A handful of carriers did make decisions in the last few years, attracted by the too-good-to-be-true promises of the likes of TenFold: Dont worry, be happy. Weve got a new approach and youre going to love it. In most cases, the efforts of the new guys havent panned out. Insurance turned out to be significantly more complex than enthusiastic industry outsiders ever imagined. So here was more pain for carriers, some of it ongoing, and those on the sidelines took a step back and sat down.

Most carriers are looking at providing agency or consumer self-service functions on the carrier Web site. Its a way to offer another service channel and, with the right engineering, reduce processing expenses. Unfortunately, many older systems dont have the right architecture to support Web extensions. These card-image systems can handle only one change to a policy per nightly cycle. Not promising for a flexible, real-time environment.

More than one carrier has complained to me that many systems available for sale today continue to have inadequate architectures. No matter what the vendor says, underneath theyre not designed to handle future insurance processing and distribution needs. One problem is the all-or-nothing approach of some vendorsthe new system cant work in cooperation with the older system; the new system must replace the old. Thats not a happy prospect for carriers that have been there, done that. Old, warmed-over systems simply cant generate much carrier enthusiasm. Thats not surprising.

The Incumbents Dilemma
Veteran vendors arent asleep to the fact that sales are slow. But they live on service fees and professional services while they think about developing brand-new, more modern systems. Development isnt cheap or easy. How would they fund it? Likely it would require outside investment, and whos willing? And where would the energy, expertise, and new thinking come from when the vendors focus is on supporting legacy systems? And, since sales are slow, would it make sense to make a major investment in a new product? Why bother, when its possible to live on the annuity of an installed base? Not exciting, but its a living. And anyway, the customers arent really complaining. What they have works and theyre happy to get regular maintenance releases.

The Challengers Dilemma
A new generation of vendors, with their investment partners, is making an appearance. Where older systems are monolithic, they propose a component strategy. Carriers dont have to replace entire systems, but can install one module at a timea less risky and less expensive alternative. Theyre using XML, SOAP, and the accoutrements of the remote Web services model. They may offer hosting. Rather than trying to do everything themselves, they partner with other vendors to create an inventory of modules that can add up to whatever a carrier might need. And instead of adding browser access as an afterthought, these systems are born with thin clients.

But while these new offerings promise to fulfill carriers emerging needs, at least on the surface, the carriers arent biting. They point out that the software isnt quite ready and certainly hasnt been fully exercisedand therefore is a bit risky. They also worry that the new vendor, with inadequate current revenue and living on investment money, may run out of cash before enough sales materialize. The carrier doesnt want to risk its business on a promising but unproven vendor and product.

The Carriers Dilemma
Carriers know what they have now really isnt going to work over time. The chewing gum and bailing wire needed to bring legacy systems to the Internet wont hold up from a technical perspective. And administrative systems, what most carriers have today, dont support newer customer-centric business models.

That would seem to point those carriers toward shopping for, buying, and implementing new technologies, no matter how hard it may be. (And no matter how painful they imagine the installation and conversion process will be.) The need for upgrading appears to be a fait accompli; its simply a matter of biting the bullet and choosing the vendors.

On the other hand, the new vendors that appear to have the goods dont have a track record, and given the history of the last few years, may not last. Neither the status quo nor available change seems to be the right answer. Sowhen in doubt stay with the pain you know.

The current situation is interesting because it appears everyone is going to lose. Incumbent vendors cant generate enough revenue to position themselves for the new centuryand must, over time, wither and disappear. Challengers could end up having trouble making enough sales to outlast their investment nest egg. Carriers need new technology but cant get it from the incumbents and wont buy it from the challengers, so their business strategies sputter or languish.

Its an untenable state of affairs that has the potential to cripple the industry for the next decade. We can blithely say it doesnt matter because everyone is in the same boatthat is, no carrier will gain competitive advantage if all stay put with what they have. But thats not the whole picture. Outsiders came after the industry, especially via the Internet, and they failed miserably. But thats not the end of the story. Those outsidersthat next generationwill be back and more effective. The industry is too rich a plum and too backward for them to ignore.

The Home Depot Approach
Perhaps carriers have more than two choices: buying from proven incumbents and not getting what they want or getting what they want but having to buy from unproven challengers. A third alternative is for carriers to create what they want using rapid application development environments from the likes of Microsoft, IBM, Sun, and Oracle.

But there are disadvantages to do-it-yourself, as Ive found after frequent trips to Home Depot. Generally, I dont really understand how to do a home project until Ive done it at least once, but Im not likely to get a second chance. Consequently, I take too long and cant quite do a professional job. I dont realize any economies of scale. Thats OK for home projects; my one-shot learning-through-doing is good enough. But should carriers bet their businesses on homegrown systems?

One-off application development is expensive and can never wring out the bugs, provide professional-level documentation, or be as flexible and forward looking as well-done professional software packages.

Whats the Answer?
Carriers need new technology. What they have is worn out and doesnt adequately support business strategies that require Web site self-service, real-time processing, rate/bind/issue at point-of-sale, integration of remote Web services, business-rule maintenance by business analysts (rather than software engineers), and so on.

Veteran vendors have a patina of respectability, but not the goods. Upstarts may have the goods, but longevity is an issue. Carrier do-it-yourself is a false hope. Whats a carrier to do?

The simple answer is to move forward without betting the farm. The rule in rock climbing is to move only one hand or foot at a time. Keep three points in contact with the rock. Make sure youre belayed by someone dependable. Never, ever jump from one point to another.

Carriers dont really have a choice. Theyve hung back too long already. They have to move forward. But done right, the process doesnt have to be frightening or threaten the life of the business. The alternative, remaining in place, is the really scary alternative.

John Ashenhursts company, Sound Internet Strategy, provides consulting, Web site evaluation, and seminar services to carriers and their trading partners. He can be reached at johnashenhurst@soundingline .com or (978) 318-1944.