Insurance Innovation through Microservices
According to a recent survey on insurance technologies, about 90% of the responders said that in the next five years customers will be looking for insurance through online or mobile apps. Insurance companies are slowly trying to move towards digital transformation and smart technology systems. If they wish to catch up with today’s technology, they have to digitize and that too at a faster pace.
The traditional insurance value chain and subsequently the customer experience over the last 20+ years has operated across a number of functional silos. Each of these silos has unique characteristics and are organized around their own KPIs.
Underwriting/risk management is primarily focused on risk assessment, underwriting quality and booking of premiums.
Claims are focused on claims management, fraud detection, leakage reduction and processing turnaround time.
Typically, each of these functions operates independently with limited organizational integration.
This organizational model and IT system landscape have been effective for decades. But as we enter the digital age, the painful and expensive business and IT modernization projects over the last decade, coupled with portals and complex integrations to these core systems to improve agent and customer experience, do not align with new market needs. Today’s insurance landscape demands agility to adapt with ease, innovation to reimagine the possibilities, and speed to capture the opportunities. The digital age demands so much more to stay relevant and competitive.
Customer Experience is the Differentiator
Insurance Value Chain Disrupted
Rise of Ecosystems and the Platform Economy
A New System Paradigm for the Digital Age
A common theme is emerging that highlights the need for a new set of capabilities to support the paradigm shift. To succeed, let alone survive, insurers will need to proactively respond to the value chain disruption, elevated customer expectations and the rise of the ecosystem and platform economy by using granular (Single Responsibility Principle) API / Microservices to build an on-demand business solution with loosely coupled microservices and find-n-bind capabilities that can leverage any ecosystem.
Microservices architecture enables the building of new capabilities to meet these needs. The graphic below contrasts the anatomy of a traditional “pre-digital age” monolith insurance app and a “digital age” innovative microservices-based insured app.
Microservices are becoming more and more popular. Big players such as Amazon, Netflix, Spotify, as well as small and medium-sized enterprises are developing Microservices-based systems. Microservices are autonomous services deployed independently, with a single and clearly defined purpose.
Microservices propose vertically decomposing applications into a subset of business-driven independent services.
Each service can be developed, deployed, and tested independently by different development teams and using different technology stacks. Microservices have a variety of different advantages.
They can be developed in different programming languages, can scale independently from other services, and can be deployed on the hardware that best suits their needs.
Moreover, because of their size, they are easier to maintain and more fault-tolerant since the failure of one service will not disrupt the whole system, which could happen in a monolithic system.
Monolithic enterprise platforms emerged in insurance to meet the demand for comprehensive functionality covering the entire policy lifecycle and all related activities. However, companies became trapped in these elaborate walled gardens while the world outside was changing rapidly. In a monolithic environment, taking advantage of new capabilities requires you to go back to your vendor or bring in specific programming expertise for a costly and disruptive long-term project.
How can insurance companies successfully break out from restrictive monolithic systems without disrupting their core business functions?
Let’s look at the opportunity with policy administration microservices.
Migrate at Your Own Pace- Instead of having to build or buy an entire system that must meet the needs of all stakeholders (a substantial risk either way), you can gradually begin utilizing web-enabled insurance microservices to add or improve functionality. The ability to make a phased migration from your existing platform to microservices architecture is advantageous, compared to a sudden, complete transition from one enterprise system to another.
For example, you can start by utilizing a rating microservice to take advantage of new opportunities such as ISO ERC, and you can add other policy lifecycle capabilities as your needs evolve.
Collaborate with Best-of-Breed Vendors for Each Microservice- Microservices enable a more collaborative approach to development. You can choose which aspects of the system to build in-house and when to pick a vendor for things you don’t have the skills or budget to develop internally.
Updating or replacing individual components is easy with microservices architecture. You can choose from a range of specialized vendors to find the best provider for each individual feature, rather than having to go to a single generalist software company for a one-size-fits-all platform.
Make Your Internal IT Team More Agile- Breaking out specific pieces of functionality is difficult or impossible in a monolithic platform. To make changes to one component, you typically have to update the entire system, which requires working with the vendor, and investing extra time and money. In a microservices environment, it’s easy to update or replace any component, any time.
The flexibility of microservices architecture creates opportunities for your internal IT team to learn, grow, and adapt as InsurTech evolves. New skills can be developed and new partnerships explored. Your people will be able to focus their resources on improving core services and competitive differentiators, rather than maintaining back-end infrastructure.
The times are changing. And it is exciting! The ability to leverage powerful microservices architecture to build a new foundation for the digital age of insurance is game-changing. It will enable new business models, new products, refined customer experiences, and timely responses to new business needs (in hours and days instead of months and years) and it will help insurers remain relevant and competitive.
The shift from the monolith to microservices is part of a broader trend toward distributed computing over the internet. Software as a Service has become the new normal, and web-enabled microservices are the natural next step in InsurTech development.
It’s time to break free of the monolith. Ask us how ARTIVATIC can help you start taking advantage of insurance microservices.