EP4: David McFarlin – On Insurtech, Policy Admin Systems & Making Insurance Simpler

When we discuss “legacy” technology for (re)insurers, we usually mean policy administration systems. This is the backbone of the insurer. Policy issuance, payments, claims, data management all fall within this bucket. Re(insurers) can’t move to the next stage without this backbone.

In this episode, I spoke with David McFarlin of Sunlight Solutions. We discussed insurtech, policy admins systems, legacy technology and how to evaluate and implement new technology without running into the Golden Gate Bridge Problem.

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Transcript

Nick
and we're back, everyone, welcome to the Coverager Podcast. My name is Nick Lamparelli. In this episode, I am pleased to welcome David McFarlin. David is the Director of Business Development at Sunlight Solutions. Sunlight Solutions is in in the Insurtech insurance sphere. It's the insurance solution that simply works. David McFarlin Welcome to the Coverager Podcast,

David
Nick, thank you for having me on, sir. I appreciate it.

Nick
Okay, so those that's a big sentence, David, the insurance solution that simply works. Explain.

David
Sure. Yeah, that that motto there that tagline is it's kind of foundational the Sunlight because it speaks to the core of I guess why we built it and Sunlight was built to address some of the most common problems facing ensures that we're implementing policy administration systems. So the simply works portion really speaks to the the legacy of failing implementations of core policy administration systems across this carrier space for a pretty sizable time period now. Yeah. So that's kind of where our tagline comes from.

Nick
Yep. So if we can, let's, let's kind of look at a timeline of policy management systems, or from what from your perspective, your expertise, what is what are some of the problems that you're seeing as you go in and kind of diagnose, like diagnosing What's going on?

David
Yeah, absolutely. So you know, I guess I'll speak to the first one first failed heavy, lengthy implementations

Traditionally, these types of implementations have lasted years, significant manpower, exorbitant cost. And a lot of times these projects don't end upon the initial delivery. Once you've gone live with the solution, you're an immediate update and upgrade mode. And when we built sunlight, we wanted to build something that would really alleviate failed projects, lengthy projects, more route morale, draining projects. And and we really wanted to solve kind of that the second half of that circle, which isn't just the delivery of the system, but keeping the lights on. And so how that works within sunlight. We don't want to have someone engaged on a six month long project directly after we've delivered the solution. So we move into a continuous delivery cycle, we can move our code to production every two weeks and ultimately give our clients some flexibility in and around when those updates and how those updates and at what frequency they're consumed. And again, just kind of creating a an operational model. That is different and potentially serves our customers better than ones that they were used to previously.

Nick
Yeah, I call it the Golden Gate Bridge problem. Which is, if I don't know if you know this, but the the team that paints the Golden Gate Bridge, it takes them so long to paint it. By the time they're done, needs a new coat, they have to circle back and they just start over again. They never stopped painting the Golden Gate Bridge. Yeah.

David
And we talked to carriers all the time that you know, and I'll even I'll, I'll say this from kind of a different standpoint, I go to carriers all the time, who say, you know, David, I appreciate it. But you know, your services aren't needed right now. We started a project with so and so three, three years ago, and we're just wrapping that up. And I say, holy smokes. Well, you know, on one hand, I wish I had gotten in front of you three years ago. On the other hand, what have you guys been doing for three years?

Nick
Okay, so this gets to the heart of why I'm doing this podcast because I want to I want to you know, kind of put you in the hot seat but maybe put the industry in a hot seat in and have that tough conversation because I we see this all the time I've seen it in my career all the time I you know, I worked for a carrier that was just sort of paralyzed by their legacy technology

David
Love that word

Nick
And in their biggest fear was that we're going to be spending all of this money. And we don't know what we're getting, we could be in the exact same situation, when this is over again, the Golden Gate Bridge problem. So talk about how you talked about your operational model. Can you give us something to help understand why this operational model is different from you know, some of the some of your competitors, some of the incumbents, you know, the significant players in the industry who, you know, probably have a different operational model and it's causing some of this paralysis.

David
Sure. So yeah, I think that's exactly right. It's a you know, a lot of people lament the behavioral tendencies of carriers...big ships with slow routers, take forever to make decisions. in my estimation, they've been conditioned to act this way based on the limitations and experiences they've had with policy systems in the past. I guess it's not always the best for Sunlight. But I ultimately I can't really blame them in a lot of ways for for moving in the style and sometimes the pace at which they do. There has been the policy administration systems on the market Have you say this the most intelligent way. Insurers have paid a price for being wrong in the past. They have become paralyzed from different types of opportunities that are out there from, you know, M&A to expanding into new product lines to reaching out to new states to different distribution models, and they've been paralyzed because of lengthy, failed, costly implementations that have been happened in the past were two, three years later, they're in no different shape than they were at the onset of the project. And, you know, people are accountable to those decisions.

