Don’t let sunk cost get in the way of your data

Every company should own its own data. Yes, we know. You say you already do. But do you really?

3 years ago   •   4 min read

By Colby Tunick

We are putting our foot down. Drawing a line in the sand. Shouting our truth from the rooftops.

What is this bold position you ask?

Every company should own its own data. Yes, we know. You say you already do. But do you really? Can you export all of your data from every single one of your systems at a moment’s notice? Is it free to take your information and move it into a different system? Can you customize how you report on your data?

We had a conversation with an executive at a major agency management system (AMS) who made a fairly bold claim of their own: “Insurance agents don’t own the data in their AMS because its actually information they are safe guarding for their customers.” They claimed that because agents are ‘safeguarding’ their client information, AMS and other major system providers can do whatever they want with the data - like resell it without compensating the agent.

The answer is a resounding ‘No!’

For too long, companies have suffered under the tyranny of legacy AMS systems that do not acknowledge the blood, sweat, and tears that agencies and brokerages go through to collect, input, and maintain customer records. Are agents safeguarding their customer information? 100% they are. But do insurance professionals like the fact that their AMS provider, which they already pay through the nose for, is selling data without compensation? In our experience, after speaking to 100s of insurance companies large and small, the answer is a resounding ‘No!’

If you ever feel stuck, it might be sunk cost fallacy

The sunk cost fallacy

One of the biggest concerns with legacy AMS systems is how expensive it is (or was,) to customize it to fit your company. AMS’s huge upfront costs make them quite sticky, preventing you from leaving. It is understandable in an enterprise environment to not continually switch major IT systems as this causes confusion among staff and downtime for customers.

This upfront investment leads to a condition coined the ‘Sunk Time Fallacy.’ According to the Cambridge Dictionary, this fallacy is when “a company or organization is more likely to continue with a project if they have already invested a lot of money, time, or effort in it, even when continuing is not the best thing to do.”

Economists would point out that the sunk cost fallacy is irrational, and could be described as "throwing good money after bad".

The primary issue with sunk costs is that the upfront investment is non-recoverable. When an investment does not deliver the expected outcome, it’s common to want to invest more in making it work—you do not want to lose out on the effort you have already sunk. You pour more resources into it, desperately hoping you will make something that cannot work, produce results. It seems so close. You cannot have wasted all that resource on a dead end, right?

Unfortunately, throwing more resources at a problem will not fix it—and the longer you fall foul of the sunk cost fallacy, the harder it gets to escape. Tenacity down the wrong path will not bring your end goal any closer.

It is important to remember why the decision was made in the first place

Breaking the cycle

Every business needs to constantly keep an eye on core IT systems. For insurance, this means your AMS, policy management, claims management, and other systems that your company uses every day. With the constant evolution of software, companies should reevaluate their requirements, and solicit quotes for these systems every 3 - 5 years.

To help your organization break the sunk time fallacy, Princeton University has a few key tips:

  1. While actions we perform now can affect the future, they are powerless to affect the past. Sunk costs are, by definition, costs that cannot be recovered, no matter how the entity acts. And it is because of this that we can and should ignore sunk cost.
  2. That we have made significant investments while pursuing a goal can give rise to additional reasons to pursue the goal (besides whatever reasons originally existed for pursuing the goal). And, these extra reasons might make a decisive difference to whether one should act to bring about the goal, or in some alternative way instead. It is because such cases are possible that knowledge of sunk costs is sometimes essential to knowing what one should do.

Organizations therefore should remember the goal(s) that originally led them to pursue the core IT system like an AMS. It is those requirements, not the costs already expended, that should determine at regular intervals whether a new system is needed.

More data is a good thing

Final thought: Data is power

Your company needs to add a goal to the ones that led you to purchase the AMS: ability to do whatever you want with the data. Sell it, move it, analyze it with AI, the specific use is far less important than full control of your data. As your business grows, the uses of your data will grow with it.

Why should the system provider profit off of the data in your AMS?

If your AMS, CRM, or other IT systems do not meet this goal, then it’s time, regardless of sunk cost, to move. Why should the system provider profit off of the data in your AMS, when you are paralyzed anytime you try to export it to a different system? In a perfect world, these two things would not be mutually exclusive, but in the current IT landscape, they very much are.

Companies that can use their data as desired have a competitive advantage over those that do not. Mention that fact the next time a coworker torpedoes purchasing a new AMS.

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