A noted insurance industry analyst recently suggested that, for insurers, 2018 will be the “Year of the Platform,” as 2017 was the “Year of Insurtech.” I agree that there is a lot of focus on platforms and platform economies in insurance right now, however there are a lot of different meanings packed into the term “insurance platform.” It seems every insurance software vendor, including FINEOS, is either deploying or partnering with others to deploy an insurance platform that provides huge customer value by leveraging the cloud infrastructure and access to a host of macro, micro, and plain old normal services to do new and interesting things. But are we really embracing what experts, such as Professor Mohan Subramaniam, call the value of the API economy and the platform model? Are these new platforms different from the monolithic systems of the past? How do we avoid reinventing the Insurance Core System dinosaur? In part we do this by understanding that the insurance industry, especially in Benefits products, is not a closed ecosystem and is not well served by a closed architecture.
Not Repeating History
First and second-generation core insurance systems were built in a time when the insurer had to literally own and provide the complete business technology platform simply because there wasn’t another viable option. Small business and consumer tech was effectively nonexistent and a forward thinking large broker might own a dumb terminal with a 300-baud modem to dial into the insurer mothership. Over time, some of the larger brokers moved on to office minicomputers and a certain amount of cooperative computing might occur with one or more insurers, but the insurers were still the center of gravity in the insurance ecosystem.
Now the balance of technological power has effectively shifted to the consumer and the broker, as they have access to very powerful and inexpensive computing platforms and software tools in the SaaS model without the constraints that insurers live under to maintain their existing commitments. Insurers are reacting to this by embracing portals, cloud, and the API model, but the inside-out mindset of the last 40 years still pervades a lot of insurer’s and insurance technology provider’s thinking. This carrier-centric point of view is dangerous for insurers seeking to remain relevant in the developing API economy, where valuable new commercial connections and platforms may not be carrier-centric.
The Open Core Point of View
FINEOS strongly believes that insurance core systems must be focused, comprehensive, and open to play in the new API/Platform economy. In the Benefits space, it’s important to define functional boundaries for core systems since areas like medical underwriting, enrollment, and comprehensive incentive compensation lie on the edges of true core processing, which is often done by different parties depending on the distribution/value chain they are servicing. Good “open core” systems focus on product and customer, and the capabilities needed to serve them, such as system of record, new business, billing, claims, payments, and consistent service overall. Unlike the previous best of breed software models, they leverage third party services to fill gaps in the policy-billing-claims cycle and expect to connect to other parts of the value chain through standardized APIs and, hopefully, industry standards.
Bottom Line: Insurers need to understand that they are no longer at the center of the insurance process even though they provide the actual insurance.
Look for the next blog in this series, where we discuss what makes a good platform for the insurance industry in more detail.