Nick
They have scars.

David
Yeah, absolutely. They have scars, the organizations have scars, the people have scars. And then you're wondering why, you know, a CTO may hire four different consulting firms to administer something that they know best. It's because at the end of the day that CTO knows that they're accountable to that decision. If that is a decision that goes poorly, it's their butt, and so there's a lot of cover your butt moves, and a lot of a lot of padding that's put into these processes as merely a result of of just sins of the past and wanting to make sure that every i is dotted and every T is crossed. And it's and it's painful, and it's stagnant, and it's static. And it's that very same paralysis that you you mentioned previously.

Nick
Yeah. So it seems to me that the that there have been some massive advantage or has been in that evolution in technology just in the last few years that it has allowed, the significant changes my guess, and, and I'm the neophyte here, so I'm not correct me if I'm wrong, but things like just pure cloud computing, and our ability, you know, bandwidth is healthy. The ability to store massive amounts of data to be able to store it retrieve it in to, to play in that in that sandbox is probably is probably like part of the revolution that's occurring in policy management systems.

David
Yeah.

Nick
Can you can you talk about that a little bit?

David
Sure. Yeah. You know, I think for a long time, the policy administration system and granted it's, it is the core system, but it was looked at as like the be all end all of the ecosystem. And, you know, there's way too many cool firms that are out there right now Insurtechs that are providing really, really interesting products, really interesting services, finding all More all new sorts of ways of aggregating and, and massaging data to make it appealing to carriers. And you know, we want to be that handshake, we want to be the center of the ecosystem that allows the carrier to go and explore and do anything and everything that they want to be and move move past that, that paralyzed kind of mindset. We don't have ambitions of going and taking over of being the be all end all, we don't want to do that if if we're keeping at any level keeping carriers from going and exploring new relationships with other, you know, unique and establish service providers that are out there that provide value, then we're not doing our job. So, absolutely, that's the way that we look at ourselves. And going back to the thing you said prior, just on kind of, you know, more than just the operational model, but kind of how we do this, when we do it in a number of ways. You know, again, the continuous release the continuous delivery, that's one manner that's helpful. But everything about sunlight is built for business. It's built to be delivered and configured by business users configuration is a hot word, it's drastically overly used. business, you know, for us configuration is anything that can be delivered, maintained, anything that's malleable within sunlight, and that can be done by someone without having to go and touch your codebase. And we can deliver an entire solution that way. We talked about long, lengthy failed implementations, you know, we've been able to deliver four lines of business in six months, the full suite of our solution. And we can only do that because the amount of actual development that's going on some interface development share, you know, maybe a little bit of new functionality here and there that's needed in the client layer, you know, desired by our clients, that's fine. But 80 90% of the implementation is done directly through business configuration, and then it helps us move fast. On the other end of that our clients want to move into potentially that operational model. A lot of our clients want to be self service. So part of this whole, you know, insure tech transformation isn't just the products and services, but it's the mindset of Okay, what do we want to be as an IT organization, and some of our clients, they say, Hey, we want to fully outsource our it to sunlight, you basically just run the show for us from a policy administration standpoint, we don't need to put anyone you know, to work keeping the lights on we say that's great. Other say, Here's, we want to do all sorts of things. We're building out our own services, we have a huge ID department, you know, that's, that's our path. And we want to have people that are experts on sunlight within our organizations have to rely on vendor services. We want to make, you know, add a coverage, we can do that we want to change a rating algorithm, we can do that we want to add new questions to a forum, we can do that and we say that's great. So part of this operational model is, is us just being friendly with well for our clients and our partners, what type of IT organization do you want to have? Yeah, yeah, and you know, we can really support You know, we can support whatever type of role a client is looking for us to play. Yeah, but

Nick
I'm especially interested in that in the part of your operational model, where you discussed how, you know, the boots on the ground. Because I remember having this conversation with Shawn before the boots on the ground, like it like an underwriter, a staff underwriter, where they have some ability to automate some of their workflow themselves, without having to kick up a request up to sunlight. You've built this in a particular way where there's some flexibility for those folks that are using the software to actually make life's life easier for themselves. I'm intrigued by that. Can you talk a little bit more about that because I haven't really seen that sort of functionality before.

