including both emerging players who have captured market opportunity from established players and incumbents eager to protect and expand their existing client base. This whitepaper explores some of the approaches best suited for responding the 3 top challenges and opportunities faced by insurance firms and the ideal application integration architecture that underlies these approaches. 2

3 2 Insurance Product Distribution The dominant distribution model for many firms is shifting. Further shifts are likely in future years. Traditional captive agent-based direct sales has been augmented or, in some cases, full replaced by a bevvy of new models including online direct sales and sales through independent agents. In the US auto insurance industry, online direct sales have grown from next to nothing to 28% of the total market over the last decade. These new models offer both substantial cost advantages and greater opportunities to engage with prospective customers. While most firms have taken steps to create a more dynamic, multi-channel distribution model, the speed of the move and the results obtained vary widely. In many markets, these new distributions channels and business models represented a Schumpeterian force, obliterating the competitive advantage of some of the best tuned firms. A small handful of firms embraced the online direct sales model with gusto and achieved improved market position and profitability as a result. In contrast, some of the more established firms with the most finely tuned and sophisticated business processes, backed by some of the most established and best-tuned IT infrastructures have struggled to keep pace. Integration between existing systems and new software applications represents the fundamental challenge faced by firms seeking to build new distribution models. Firms must integrate their existing business infrastructure including systems designed for business processes such as claims management, policy management and document management with new applications. For example, ecommerce processing must leverage existing backend systems. Likewise enablement of independent brokerages or agents is nearly impossible if done completely independently of legacy systems. Exposing existing systems as services and then integrating those services as needed is the ideal way for firms to enable the flexibility they need to meet this imperative. There are several pitfalls; however, that plague insurance companies as they go through this distribution model transition. Some reject middleware approaches and opt for direct integration between applications. While initially appealing, this sort of approach compounds the fundamental problem that limits the potential of these firms. Whereas the initial intent was to provide flexibility in order to enable a new distribution model, this solution only further calcifies the organization s IT infrastructure. Should a third distribution channel later be added, the lack of separation between integration and business logic will inevitably exacerbate the challenge of responding to this new opportunity. A second pitfall that plagues many insurance firms is adopting an overly complex architecture with many different pieces. While many Service Oriented Architecture (SOA) stacks promise a panacea, in most cases they fail to achieve their stated goals. These solutions entail a large and complex deployment process and require substantial developer training. The largest, most established and financially powerful firms are the most prone to fall into this trap. While promising to solve all of their problems, adoption of these solutions typically takes years, enabling new entrants and more agile competitors to gain the upper hand and win market share from the incumbent players. By the time firms complete the entire multi-year effort, the market has moved past them. 3

4 Another approach is to use a lightweight, standalone Enterprise Service Bus (ESB) to integrate both legacy and new applications. This delivers superior time to ROI and reduced overall cost compared to alternatives. A particularly poignant example of a shift in distribution model is Pacific Compensation Insurance Company (PCIP). In PCIP, feeling the impact of both economic conditions and increased capacity in the California worker s compensation insurance market, undertook a wholesale change from a direct sales model to independent insurance agents. By doing so, the firm regained a competitive cost structure and was able to quickly re-enter the market. To enable this shift, PCIP integrated several existing applications such as DCo Policy management with new applications such as STG Billing. PCIP completed this integration in a short time with only a skeleton staff by utilizing the Mule ESB as their integration platform. Mule enabled the firm to go to market with a new distribution model in a fraction of the time it typically takes many firms, delivering the entire project in a matter of months. Learn more about how Pacific Compensation Insurance Company used integration to radically transform their cost structure and utilize a more effective go-to-market strategy. Similarly, a major established UK auto insurer chose to increase their reliance on web delivery for quotes and customer acquisition. They too chose to use an ESB as the core of their SOA integration strategy. This allowed them to quickly integrate their new web application with the backend quote system, broker portal and existing applications. They evaluated and selected the Mule ESB and were able to quickly integrate their new online channel with their existing backend systems and defend their market position against aggressive new entrants. When evaluating how to best enable a new distribution channel, the top questions to ask include: What are the time-to-market considerations I must consider when enabling this channel? What are the key existing investments I must maintain and integrate? What new technology will I need to enable this integration? Will my choice in how I enable this new channel increase or hinder my ability to enable other channels? Will my existing development resources be able to build and support my integration applications going forward? 4

