For insurance providers looking for complete P&C insurance automation (policy quoting, rating, issuance, billing, statistical reporting, claims and management reporting), the road to a total solution can be filled with a few bumps, curves, potholes, and an occasional detour. With lists of "wants" and "must-have" features in hand, you soon discover a fork in the road-you can go one way and adopt a single all-in-one solution, or take the other path and select individual best-of-breed software components from a variety of vendors.

Finding insurance software that meets today's needs and will adapt to future technological advances is no small task. Do business needs dictate the "soup-to-nuts" functionality provided by so-called "all-in-one solutions," or are you better served with a tailored, best-of-breed solution that integrates components from a variety of vendors?

Each route has its benefits and drawbacks. The right path is ultimately determined first by your business and secondly by technical requirements. According to Scott Shepard, a consultant with Tillinghast-Towers Perrin, "The key to success is in aligning the carrier's business strategy with system needs and requirements. Only then can you translate requirements into technology platforms, applications, and associated processes." However, Shepard notes, "Without the right mix of business sponsorship, user participation and IT management, no approach will prove successful."

Functionality

Every commercial insurance provider offers its own lines of business, has its own target states, and subscribes to its own philosophy for adopting bureau and stat changes. They have different needs for automation, and those needs will always change-they must constantly review them and keep the road to automation under construction.

All-in-one solutions may provide all the required components, but that breadth of functionality is often at the expense of the depth of functionality. The good news: If an all-in-one solution addresses most of your needs, it can often be reasonably customized to fit your business processes.

On the other hand, the premise of best-of-breed solutions is that it is impractical for a single vendor to be all things to all people. Best-of-breed vendors typically focus on an area of functionality, resulting in outstanding depth. Sounds good, but what's the tradeoff? These solutions generally require some integration effort. More on that later.

Technology and Architecture

While an insurer doesn't necessarily need expertise in architectures and technologies, it's important to understand their advantages and limitations to determine whether a particular vendor's solution can be implemented under the constraints of whatever architecture you're using-at an acceptable cost, of course.
Most all-in-one and best-of-breed solutions were originally created for a particular industry segment and tend to work well there. Extending the original software to other segments can present difficulties, often because of the mix of technology and architecture. For example, recasting personal lines software to serve the commercial market is impractical.

The primary advantage of many all-in-one solutions is their integrated components-they allow data sharing across functions. In best-of-breed, these same data sharing capabilities are accomplished through integration. Although you need to put in the time and effort, such integration has become commonplace and cost effective with the evolution of middleware, interconnect standards such as XML, and the Internet.

Given the nature of the beast, best-of-breed vendors typically anticipate integrating their products with others' components. Tillinghast's Shepard comments, "Certain vendors have done a good job of building their systems with coupling and decoupling capabilities through APIs, greatly improving the viability of best-of-breed solutions."

Implementation and Maintenance

All-in-one projects tend to be larger in scope-they have multi-year schedules and often encompass a large portion of a carrier's IT functions. In addition, the all-in-one usually requires extensive customization to compensate for that lack of functionality depth. And the long timeframe brings with it the inevitable 'scope creep' that may lengthen the implementation even further. Naturally, the longer the project, the greater the risk.
Best-of-breed solutions tend to be implemented in easily manageable phases, which makes it easier to mitigate some of the risk. New components are cut over based on priorities, budget, and timetable while existing systems working well within your organization remain in operation with no disruption.
Once the solution is in production and the plug has been pulled on the legacy systems, the new solution must be maintained. That involves business (e.g., rate, rule, and form changes, or a new program) and technical aspects (e.g., hardware and software, network administration).

Imagine all the possible rate, rule, and form changes for a single program, across all applicable lines of business, within a single state. Within the traditional commercial insurance market alone, bureaus generate more than a thousand rate, rule, and form changes annually. Multiply that by the number of states, then repeat this scenario for every insurance program. Complicating the process further, some providers may choose to follow some, but not all of the states' recommendations.

Considering the effort to get a solution into production, but ignoring subsequent maintenance and support, will likely result in a costly mistake. When deciding your approach, be it all-in-one or best-of-breed, keep in mind the costs and risks associated with ongoing maintenance and support-and just as importantly, the vendor-as you evaluate the solution.

Personnel and Vendor Management

Implementation and maintenance requires highly skilled resources and can become the make-or-break element of a successful implementation. Given the shortage of business and IT expertise-particularly in the insurance industry-finding, training, managing, and retaining these folks is a formidable task.

As the vendor is clearly the expert on its solution (and hopefully knowledgeable about technology and the insurance business), you need to assess the skills and qualifications of its personnel as much as you assess your own employees. Know the capabilities and deficiencies of your vendor, its track record, and personnel. The success of your business could depend on it.

All-in-one solutions generally require fewer IT personnel for maintenance as there are fewer technologies to understand and administer. While an all-in-one vendor can mean a single point of contact when questions or problems arise, a vendor that is inaccessible or with a poorly skilled staff will be detrimental to long-term success. The all-in-one vendor will be at the center of your operations for the long haul, which can be an all-or-nothing proposition with far reaching effects if unanticipated vendor issues occur. Remember, evaluating the vendor is as critical as evaluating the solution.

Best-of-breed provides you more control over the project and the players, as you are not dependent on any single vendor. If you're in the driver's seat, you can replace components without replacing the entire system. If you're dissatisfied with a vendor or its software-or simply want to take advantage of the leaps and bounds of technology-best-of-breed provides you the flexibility. But with more control comes more work. Your staff will need to be adept at managing projects and personnel from different vendor organizations. If you don't have skilled project managers on hand, consider using vendor resources to cover each primary function or turn to an outside consultant or systems integrator.

Costs and ROI

With hardware, software licensing, customization, integration, maintenance, and enhancements all factored into the overall cost, the cost analysis and subsequent ROI can often be plagued with "fuzzy math." While all-in-one may give the perception of lower cost, the true cost of the time and effort involved in customization and implementation may far exceed the initial attractive software price point. You've also got to consider the risk involved in the all-or-nothing proposition. It's much easier to recover from a poor best-of-breed component implementation than a failed all-in-one solution. The old saying "penny wise and pound foolish" might apply here.

You obviously would like to attain a favorable ROI within the first 18 months, and certainly within three years. Longer ROIs are no longer considered acceptable as changes in business and technology shifts introduce too many variables. Although the benefits will vary depending upon your business, ROI analysis would typically include measurable benefits of reduced expense ratio, increased premium, improved staff productivity, or increased customer retention.

Shepard observes, "Best-of-breed is becoming more accepted and common. Tillinghast is seeing fewer insurance providers looking for the comprehensive system replacement. Although there are insurers that want a fully integrated complete system, the magnitude of the project size becomes high risk. Also, the movement towards Web-based solutions has underscored the need for companies to develop an IT infrastructure to allow for best-of-breed, Web-based components to plug and play into a company's core systems."

Best-of-breed components will continue to excel in functionality. This, combined with advances in component integration, make best-of-breed an attractive approach for many.

On the other hand, all-in-one solutions may be viable for a provider's accommodation lines of business that require little differentiation. As Shepard indicates, "While complex lines and more unique commercial risks may lend themselves to best-of-breed, personal lines may continue to lend themselves to all-in-one due to the high volume of repetitive transactions and short cycle times required of IT and business processing."

Best-of-breed or all-in-one-it's not that one approach is superior to the other, it's more a matter of knowing the destination in order to navigate the best path to get there. Remember: Business first, technology second.

Pat Walsh is vice president of InsTec (Insurance Information Technologies).

Return to the May 2001 issue's Table of Contents