David
So you know, part of some of the administrative roles that we create at the onset of a project is, you know, who are going to be your super users across domains. And those users are able to go in there. And I mean, we're really talking about almost everything. Almost everything in sunlight is configurable. Whether you're talking, you know, from complex domains, like, you know, full workflows and automated processing. You know, the rules and rates, you know, those are all configurable interfaces within sunlight are configurable by business users, our user profiles, our system notifications, even simple stuff, like tabs and data. And you know, what the, the order that data appears in and the dynamic provisioning and conditioning between questions that's all done by business users, and for some of our clients, they want to pivot quickly. They want to have people that are in charge of, Hey, we want to add one new question here. Hey, we need to make this one tweak to one rate in one state. You know, they don't want to rely on sunlight for all All of those items. And so as part of our projects, you know, will be collaborative will do training on our projects. They will, they will be, they will truly be part of our project team as we deliver the initial product, and they're in a great position to then own more and more and more over time some of those enhancements or modifications they need to and rely less on vendor services. I'll point to one really cool example. We were doing a bot product for one of our clients, the bot product had 67 coverages. So it's a fairly complex product. We did two weeks of initial training prior to the project. And then in the first month or so of the project, we had to have the client really shadow our team as we created the first few coverages. I believe we did the first three or four coverages their business analysts ran with the existing 60 plus coverages on the project, and we were able to deploy our resources elsewhere. We were able to deliver it quickly at a reduced cost because they're taking on some With the implementation effort, and it was really a win win for everyone, they had tons of knowledge now about sunlight and configuring sunlight within their organization, they were able to move to a, you know, semi self sufficient state relatively quickly to the point where they're really just calling us for best practice. You know, there's more than one way to skin a cat and sunlight. They may say, Hey, we want to do this. Here's how we thought about configuring it. Can you can you get a second pair of eyes on this? And just, you know, let us know if this is kind of how you would have done it. And we love this model. So

Nick
yeah. What sort of recommendation would you have for a carrier that is partially paralyzed? Someone listening to this knows what I'm talking about. They're, they're currently in this situation, kind of stuck. And not sure how to move to the next step because of all of the scars that they have. What is your recommendation on how they can bust out of that?

David
That's a good question. I wish I had something in genius to share with you and your listeners on this for me, it's just helpful to work my way back We'll start with the end goal in mind and work our way back. If you don't, if you can't start with what at some level, that end goal in mind isn't, you don't need to have every answer upfront. I'm not talking like this is requirements with your software provider and you need to have detailed instructions for us. But at a minimum, at a minimum, do you know what type what role you would like your it to play within your organization? And do you have a model that you think might work for you or may not work well for you, given the constraints and size of your organization? And if we have at least that in mind as a starting point, maybe a couple of pain points of your your existing technology providers or your existing system? I think we can make a pretty compelling case to be made to move forward, even if it's just with with low hanging fruit to start.

Nick
Yeah. If there was a top mistake that you see carriers make when you go in and you diagnose, you know, when you talk about that you rewind it what's probably it, maybe hit upon like one of your biggest frustrations. What's the big mistake that they're making that they may not understand the ramifications of?

David
Yeah, absolutely. I will. Oh, I think of it kind of two ways it's more of a mindset going into something. So grandiose and and I'll maybe one that's a little bit personal to sunlight given we're a bit newer in the space but you know, I'll say this. The first is a newer, a newer face or a newer product doesn't necessarily mean something that's less sophisticated. I would say that's one of the battles that maybe is a little bit near and dear to my heart, just, you know, leading sunlight and that is, you know, we're, we're just about four years old. We are a true product company. We don't spend a ton of money on sales and marketing. We are tactical with with exhibits we go to, and where we show off. Really, we are 100% focused and we reinvest that An enormous rate back into our product itself. And I think our current clients are happy about that. But but one of the challenges I face is that you know, you're just a few years old, you must not be as deep, a little less sophisticated. You guys just haven't had the experience and the time to be able to aggregate just the sheer breadth of feature there is to be had across the space. And I would just say, Come check us out. People are surprised by what they see. That's almost a verbatim quote is, Oh, you guys are a little bit newer. I was surprised to see how deep you are. That's a fairly common piece of feedback from someone who has some experience in the policy administration space and might be seeing sunlight for the first time. It's a pretty common piece of feedback. So I would just say, you know, go into it with an open mind. A lot of the players that are in the space right now or have led to that video. Same paralysed mindset that's out there. So if you're not happy with the the mindset and the kind of that engagement model, well then maybe let's not look to the same traditional players. Now, the second one I would just say is that there's a mindset that replacing a legacy system is a sunk cost. So let me just explain what that means. Right? You know, it's like your license, we're paying a license, now we're gonna pay a license with you, and everything to rip out the system and to to implement yours. That's just the sunk cost for us. And I get I, I get it, but I just think it's kind of archaic. There's opportunity costs. We've talked about, there's been missed opportunities for a long time with insurers who are okay and healthy and sitting on a good stack of cash and maybe don't feel super motivated to move. But that's a mindset that'll, that'll kill someone quickly. And, you know, from a sunk cost perspective, sure, but to the extent that you're passing on things that you'd otherwise want to do, that you're operating in that kind of paralysis mindset. Again, you're spending too much money on maintenance. We have some clients that we've talked to where they spend, you know, in seven figures to launch a new product. I mean, these are just kind of the absurdities of the policy administration space that we really don't identify with that sunlight. And we don't think of it as a sunk cost. I can talk all day about the numerous ways that we can bleed back efficiencies to you, but just in and of itself, if you've ever wanted to launch to a new state or you wanting to launch a new product, but you couldn't because you are worried about that cost of being wrong, or you are worried about failure. Well, then I think it's probably more nuanced conversation than just dollars going in dollars going out. Yeah, so we like to have those conversations with with carriers when when they're ready.

