Reflecting on last month’s column—my “fireside chat” with Larry
Fortin of Millers Mutual—I decided to follow up on one of the
important strands of that conversation. I haven’t written much
about ROI (Return on Investment) in relation to core systems
modernization for a couple of reasons. While we at CastleBay can
and do get involved in ROI exercises, it is not a frequent client
request, and when it is I end up with an uncomfortable feeling
that the resulting numbers are rife with assumptions and may be,
by the end of a multi-year project, unverifiable. Also, to some
extent, I think ROI can miss the big picture as to why a carrier
undertakes a core systems modernization.
As with so many things in our business the viability of an
ROI calculation depends significantly on the size of the carrier
involved. There are two ways to cost justify a new modern core
insurance platform: business growth and expense savings.
Business growth requires several outcomes from the core
system modernization. These include:
Ease of doing business: This means different things depending on the carriers’ lines of business and distribution channels.
For a commercial carrier that writes exclusively through indepen-
dent agents, ease of doing business is aimed at the employee in
the agency who, faced with multiple markets for a risk, chooses
one over another. We have heard consistently that all other things
being equal, the business will follow the path of least resistance.
This usually means the carrier with the slickest proprietary inter-
Despite the best efforts of industry segments to establish
effective agency/carrier interfaces and to reduce the massive
duplication of effort in that distribution model, the fact remains
most carriers spend major dollars to deploy proprietary interfac-
es. Usually the most immediate measure of efficacy is increase in
business submissions—the number of new business applications
received. Assuming the increased submission rate translates into
increased new business and that business is profitable (at least
over time) the carrier benefits financially.
In the personal lines world, ease of doing business usually
translates into customer websites and apps where the insured
has various self-service options such as getting a quote, doing a
simple endorsement, getting a vehicle ID card, paying a bill, and
possibly reporting a claim. The power of these technologies is significant and has led to a situation where technology has become a
business driver rather than merely an enabler.
We’re Nothing Without Data
ROI has taken on another meaning beyond investment—return on information.