5 3 Customer Service While customers may be acquired through any number of channels, customer retention is directly related to the quality of the interaction customers experience when dealing with the insurance firm. In recent years, customers have become accustomed to real-time rich experiences. A customer who uses online banking, purchases products and services through e-commerce websites and utilizes web products to find information, or interacts socially brings certain expectations when dealing with their insurance provider. Over the years, these expectations have grown progressively and the gap between expectations and the service many firms provide has widened. The upshot of this transition is firms have an opportunity to engage more deeply with their customer case than was previously thought possible. Firms that have utilized technology to provide increased service on a 24-7 basis have outperformed those who have not and been able to command a premium position in the market, gain share and increase margins. Like distribution, the existing insurance application architecture has proven ill suited to the challenge of meeting customer demands. Many incumbents designed their systems with a particular interaction model in mind. Non-real time interactions with both insurance and call center agents represented the dominant paradigm of the day. Many firms have struggled to augment their existing systems to support other types of customer interaction. Because data access was often tightly coupled with delivery systems such as agent applications, integrating these applications with new web portals has proven a challenge for many firms. While many firms have struggled to properly give customers the information they demand through a webbased experience, even greater challenges loom on the horizon. Increasingly, customers demand realtime information on mobile devices. This requires firms to support not only web applications but also specific applications offering a native experience on platforms such as the iphone, Android, Blackberry and others. In future years, customers will expect to be able to check their policies on the go, and file claims directly from accident scenes, doctors offices and other places away from their homes and offices. This too will prove challenging for the industry. Again the ideal solution is to create an integration middleware layer between the systems and these new applications. Many applications designed primarily for use by agents have idiosyncratic interfaces that make integration difficult. A flexible ESB represents the ideal solution for this challenge as it allows data to be easily exposed as services that can be consumed by both web and mobile applications. Even as application demands change, new mobile platforms emerge, and new interaction mediums such as social networks become pervasive, this architecture supports a sustainable customer intimacy strategy. 5

6 GIE- Union Groupe Initiatives Mutuelles (GIEUGIM) provides an excellent example of using integration to improve customer service. GIEUGIM is one of France s largest insurance mutual benefits consortiums, providing health insurance to over 1.2 million members. GIEUGIM improved their customer service through the use of two complimentary products, Mule ESB and a new Customer Relationship Management (CRM) system. GIE-UGIM maintains a massive set of documents and records associated with every client and their healthcare interactions. Utilizing CRM, they associated these documents to customer records for easy management. They then integrated that CRM system with both their legacy applications and new applications to make them directly accessible by their members. Members no longer needed operator interaction to access vital records. This improved the firm s retention rate and customer satisfaction, decreasing customer churn. Learn more about GIE-UGIM s customer service initiatives and the key role of integration in delivering A leading US health insurer has a similar challenge. The firm felt the best way to improve their customer orientation was implementing a patient dashboard that tied together all known patient medical records and used these to offer preventative measures. This approach increased customer satisfaction while simultaneously reducing costs associated with major medical events. The firm, long dependent on a traditional SOA stack, accelerated the pace of their development and delivered a richer customer service product by integrating using Mule ESB. When evaluating initiatives to improve customer service, the top questions to ask include: What customer interaction experiences will differentiate me in the market? Which platforms might I need to support in the future? How will I support them? Is my choice of architecture flexible enough to support emerging technologies that will enable tomorrow s customer interaction? How quickly can I deliver breakthrough customer experiences? Will my competition get there first? 4 Product and Service Innovation, Customization and Simplification A final challenge facing the insurance industry is product innovation. The wealth of available customer data allows firms to better meet customer needs while improving profitability. Firms can gain a competitive advantage through strategies such as bundling, mass customization and new product development. In some cases, firms carved our niches in what had previously been underserved markets. In others, they moved laterally from one part of the insurance business to another by combining home, 6

