Guidewire A Good Step in the BPM Direction

Appian Contributor
January 27, 2012

There's nothing like an initial public offering (IPO) to get people to sit up and notice a company. IPOs are only possible when companies are delivering novel solutions that offer great value and facilitate strong revenue growth. That's the case with Guidewire, a software company that's built enterprise applications to support the core systems of property & casualty (P&C) insurers.

But a closer inspection of Guidewire, made possible through their IPO regulatory filings, shows their solutions are novel only in comparison to the ancient IT systems and paper-based processes used extensively by P&C insurers today. Guidewire is a big advance over those, but only a few steps in the BPM direction.

First, let me share my congratulations to the Guidewire team. They created software that's leaps and bounds ahead of what is in use at most insurers. They have 103 of the more than 7,000 P&C insurers around the globe using their products and solving real problems. Well done!

Guidewire's products address some of the most significant pains insurers have today. Here's an example. Inadequate data capture and ineffective process controls in legacy systems lead to real costs such as "claims leakage." Claims leakage is where the amount paid on a claim exceeds the amount to which a claimant is entitled. It is a prevalent problem, accounting for 4-6% of claim payments. That's $50 billion lost annually across the industry. Claims leakage is entirely preventable. If fixed, it would improve insurance carriers' operating incomes by the same 4-6% as claim amounts paid improperly would otherwise drop to the bottom line.

Going after big expense gaps like claims leakage is very enticing, but only if a solution can be put in place quickly, cost effectively, and without disrupting operations. Here's where the bloom starts to come off Guidewire's rose, as evidenced by facts and statements within their IPO filing.

Guidewire promotes that they have an "innovative modern software platform" that allows business rules, workflows, and user interfaces to be configured "without modification of the underlying code base, allowing customers to easily make changes in response to specific, evolving business needs."

If I were a leader at an insurance company, that message would strike home and I'd be ready to sign up. I'd want easily configurable software operating in all core functions across my enterprise as quickly as possible. But the reality behind that vision is not so pretty.

Here are some important things prospective Guidewire clients should know that come straight out of their IPO document:

  • "We sometimes commit to include specific functions in our base product offering at the request of a customer or group(s) of customersÖ. providing this additional functionality may be time consuming." Sounds like you're still beholden to a software vendor's roadmap to get functionality you want. Not everything can be configured by you to fit your business.
  • "Implementation and testing of our products by our customers lasts 6 to 24 monthsÖ depending upon the nature and complexity of our customers' systems the implementation and testing of our products may take significantly longer than 24 months." This is definitely not off-the-shelf software. Any value realized will be delayed a long timeÖ and cost lots as you pay for consultants to do the implementation.
  • "We have designed our applications based on our in-depth understanding of the P&C insurance industry." Guidewire's products reflect the vendor's understanding of your business, not your own. Whatever they develop, and whatever specialization you request that ends up back in their product, becomes available to all your competitors. Commoditization is becoming rampant in insurance. The only way to be consistently profitable is to have unique capabilities and processes that you run your entire business upon. It's hard to be unique when you're working with software designed for all insurance companies and in use by your competitors.
  • "[Our] licenses are priced based on the amount of direct written premiums that will be managed by our solutions." So the more you use them, the more you pay. Combine that with long implementations and you're looking at expensive solutions that lack natural economies of scale.

The pains in P&C insurance that Guidewire addresses are clear and acute. Their solution is definitely an improvement, but follows the old model of enterprise software requiring large "rip and replace" transformations of systems which are highly risky. The IPO document notes that most customers have only deployed Guidewire for claims which mean the rest of their systems are still siloed and full of legacy code. It also means full transformations will take a long time. It's not uncommon to find insurers 3-4 years into a full transformation and only at the half-way mark.

What insurers need is a faster way to get the same benefits Guidewire promotes, but with less risk, less time delay, and much less cost. They need a platform upon which they can create whatever applications they want, built entirely around their unique processes and preserving their competitive advantages. That platform needs to be able to "wrap and extend" existing applications to avoid highly risky wholesale replacement. It also needs to have a licensing model that provides economies of scale making subsequent development and deployment less expensive, not linearly additive. It also needs to provide an environment where users can access all enterprise applications, whether written in the platform or not, and from any desktop or mobile platform.

Any insurers interested in the value Guidewire targets need to recognize their solutions are only a few steps down the path that business process management (BPM) has already traveled. Appian is seeing great adoption in BPM for insurance because we offer the most modern BPM platform that allows for rapid, iterative development of applications, a complete social BPM environment to foster communication and action, and mobile BPM so that any process can also be a mobile process.

Before you embark on a transformation that could be years-long and leave your operations exposed, consider the old saying, "the only things you find in the middle of the road are yellow streaks and dead skunks." Take a close look at how adopting BPM for insurance could get you the same benefits in less time with fewer risks and a lower price tag, keeping you from being exposed in the middle of crossing the road.

To learn more, please download my whitepaper titled "BPM for Insurance: Four Paths to Outdistancing Your Competition" and join us for a webinar on February 16th titled "Fueling Insurance Provider Success with BPM" featuring Ellen Carney from Forrester Research.

Evan McDonnell

Vice President of Solutions

Evan McDonnell