Tuesday, February 14, 2012 – Three trends in the software industry will fundamentally change the agent/broker management system (AMS) business. These trends will be considered disruptive, not only because they will dramatically alter the way things are done going forward but because traditional processes will disappear almost overnight.
Companies that have embraced these trends are known as disrupters. The disruption, although potentially negative to current software design, distribution, and support, will most likely be a boon to agencies/brokerages looking to improve their technical prowess and reduce their cost overhead.
The three trends are:
Open Source � Essentially open source refers to the public availability of an application’s code base. It encourages the participation of others to enhance the app’s current functionality and benefits from the contributions of others. Contributors can include both independent developers as well as professional development companies. There are varying licensing arrangements and, usually to ensure a high degree of adoption, a foundational base code is available free of charge. Many companies have successfully adopted open source as a lucrative development model, growing their products through a network of contributors, and generating revenue through product support and custom development.
App Stores � Apple Inc. has single-handedly changed the way we purchase products. With applications being sold ‘en masse’ and at ridiculously low prices, software vendors are being forced to reconsider their traditional pricing, development, and distribution models. Initially many of these apps were fairly rudimentary and developed by ‘arm chair developers’. That approach has since shifted with more and more apps being developed by organized development companies who generate significant revenues from low-cost, high-volume sales.
This shift away from traditional distribution and pricing is similar to previous disruptive changes such as the move from Mainframe to PC based applications as well as the more recent change from PC to Web based development. Both of these changes caused enormous opportunities for new market entrants as it reopened monopolistic positions held by software providers in each of the disrupted development paradigms.
Cloud Computing � This technology involves the hosting of software and data in a web-based environment. As opposed to a locally-stored application, which may reside on a personal device or PC, cloud-based applications are available through a web browser and benefit by allowing access from a range of devices (e.g. phones, tablets, or traditional PCs). Some cloud computing is architected with locally residing applications that simply access data stored in the cloud while others are completely cloud based. Most cloud-based offerings have a free component to entice user adoption (e.g. set amount of free online storage) and charge for additional functionality, storage, or number of users. Many of these services generate revenue from other sources (e.g. advertisements) that allow them to provide cloud access as a free service.
Cohesively these three trends fit nicely together and complement one another. They allow companies to profit by: leveraging the open-source development pool, distributing and collecting revenues via online app stores, and appealing to a larger audience by eliminating the dependency on local hardware and applications, while at the same time, becoming more portable. This is not a far-fetched futuristic model; these three trends are successfully changing the world of application development. Disrupters such as Apple, Salesforce, Google and Red Hat, which have pioneered these trends, are highly successful.
So how does this affect insurance and more specifically the AMS systems space?
Simply put, there are companies out there today applying these shifts to the insurance software industry. It may take some time to unseat some of the bigger AMS providers but it will happen. Many of those bigger providers have struggled to implement newer technology over the years and have fallen behind. Even vendors that think they are cutting edge are actually using old technologies and stubbornly following a paradigm of ‘if it ain’t broke, don’t fix it’.
Newer systems will provide better mobility out of the box, lower overhead, and the ability to efficiently manage ongoing costs. They’ll be available at a fraction of the cost and will have less dependency on local hardware/software.
So what does this mean for existing providers? They will be supplanted faster than they could ever imagine. For a period of time the larger agencies/brokerages will require the stability of their existing solutions but, before long, the benefits of the disruptive trends will outweigh the risks. Existing vendors will try to become disrupters and will need sound leadership to adapt to the changing development landscape.
Here are a few disrupter companies; just as you can only see a small portion of an iceberg above the surface, you can assume there are many more companies following suit. In these cases, the smaller vendors are both more nimble and less reliant on complex processes, giving them the advantage when trying to transform themselves.
Ajunt � Ajunt is just about to launch and they appear to be focused on the app and cloud disrupters. Their app is free and cloud based. From the limited amount of information on their website I’d predict they plan to make money through support and add-on apps. However we won’t know until they go live.
Agency Matrix � They have an extremely low price of $90/office and are also cloud based. New features are added free of charge.
[Confidential] � Another vendor is looking at transforming their business into an open source model where anyone can use and modify their source code. They, like other open source companies, plan to make their money through support agreements and custom changes. I’ve seen this product in action in Canada and it should be interesting to see this disrupter once they proceed.
In the end, the traditional software development and distribution model is being turned on its head. The disruptive trends will continue to exert pressure on companies forcing them to either adapt or lose market share. In this model, the agent/broker wins by getting better technology that provides more effective ways of competing with the direct writers while reducing expenses.
Brovada is a software provider specializing in business process integration, system conversions, legacy system integrations, and broker connectivity. Visit www.brovada.com.