7 life, auto and other forms of insurance. Still others pioneered new business models that yielded superior profitability. Product innovation, customization and simplification frequently require integration of multiple previously siloed systems across the organization or even outside the organization. At times, this follows M&A activity driven by a strategic initiative to unify multiple lines of business. Like the challenges of distribution and customer service, more often than not, tightly coupled systems must be disassembled and exposed as services that are accessed by new applications. However, product innovation often entails an extra challenge: organizations may have multiple systems performing similar tasks. For example, a home insurance line of business and an auto insurance line of business may each have their own policy or claims management systems. While the challenge of building new products and seizing new market spaces may be even more complex than the challenges of distribution and customer service, a lightweight ESB proves equally powerful when solving the product innovation challenge. The primary difference is firms must expose even more systems and build even more complex composite applications to enable product innovation. A lightweight, flexible ESB is simply the only practical way to achieve such a task in a competitive timeframe. A regional auto insurer in the Northeast US provides a great example of this imperative in action. The insurer offered a fairly stagnant group of products through multiple divisions of the company. They needed to quickly integrate 7 different divisions of the company to allow for increased product diversity. By increasing their product portfolio exponentially they addressed and captured whitespaces in the market. The firm selected Mule ESB as their integration platform to integrate these divisions and their respective systems quickly and efficiently, allowing them to capture this market before competitors reacted. In the UK, an innovative new competitor targeted a different model. This firm chose to act as an aggregator of services, including insurance, loans, utilities and other consumer services all offered through an online channel. To be successful, the firm collated quotes and services from partners and delivered them in a consolidated form. Mule ESB provided an integration layer that facilitated this new business model and allowed the company to come to market well ahead of other competitors and gain the market leadership When evaluating product innovations, the top questions to ask include: Which internal and external systems must I integrate to deliver new products to market quickly? Which platform will most easily allow me to pivot and further customize my product offerings in the future? How quickly can I deliver products to market on my chosen platform? Does my platform have enough breadth of connectivity to handle additional systems I might need in the future? 5 The Software Architecture for Insurance Industry Growth When taken as a whole, all paths to growth for insurance firms require moving from multiple isolated applications to service-based integration. Systems such as billing management, policy management and 7

8 claims management must be made extensible to support new applications. By doing so, firms can augment existing distribution channels and capture new business; more deeply serve and engage their customers; and develop new products to address market whitespaces. The net effect is more effective customer acquisition, retention and profitability. The most successful firms in the insurance industry utilize integration middleware that enables rapid deployment, quick developer onboarding and faster integration. Selecting the right integration strategy and supporting architecture is one of the most important decisions firms make. MuleSoft has extensive experience in delivering solutions that increase insurance firms ability to meet their growth goals. Many of the most successful firms in auto, home, life, health, workers compensation and other lines of business enabled breakthrough success on a Mule ESB backbone. Mule powers both incumbent firms that have transformed their businesses to support renewed growth and insurgent firms that have built entirely new business models. MuleSoft can help you evaluate your key growth objectives and develop the key integration applications that will help you grow in coming years. To learn more and contact an expert visit About MuleSoft MuleSoft delivers the world s #1 integration platform for the cloud and enterprise. Built on the most widely used open source application infrastructure products, Mule ESB, ion integration platform as a service (ipaas), and Tcat (enterprise Tomcat server) provide an ideal combination of simplicity and power to today s web applications. The company s offerings boast more than 2 million downloads and over 3,200 organizations in production, including leading companies such as Walmart.com, MasterCard, Nokia, Nestlé, Honeywell and DHL, as well as 5 of the world s top 10 banks and over 35% of the Global 500. MuleSoft is headquartered in San Francisco with offices worldwide. For more information: or info@mulesoft.com. Download Mule ESB: MuleSoft and the MuleSoft logo are trademarks of MuleSoft Inc. in the United States and/or other countries. All other product and company names and marks mentioned in this document are the property of their respective owners and are mentioned for identification purposes only. All contents Copyright 2012, MuleSoft Inc. 8