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The software and construction industries have more in common than meets the eye. By looking at the similarities between the two, the insurance industry can learn valuable lessons on how to choose the right vendors and how to ensure that a major renovation in a technology system is implemented successfully, from the ground up.

Today, construction professionals tend to be experts in many independent areas. They are not extremely capable of switching hats and controlling the destination of their projects by themselves without a mesh of interdependencies. In the last few decades, new tools and sophisticated technologies have advanced construction into a complex science. Gone are the days of the all-purpose mason-- today's construction industry has specialists in every aspect of the industry.

The software industry has evolved similarly. Decades ago, there were far fewer tools than are available today to make the job of a technologist easier. Before, learning may have been difficult, but once accomplished, things were arguably more consistent and similar. And then a myriad of tools, programming languages, hardware, software and technologies appeared on the market.

Many of the new tools and technologies were perhaps easier to learn, but they often did not coexist well. Specialists emerged in every niche and the need for systems to interoperate became greater. In the early '90s, the Internet came along and stirred things up even more. When something did not operate correctly, identifying the individual technology where the problem originated became an enormous challenge. The firewall specialist indicated that the network team had done its job and the application team was the culprit. The application team would say the business analysts had the issue, and so on. Each is a master of his kingdom but the glue is missing.

A fundamental issue with managing software development today is that insurance companies typically have several different components that need to come together, often with different teams of people all having varying levels of accountabilities. So what are the threads between software and construction, and what can we learn from them to overcome this basic but perplexing issue?

Everyone is aware of construction war stories, such as spending a lot to lay the foundation and then realizing the walls are a few inches off. The software industry does not involve cement and steel, but there are plenty of war stories involving incorrect specifications resulting in significant work going to waste.

For example, there have been cases in which the software vendor may have understood the business need to build a software system with certain features and functionalities, and spent an enormous amount of time on it, only to find out months later that it was not exactly what the customer wanted. Communication difficulties led to each side getting a different opinion of the desired result. The results are aggravation, litigation and most important, a huge loss in speed to market for the customer.

So as in construction, in preparing for new technology, take more time gathering requirements and you will save time later on. The oft-repeated maxim is that "the devil is in the details." Both vendors and customers need to take the additional time to gather specific details such as exactly how should a certain feature work? What should happen when the user clicks a certain button? What behavior is unacceptable? The details are in the preparation.

PESKY LEGAL ISSUES

The construction industry has its own set of laws. Certificates of Occupancy, regulatory permits and several nuances make the construction industry similar to software in this respect. The claims software industry is replete with regulations. First Notices of Loss have to be sent within a certain number of days depending on the regulation of each state. The mandatory and optional forms vary as well. Loss information has to be reported to the bureaus and so on. Several states for example, require that a certain form be filed if the injury is to a certain body part. Some states even go to the extent of requiring that you specify which part of the bone of a single digit was injured. This level of detail, if missed, causes the entire claim filing to be rejected. Fines and penalties result, with multiple fines leading to citations by the state against the carrier.

Claims software vendors and professionals have to be experts in rules and regulations. Settling for anything less is a prescription for disaster.

Both construction and software industries have several small niche vendors. Whether it is an electrician or a coding specialist, some of these vendors have only a few people on the entire team. If you have to hire small software enterprises as part of your total solution, you may want to make sure they are not a critical part of your project.

Many times, small specialist firms fail to have adequate financial stability or a diverse client base compared with a more established company. If their work has multiple project dependencies and they have to recuse themselves from a project midcourse, this can cause major delays and unexpected expense to the overall project.

The company in charge of developing your enterprisewide claims administration system should not be financially unstable--too much depends on this! A stable, growing company with an established history and a good revenue base is one good indicator. Industry reputation as a firm that delivers on commitments is another. And let's not forget plain old profitability.

No one today makes his own carpet or his own mortar. At the same time, if you buy carpets from five different vendors and doors from three different vendors and expect all of them to match, you may be in for a surprise as well.

Building claims systems from the ground up is similar--buying from many different vendors is seldom the best approach. Many top-tier vendors offer excellent systems that meet a vast majority of the industry's needs, no matter how unique you think your business model may be. Some vendors further differentiate themselves by offering a base/shell system that is complete in every way, but offers a multitude of options such as customizable screens or customizable business objects for you to customize it to your unique business needs. For the most part, you may be far better off starting with one of these systems rather than building your system from the ground up.

BADRI NARASIMHAN is vice president of claims strategy & business development at Insurity Inc. He has responsibility for claims software and services operations and plays a significant role in new product development and market entry.

December 1, 2006

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