Nick
David, couldn't that be a way to discuss You openly discuss that particular objection is that, hey, listen, you know, you know, you know you have this problem, and you think that we're potentially could be a continuation of that problem. So you want to launch it let's you said, Bob, let's say Bob in New Jersey, you know, kick the tires, one one product one state, and we'll we can prove it to you that this this isn't a continuation of some sort of old legacy system. Yep.

David
Absolutely. And that's what exactly what we what we try and do. The kind of the way that we approach that conversation is, you know, okay, what what, what opportunities are you missing out on on the business side today that you would otherwise be engaged in, if you could? What is that price for being wrong that you paid in the past? And what effect has it had on your organization's mindset, how we approach these types of things, moving forwards? And are you able to deploy your IT organization in the best way possible for your organization? Do you have, you know, are you are you a $50 million and, you know, 50 million DWP insurer who has the luxury of you know, say eight to 10 it resources and all of them are dedicated just to making sure that you know, the system's up and running on a daily basis. Because if you want to talk about a sunk cost, there's your sunk cost, you can't deploy anyone within your within your organization to do anything meaningful. You shouldn't need an IT force of 10 just to be able to have your your, your billing team and your underwriters be able to do their day to day work. So, um, you know, that's kind of the conversation that we have and we we figure out you know, where it is that they're losing efficiency and wasting money and, and potentially bloated and we we make a fairly comprehensive case that it's again, you don't have all the answers up front, but it's It's let's just say it's more complicated and more nuanced and requires a deeper look than just saying, here's my license price with a, here's my license price with B. And here's what it costs to swap out one and put in the other. And that's kind of just an elementary way of looking at it.

Nick
Yeah. So it's a question I'm trying to ask in all of these conversations is the buy versus build. And from your perspective, the build is almost like, well, we have this legacy system, right? We can, we can just keep this thing going. We can bolt on stuff to it. And you're making like a really good point, because I see it all the time. There's, there's a lack of slack in the system. So they may have a team but that team is being fully overwhelmed with the current technology, the current system that they have to do now. So anything new on top of it, you're talking about culture, the cultural issues and the other opportunity costs that come with having to hire new people, right? beyond just the technology, if the higher than new people used to get everybody used to this is how we're going to do these. If it's new, something new if it's a new state, this is how we're going to do that. I don't think there's i don't think i think opportunity cost is almost like the very, it's it's hidden, right? We, you know, unless you're thinking deeply about it, you're not giving true consideration to all of the investment in spec excess expense that's going to have to go into just keeping the status quo going forward.

David
Yeah, and if you're talking about a technology team, that's not a very sexy, very sexy message to to acquire talent. I don't know, I don't know many good developers who want to be put in that type of role or that type of situation. they'd much rather be working on things that could bring larger value back to the organization. So yeah, again, that's just part of part of those conversations that we have are and what type of it or you want to have and whether you want use us as a pure outsource model where we do everything for you, that's great. You don't need to have that type of staff in house, or maybe you want to use that team you have, but you want to redeploy them or, you know, maybe you're looking to grow your it org and you want to consolidate more and more and, and be able to have more control over, you know, all of that, you know, our engagement with you will look very much like what you want that that kind of and engagement model to look like for our clients.

Nick
Or, or as you were talking, I was thinking I think most companies would not think of their policy management system as a competitive edge. in the marketplace. You're sure but what if it was absolutely right, what what what if what if your IT system was so it was modern enough, flexible enough sophisticated enough that you could run circles around your competitors that would be a competitive edge.

