The future of Software-as-a-Service (SaaS) in insurance is a multi-tenant approach. Multi-tenant systems stay up to date, align with all clients, avoid technical debt, eliminate costly upgrade cycles, enforce configuration best practices, and focus all of a vendor’s development budget on improving the system.
The problem is that multi-tenant systems are scary. It’s one thing to move to the cloud; it’s another to know that the system you are running is being used simultaneously by other insurers.
But that was the same fear insurers had about cloud computing. It took over a decade for the industry to flip toward broad acceptance of and insistence on cloud computing. The adoption of multi-tenant systems will follow a similar path—what I’d like to call the insurance industry’s “six phases of adopting a scary but beneficial technology.”
Phase 1: Rejection
Multi-tenant SaaS starts as something insurers actively reject.
Phase 2: Ancillary Introduction
Insurers will accept that some ancillary systems utilize a multi-tenant approach, but they will still refuse it for core systems.
Phase 3: Grudging Acceptance
Small insurers will begin to accept multi-tenant core systems, more because it’s the approach offered by some lower-priced vendors than because of the overall benefits.
Phase 4: Nice to Have
Larger insurers will begin to experiment with multi-tenant core systems, likely with smaller books of business. They will remain wary, but they will recognize that many of the perceived downsides are actually improved in the new model. IT groups will consider it a “nice to have.”
Phase 5: Prefer to Have
Following the lead of some large insurers, the industry will embrace multi-tenancy. Insurers will see security and capabilities improved when SaaS is architected using this new approach.
Phase 6: Must Have
Insurers will require vendors to take a multi-tenant approach. This will become one of the RFI deal-breakers, much like cloud/SaaS has become for many insurers today.
Based on the journey to cloud adoption, multi-tenant SaaS in insurance has about a ten-year journey ahead of it. Right now, the industry is mostly in the second phase, utilizing multi-tenant systems like O365 for email and Salesforce for CRM; it is just entering the third phase.
The length of this journey is not intended as a critique of insurers. It’s legitimate for an industry to push back on the adoption of new architectural approaches that have yet to be proven in production at scale, but it’s also important to set sights on a future that balances risk with a best practice approach to IT and infrastructure goals.
This post is adapted from a longer article at Insurance Innovation Reporter.
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