Dave Shively, Oracle's Senior Director of Life and Annuity Policy Administration, discusses the topic of core system solution and vendor selection in today’s post:
Over the past ten years, the vendor landscape for back-office Insurance solutions has changed tremendously. The number of offerings based on modern technology has increased dramatically and the breadth of capabilities offered by these solutions has also improved significantly. As the market evolves, capabilities that were once cutting edge become default and new functionality becomes differentiating. Capabilities which once were “nice to have” are now “need to have.”
The current vendor landscape can be broken down into the following classifications:
- Emerging Players - newer vendors who are starting to gain a foothold in the marketplace, but do not yet have a proven track record.
- Market Pillars - established players with very strong vendor credentials, but whose technology has not kept up with the competition.
- Innovators - have demonstrated innovative product strengths that act as their competitive advantage in appealing to niche segments of the market but whose solutions may not yet be ready for enterprise level deployment.
- Champions - have a strong market presence, modern competitive solution, and are the trendsetters for the industry.
When assessing the viability of a solution vendor, it is important to not only consider the strength of their product offerings, but also their strategy and reach. For their product offerings, evaluation criteria would include functionality, advanced features, affordability, usability and architecture. The other important parameter driving a product’s strength is its adaptability –providing fundamental business capabilities along with the ability to adapt to change and support growth and changing business and regulatory requirements over time.
But there are several factors that should be considered when choosing a vendor partner that go beyond the capabilities of the solution itself. Carriers have to keep in mind that selecting a Core System ties you to the product vendor for years to come. The average life-span of a Core System in a carrier is more than 30 years so it is important to consider not only the immediate need, for which the solution is being selected, but also the longer term needs and viability of the solution. A few of the factors to consider include:
Financial Stability and Transparency
The long term stability of your vendor is critical to the success of your business. Vendors showing poor financial performance/statements are risky as there is a significant probability of acquisition or even insolvency. There are many examples of vendors who have created innovative solutions but could not weather market down cycles. Vendors not willing to share audited financial information or shying away from providing an accurate picture of the past performance of their products/offerings are likely doing so for a reason. Hence, selecting vendors who can prove that they are financially stable, profitable is undoubtedly a critical criteria for selection.
Resources – Ongoing Product Investment
Significant levels of investment are required for sustained development of next generation products, maintenance of current products and customer support. Additionally, investments done in R&D that add to the performance, stability, functionality, reliability of the product demands depth of industry experience, true knowledge of the solution and a rich experience in implementing the solution. Hence, selecting a vendor who has industry experience, solution knowledge and product implementation expertise along with a proven track record of ongoing product investment is key. Additionally, as with anything you buy, there are fees and costs associated with investment products and services. Fees that seem small initially but over time grow, such as ongoing consulting fees, may have a major impact on your investment portfolio over time. All ongoing fees and charges should be well understood and vetted in order to ensure you are getting good value for each dollar paid over the life of the product.
Experience in Domain
Domain experience is critical not only to implementation success, but also to the long-term viability of the solution. Minute details of the industry are known only to those who’ve spent years in the Industry rather than having just researched it. With regard to the implementation of the solution, you want to ensure the vendor team has the experience to quickly understand your business needs rather than your team having to educate them about basic insurance principles. In addition, you want to make sure that the product development team understands the Insurance market so that the solution evolves with the market rather than stagnating and becoming irrelevant. In addition, it is not only important that the vendor can put forward one or two industry experts, but rather you should look for a team of people supporting the solution who all have a solid understanding of the Insurance business.
While most vendors profess to have a scalable solution, it is important to look for proof points around this supposition. A vendor should be able to provide large scale implementation references, have well documented scalability testing results, and be able to succinctly articulate how their solution achieves scalability. They should be willing to let your technical team “under the hood” so they can understand the underlying architecture and how it responds as business volume increases.
Documentation detailing the use of product features and configuration capabilities are a basic requirement for a complete packaged solution. Guides providing installation and use instructions that are well-documented and readily available with the product are critical for the adoption of the solution by your organization.
Product Vendor versus IT Services Provider
A recent trend in the marketplace is the acquisition of industry products by services companies in order to drive services revenue. The challenge is that services companies lack the basic product management disciplines such as providing technical support, packaging and rolling out software upgrades, supporting new releases of platform software (OS, DB, Web server), and generally having discipline around product strategy. In addition, they are not incented to provide rich out-of-the-box functionality; rather they want to create solutions that drive services revenue by providing good core capabilities but requiring a carrier to pay for services to “customize” the solution to their needs.
Last, and perhaps most important, is the vendor’s relevant experience implementing their solution for similar carriers. They should be able to provide both case studies and references for customers that are of a similar size and with similar product lines. In addition, it is important to look at their list of customers that have the solution live and in production today to verify what they are telling you about their ability to successfully deliver their solution. Just because they have sold to a lot of carriers does not mean they have a track record of success on the delivery side.
The Bottom Line
Following these criteria can result in creating long term partnerships and strategic engagements, the output of which can be the best business-product evolution in the industry. When insurers connect their business with a product and vendor well-equipped to meet today’s challenges and provide a platform for future growth, the best is sure to follow.