Do Insurers Face a ‘Back to the Future’ Reckoning with Cloud Software?

The industry could see a ‘Back to The Future’ moment with cloud software provider exerting outsized price increases at some point when the risks of switching providers is elevated.

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Some of us still remember this bit of Hollywood magic that highlighted a 30-year jump back in time that landed us in the 1950’s, before space travel, the Beatles and pervasive computing of any kind.  Today, a similar leap would take us to the dawn of the Internet era, a world when client-server computing was at its zenith, and some questioned the future viability of Apple as a company.  How much has changed!  I recently saw a DeLorean on the road which brought a certain magical whimsy to mind.  Hopefully, the flux capacitor was in good working order.

Which brings us to 2024. There’s no doubt that the pace and breadth of technology changes facing the insurance industry now are extensive and potentially exciting. The sense that new things can take us to better and brighter places reflect a certain optimism about the future which is beneficial in many ways, and the idea that new capabilities can fundamentally alter our available range of options is very real.

At times, resistance to these changes can be seen as a reflection of institutional conservatism. Sometimes it may simply be seen as a fear of the future or a manifestation of the adage that “We’ve always done it this way,” a clarion call to avoid the unknown and the risky.

But at times it is worth taking a pause to make sure the right lessons have been learned from the past before launching ships into the future. This can, at worst, ensure ideas are properly pressure tested. At best, it can avoid some very painful and expensive lessons associated with “ready, fire, aim” moments.

I was struck by an example of this recently when talking with a senior IT leader at a large insurance carrier. They have made the decision to drive all of their workloads, irrespective of native platform, toward cloud-based solutions hosted by one of the top three vendors. To be clear, this is a great environment which offers some terrific capabilities, but there’s a cautionary tale to be had about taking old COBOL/VSAM/DB2 systems and simply redeploying them. For one thing, while old mainframe environments may never be cool again, in the right hands they are stable, secure, and cheap to run. So, any cloud environment described as being “better” is usually based on capabilities, future state promises, and DR/BCP capabilities. But cheaper? Not typically the case for systems optimized to be in other spaces.

Near Monopolistic Power

This has led to an interesting new phenomenon where some of the mainframe software licensing costs are spiking because solution providers have realized they have near monopolistic power to change prices. Critical scheduling and environment manager solutions don’t have significant competitors in the market and switching away from them can be difficult in the extreme. That said, some of these licensing costs may make the transition to universal cloud-based computing seem attractive.

This leads to some interesting “what if” possibilities. For example, switching to any cloud provider and taking extensive advantage of their proprietary capabilities, may well create the exact same type of “lock in” to environments that companies are trying to extract themselves from now. No cloud provider is an altruistic organization. The idea that they could move to exert outsized price increases at some future point when the risks and costs of switching providers are elevated, could become a “Back to The Future” moment with surprising speed.

There are clear strategies that carriers can deploy to create future state flexibility for themselves. As with many strategic imperatives, the best time to plan for this is before the actual journey starts. It is hard to fix the boat, once it is already in the water!

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Rob McIsaac // Rob McIsaac is the President and CEO of RPM Ventures NC, LLC, an organization focused on developing deep and actionable insights that are specific to the insurance industry in North America. Prior to creating this, Rob served as an Executive Principal at Novarica (now Datos Insights), a technology research and advisory firm, where he leveraged his expertise in IT leadership and transformation as well as technology and business strategy for life, annuities, wealth management, and banking. He has broad experience in IT strategy and management in the insurance and financial services industries. Prior to joining Novarica, he served in a series of senior technology management positions including leading the Business Transformation Office at Nationwide Insurance, and as the Enterprise CIO for First Citizens Bank. Rob spent the majority of his earlier career at Guardian Life, where he was the Divisional CIO responsible for annuity, distribution and broker dealer operations, and at Prudential Insurance, where he held a variety of positions including leading e-Business development efforts. Rob holds a BA in Economics from Montclair State University, an MBA in Information Systems from Seton Hall University, and has received a number of business and technical designations from both LOMA/LIMRA and MIT. He can be reached directly at rob@RPMVenturesNC.Com.

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