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Insurance Tech: Bet, Raise Or Stand Pat?

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Ever since the inimitable Sean Connery looked up from that baccarat table, casually flipped the ash from his cigarette and spoke the immortal words”Bond, James Bond”I have been fascinated with gamblers.

I stand in awe of those who, like the unflappable 007, seem always to have the right answers and make the right choices, often in the face of tremendous pressure and overwhelming odds. How do they do it? It must take a fantastic combination of courage, intellect, instinct, insightand just plain luckto “know when to hold em and when to fold em,” as another famous gambler once intoned.

And it occurs to me that this same skill set would come in very handy for a particular segment of our industry, namely those who must make critical decisions about purchasing software and systems for their companies.

Just think about it. These men and womenand you may be among themare faced with choosing among multiple technology platforms, options and products that often cost millions of dollars when all the training and extras are thrown in. Or maybe they would be better off staying with what theyre using and saving those millions. The CEO, the board of directors and maybe even the stockholders are depending on the tech buyer to make the right decision. The wrong choice could have a disastrous effect on the entire enterprise, perhaps even on the companys future.

Putting myself in the unenviable position of such a technology buyer, I began to think about what I might learn from gambling lore that could be of some practical value. One thing I have gleaned from observing veteran gamblers is that they pick their spots. They dont necessarily play every hand at poker, or bet on every race at the track. Instead, they have a strategy based on experience and knowledge of the game.

Similarly, a company that wants to improve its systems needs to have a strategy that avoids wasting time chasing down rabbit trails. If the company seeks to improve claims processing, it needs a plan that accomplishes that without making major changes to its infrastructure or to its corporate culture.

Another thing that differentiates professional gamblers from average folks is that they know themselves well. They know their strengths and weaknesseswhere they excel and where theyre likely to get into trouble. An insurance company must also know these things, but more importantly, it must factor them into any technology decisions.

If a company has plentiful information technology resources (that is, technology professionals), building a new system or developing its own software may make sense. Or maybe it would be better to purchase someone elses basic platform and build on that. Either way, the decision hinges on the companys accurate assessment of its needs and how they stack up against the companys resources, both human and financial.

Many insurance companies have such resources, and a surprising number are still opting to build their own systems, or at least to build around a vendors product. Several vendors are trying to sell “complete” administrative solutions to carriers. Such products are a good fit for a startup or for a company that is completely revamping its systems, but these catch-all products dont make sense where there are discrete needs and a plentiful IT workforce.

One other thing Ive heard more than once from the lips of the pros is: “Dont gamble more than you can afford to lose.” The idea seems simple enough, yet a company could easily extend itself too far to get promised benefits that, in the end, fail to deliver return on investment. If youre going to pay $5 million for technology, be sure you can survive the hit if the new system turns out to be a bust.

Some software vendors have told me that the proportion of insurance software buyers who buy solutions, versus those who build their own, hasnt substantially changed in recent years. I think part of that has to do with the frugal nature of carriers wanting to get the most out of even 20-year-old investments in legacy systems. But Id also like to think it is because insurers are very good at assessing risk and benefits. After all, thats the business theyre in.

So, when it comes to laying your companys money down on new technology, pick your spots, know your strengths and weaknesses, and always refuse to risk more than you can afford to lose. With that mindset, youre much more likely to end up playing with the houses money.

Your bet, Mr. Bond.

Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.