When the talk among insurance IT experts worldwide turns to legacy systems—and what to do with them—the discussion usually pertains to either policy administration or claims systems. But increasingly, say experts, insurers should start discussing replacing legacy billing systems.
Using billing to create a more positive customer experience has become a competitive necessity, prompting carriers with legacy systems to reexamine their core billing functions, according to a report from New York-based Novarica.
“Insurers need to support multiple channels, new payment methods and more flexible plans that enable different segments and distribution channels to serve their markets effectively,” says Matthew Josefowicz, director of Novarica’s insurance practice. “Unfortunately, legacy billing systems are often not up to the job.”
Josefowicz says the good news is that most of the vendors in this space realize that ease of integration is a critical element to a billing offering.
“Billing systems need to be able to accept data from multiple systems, including all vintages of policy admin and financial systems and share data back to these as well as with document automation and e-business systems,” he says. “The newer systems on the market have been designed with this in mind, but most of the older, COBOL-based systems have been updated with services-based integration layers.”
REPLACE OR ENHANCE?
When it comes to replacing a legacy system, most automatically think about policy administration or claims systems, but Katie Doyle, San Mateo, Calif.-based Guidewire Software Inc.’s BillingCenter product manager, believes replacing a billing system before the other two may prevent headaches in the future. “Billing system replacement might be a better place to start, rather than with a policy admin system replacement because policy admin is at the heart of the insurance business and the largest and most complex of all of the systems a carrier will have,” she says. “It’s going to take the longest amount of time and effort to replace that system.”
That’s not to say replacing the billing system won’t take a while. “Be prepared for about two years of work to replace a billing legacy system,” says Jerry Smolinski, VP of operations, at Ralston, Neb.-based DocuLynx Inc. “That’s just the nature of the beast. The billing process touches almost every department of an insurance organization, and you really need to include all those players to have a successful project—whether it’s an enhancement or a rip and replace.”
That disruption to the various departments and the extended time of replacement were factors in Blue Cross Blue Shield of Arkansas’ (BCBS Arkansas) decision to enhance its system. “It wasn’t simply an issue of upgrade versus replace,” says Steve Spaulding, VP of internal operations for Little Rock-based BCBS Arkansas. “We wanted to find an option that allowed maintenance of our legacy systems, while also offering something new. Rather than only replace or upgrade legacy systems, we chose to implement Benefitfocus eBilling as another option for customers.” BCBS Arkansas continues to send paper bills to customers and has chosen to manage the roll-out of the eBilling technology to make sure customers understand the functionality and get feedback for continued enhancements.
As a result of the automation, the organization was able to remove some of the latency of the billing process, Spaulding says. “Previously, it took two or three weeks before the due date of the bill to make the cutoff, and there are many changes between that time and the cutoff date,” he says. “The billing date and all of those changes had to be done manually with reconciliations, etc. Now, we can generate that billing pretty close to the due date. As long as the group has gotten the information on their changes—additions, deletions, etc.—we can have those on the billing pretty much the next day.”
BCBS Arkansas is not alone in its improvement efforts, Doyle says. “Carriers have done a great job of making enhancements to these systems over the years, and where they can’t make enhancements, they’ve created workarounds. I think they’ve really maxed out on the capabilities of these systems.”
Doyle recalls visiting a P&C customer to assess the state of its billing operations and determine if it could benefit from a billing system replacement project. “They had a really sophisticated set of billing systems—more than 30 years old—with functionality that met its current needs quite well,” she says. It had automated reconciliation between the billing system and the back-end general ledger, implemented equity dating so it could apply equity dating to customer segments or accounts they deemed necessary and had almost no uncollected earned premiums. “On the flip side, they had only two employees left in house who understood these systems at all,” Doyle adds. “The folks who built these systems and maintained them over the years were retiring. They also outsourced the ongoing maintenance of these systems to an offshore team, but while that team likely had good technical skills, they didn’t really understand how these systems were designed and developed, so they could only make simple enhancements.”
While the system is working for the insurer today, the future capabilities are in question. So, the company is in the midst of migrating all of their legacy policy systems onto a set of modern policy systems.
“More and more carriers are coming to the realization that replacing is the way to go. It’s costing them a lot of money to replace these systems, but they’re just not getting much value out of them anymore,” Doyle says.
Middleton, Wis.-based Capitol Insurance Cos. is one of those carriers. Capitol chose Renaissance Billing Solution from STG to support billing and accounts receivable operations. The system will replace Capitol’s legacy billing systems, and will enable the consolidation, centralization and the streamlining of Capitol’s cash management and accounting operations.
“Consolidation to a single billing system for all business lines was the driving factor in our search for new technology. The flexibility and configurability inherent within Renaissance Billing will allow us to make changes very efficiently,” says Troy Lethem, CIO of Capitol. “Implementing this software will enable us to adapt quickly to changes in the insurance marketplace.”
NO. 1 GOAL: CONSOLIDATION
Consolidation seems to be a common goal among insurers enhancing, maintaining or replacing billing systems. BCBS Arkansas wanted to consolidate bills to create a single face to the customer, as well as allow them an automated process to receive and work with their billings. “The billing technology for those systems was not integrated, so there were situations when customers may be getting two, three, maybe four paper bills from us,” Spaulding says.
Consumers want a consolidated billing statement, and insurers have a difficult time providing that, says DocuLynx’s Smolinski. “Many of these larger companies have a multitude of systems, and these systems don’t play well together,” he says.
Smolinski sees insurers making legacy system decisions too quickly to fix this. Insurers will purchase or write systems that they expect will be the catch-all for everything. “Most of those projects have failed. You see success when people bite off a small portion of a project,” he says, suggesting insurers start with billing, not the whole policy administration system. “Maintain legacy systems and use another product—either internally developed or a vendor written—that enables generation or archiving of those statements.”
NECESSARY CAPABILITIES
Guidewire’s Doyle agrees that insurers need to take the decision process slowly and think ahead. “Functionality with a product today is certainly important, but even more important is the flexibility that’s inherent in the system,” she says. Vendor-built solutions will continue to evolve and mature over time as each release becomes available. But the architecture of the system is not going to change. If you choose a system that’s not inherently architected for flexibility, in 10 or even fewer years you may find a business requirement that can’t very easily be modeled in this billing system.”
Future business requirements, says Smolinski, will likely include electronic billing and payments. “As people get more comfortable with electronic billing and payments, we’ll see an increase in electronic transactions and we’ll need to archive and retrieve information for customer service and customer self service. We’ll see more and more consumers wanting to be able to self service their policy both from a payment and receiving perspective,” he says, adding that insurers start looking at payment capabilities as well.
“Payers are going to want to use their payment of choice,” Smolinski says. “Right now insurers are starting to accept credit cards and, obviously, have done ACH forever. But what about other options such as PayPal? If customers feel comfortable making payments that way, does it make sense to start to make changes to systems to be able to handle those things?”
BCBS Arkansas’ Spaulding is cautious about the electronic movement. “We don’t know if [electronic billing] will be the exclusive way customers will be billed in the future. I tend to think there will always be situations where people can’t access electronic billing, but as long as it works well, we would hope that the market penetration would grow pretty fast over time.”
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