David
Competitive Edge is being able to release a new product and in an expedient fashion when there's a market opportunity to be had. That's a competitive edge, we can get a product and standing up for you quickly. That's what we have. We have an incredible product

Nick
factory. Can you give us an example I remember talking to Sean about this he it I can't remember the specific one. But he had talked about, it may be that Bob that you were talking about, he was talking about how in a very short window, you were able to go in assess, you know, do and I think it was an admitted product to go in, assess and do all of the underground stuff, and kind of build it out without disrupting the current. This the current products. So this was the kind of the current products were sort of remained on the legacy you guys stepped in, built this new product out in a short period of time, and it didn't disrupt anything. And now it gave sort of the blueprint for the future products.

David
Yeah. And it was kind of cool too, because we did that for multiple subsidiaries of the same parent organization and it was kind of interesting the way they set it. up so that the parent organization they administer claims. So we actually had a, a single claims interface back to the parent with the data that we were administering for both subsidiaries and, and they continue to run some other products on their legacy system. We stood up all their surplus lines on Sunlight. And we've been working on a couple of things, we've been gradually moving over some of their admitted products onto Sunlight. And at the same time, we've been expanding, I think we it's, we basically go like a state per sprint. So every two weeks we go and we go live in a new state. Wow. Okay. It's, it's, it sounds ambitious, I would encourage you to take a look at Sunlight and kind of weird the way that we have our copy cloning and versioning capability makes it very, very easy for us to take what's available in one state and go to another state with it. And so that's really what our team works with theirs on is we have a roadmap that goes I think gets about six months. And every two weeks we go live with one more state.

Nick
Okay, so I want to end this conversation. Let's I like to expose the different risks. Right? So how, how are we sure that Sunlights not going to get caught up in the same net that cut up all of these other legacy and incumbent policy management systems where they kind of get stuck building in the same technology. How does Sunlight not get stuck in that particular quagmire?

David
Sure, first is we're a cloud native application, which is really, really helpful in that we don't have to shed any of our own legacy debt. There's nothing that's being passed on to our clients. There's nothing that we've had to figure out, okay, here's something that we do well, but maybe outside the cloud environment, how do we retrofit it to work in the cloud? None of those are considerations of ours. So I think that's extremely helpful. Second, is we have an extremely, we have it we have a extremely close relation. With Microsoft, we are a dotnet shop. We, we use Azure as our host as our primary host. We receive the latest and greatest and enhancements and kind of consulting and best practice in our architecture from Microsoft's team. And so we feel very good about our ability to to track the latest and greatest in technology as well as continued to have technology in Sunlight that's attractive for top talent to work on. You know, we want to have the best developers come and work on Sunlight and work on our product and the one that way we can do that is by not making those same mistakes of just keeping good developers in kalo mode and having them work on legacy systems. That's that's not the way of doing that. So that's, you know, kind of our angle there.

Nick
educate me kalo.

David
Keep lights on your maintenance mode, your maintenance mode where you're not doing anything new, anything fun or anything you didn't do the day before.

Nick
So So what I said we were going to end with that question. But let's, let's focus. I think the big takeaway here is the native cloud, not just cloud, native cloud, because a lot, it's it's correct me if I'm wrong, but even legacy companies that are moving to the cloud, they're just sort of porting their legacy technology to the cloud. Right? So there's, there's still the risk of the legacy technology, you're saying, as a native cloud offering, that you will always be at the forefront of the evolution of technology just because you started out in the cloud, in that space. And so anything, as technology evolves and everything new that comes, you're able to easily implement that without providing some sort of sunk cost down to your downstream to your customer.

David
Yep. Not only that, but we just don't have the type of you know, when you have that, build for By you're worried about, okay, what am I building for myself here? And how is how is that going to work for us over the long haul, you're making a vendor decision, that's the same thing. You don't want to inherit anyone else's technical debt. We don't have that type of debt, all of our systems and services live within the cloud. So to kind of what you said, not just that you have to retrofit or port something back into the cloud, but then your architecture is kind of segmented between cloud and non cloud services and, you know, native, native built and non native services and it, it gets to be a mess to maintain. And that's not good for your customers. So, yeah, all of our all of our systems and all of our functionality living within the cloud today, again, as you're our primary host, but we can we can deploy to other cloud service providers as needed AWS, if that's a you know, a need of one of our clients or, or on prem, but generally when you're working with Sunlight, if it's the off the rack host solution. That'll be Microsoft Azure for us.

Nick
Yep. Insurance solution that simply works. David MacFarlane of Sunlight Solutions thanks for spending a few minutes and answering my questions on the hot seat.

David
Thank you so much for having me, Nick. I really appreciate it. Okay, Enjoy. Thank you