A Wise Oracle

We all need a break from the news about the shakiness of our financial system.  Besides, the best advice on the subject I’ve seen so far came yesterday from the hand of an editorial cartoonist.  You could file it under the category, “If you can’t solve the problem, at least don’t make it worse.”  Check it out.

Last week Oracle announced its Application Integration Architecture (AIA) for insurance.  Punctuating this step, they launched an “Oracle Insurance” brand (National Underwriter article).  These are smart moves for Oracle, coming in the wake of their acquisition of AdminServer and Skywire. 

Insurance companies are often bedeviled by the integration of multiple systems from multiple vendors.  When a smaller vendor is acquired by a larger one, it not only gives a CIO relief that the supplier will now have a stronger financial structure, it also creates an opportunity for the acquiring vendor to integrate the products of the two companies.  Oracle is hoping insurers will take notice that it is stepping up to that second opportunity with a big commitment.

The insurance technology industry is often characterized as fragmented.  Indeed, the Vendor Directory at www.InnovationInInsurance.com lists over 500 vendors who supply the life, health, and P&C industries.  While some carrier CIO’s are looking for “best of breed” products, others – eschewing all the integration work that comes with selecting best of breed – look for suite vendors (one-stop shops, bundled providers – choose your term) who will themselves take on a lot of the integration headaches. 

Not all vendors have the resources to provide a full suite of products, and there will always be room for focused and innovative point solution companies who fill a need in a way that no one else can.  Oracle is right, however, in sensing that insurers want and need more full-suite providers than they have now.  The top four technology providers in banking have combined revenues of $10B.  The top four vendors in insurance technology probably have revenues that are 1/5 of that (even though IT spending for the two industries is not nearly so divergent: $50B in banking and $36B in insurance for North America in 2008 according to Celent and the Insurance Information Institute).  There is much room for consolidation in this industry. 

Oracle also knows that Skywire itself was the result of several acquisitions that could benefit from greater integration.  This is, therefore, no small task Oracle has taken upon itself.  It will not be easy.  If they succeed, however, they are likely to be rewarded by a reasonable number of grateful insurer CIO’s.  And if that happens, they’ll have earned the reputation of wisdom implied by their new brand: Oracle Insurance.

Postscript:  Ara Trembly, columnist for the National Underwriter and Tech Decisions as well as blogger at InsuranceTechGuru, also posted on this subject and I liked his perspective.  Check it out at Oracle Insurance is Good News for the Industry.

Insurance to the Rescue!

As negotiations for the $700B rescue plan for the U.S. financial system proceed in Washington, it’s interesting to note that insurance has cropped up as a part of the answer.  This is the view, at least, of House Republicans who’ve said they want the Treasury department to collect premiums from financial institutions to cover bad loans rather than have the government buy all the bad loans outright.  Whether this insurance proposal will be a part of the final bill is hard to say at this point.  In any case, it’s good to know there are politicians who appreciate the value of insurance when it comes to solving financial problems.

Insurance is a fascinating mechanism: it reduces risk by aggregating it.  Consider homeowners insurance:  An individual homeowner can probably not withstand the financial loss of having his or her house burn down.  But if an insurer gathers enough of such homeowners facing that contingency, it can collect a manageable sum from each homeowner and have enough funds to pay for the relatively few homes that will actually burn down in the course of a year.  Pooling individually unmanageable risks makes them manageable.  Hence, the more risk, the less risk.  Fascinating!

Whether or not an insurance mechanism will work for this rescue plan, we’ll have to wait and see.  (Insurance only works well when the frequency of loss is a fraction of the insured risks.)  In the meantime, it’s probably worth noting that if regulators and industry participants had not begun waiving for so many home buyers the mortgage insurance premium that used to be required when the down payment on a home was less than 20 percent, we taxpayers might have to be ponying up something less than $700B right about now. 

Insurance helps.