Few P&C carriers are satisfied with their existing policy administration systems. But while most would like to benefit from modern technology solutions, getting there can be a daunting challenge.Developed using now-ancient languages like COBOL and first deployed 15-20 years ago, many insurers' policy administration systems (PAS) lag far behind today's technology. Yet, the PAS is literally the life support system of an insurance carrier's business.
Core policy data constantly flow into and out of the PAS, which sits at the heart of risk evaluation and processing of new business, renewals, and endorsements. Numerous internal and external parties-including claims, billing, actuarial, customer service, finance, and state bureaus-constantly query the system to support their key activities. Underwriters and policy processors spend eight hours a day in the system to rate, bind, and maintain policies.
When the legacy PAS isn't up to the task, everyone suffers:
* A rigid data model and hard-coded business logic make extending the PAS to capture additional data or address new lines of business extremely difficult, sometimes impossible.
* Originally designed to rate and book policies, the legacy PAS is ill-equipped to support new business or provide effective communication to and from the agent community.
* New employees often need months to learn the system, and experienced underwriters and processors must spend effort and time to perform even the most basic processing steps.
* Integrating to a legacy PAS system is either arduous or impossible. Data and business logic are undocumented, well-defined interfaces are non-existent, and functionality is enmeshed in rigid procedural blocks of code.
With lost business opportunities, underwriting errors, and high IT expenses associated with maintaining brittle legacy systems, it's no wonder industry data point to PAS-related constraints as the root cause of at least five points of combined ratio underperformance across the industry.
Bridge and hollow-out
As systems get older, challenges get bigger, which prompts many carriers to seek a viable strategy for PAS replacement. But launching a "big-bang" replacement of a mission-critical system faces fundamental obstacles. Replacing the PAS and its interfaces to dozens of transactional and reporting systems is the IT equivalent of performing open-heart surgery in the middle of a transplant operation. Conversion of existing policies involves tremendous effort, even with the best quality data.
More and more insurers are adopting an alternate approach to legacy replacement. Instead of a "big bang," they favor a "bridge and hollow-out" approach. In this model, replacing the legacy system is a long-term, component-by-component process that mitigates the risk of unplugging the PAS.
The "bridge" is a new system that augments the legacy PAS. Over time, the bridge system will gain more functionality, allowing the insurer to "turn off" the PAS in stages.
This "hollowing out" process leaves the legacy system in place, but becoming progressively less critical as its functions are transferred to the bridge system. At the end of this process, all functionality has been assumed by the bridge system, and the legacy PAS can be retired.
As with any new initiative, getting starting is the hardest part. In order to justify the project, the bridge system must provide new functionality and benefits unavailable with the legacy PAS. At the same time, it must begin replacing functions previously provided by the legacy system, providing the path toward eventual replacement.
One key area of improvement many insurers are targeting for their bridge systems is the front-end underwriting and agent interaction process. These are areas where legacy systems often fall short; few support straightforward implementation of underwriting guidelines, and fewer still support direct, intuitive access by agents.
One strategy is to implement a bridge system that delivers valuable new functionality for underwriting and agency interaction, while providing a longer-term option to retire additional legacy PAS functionality. Specific enhancements to consider:
* An electronic underwriting file combining structured policy and underwriting data with documents, narrative notes, and navigation to key data sources.
* Inquiry into policy data by occasional or external users.
* Rule-based workflow to manage new business, renewal, and maintenance processes.
* Agent integration, with upload/download to agency management systems for key processes.
* Agency and account management tools, for tracking agent production and account histories.
In order to overcome the constraints of their legacy policy systems, carriers must begin planning for a future without them. By focusing on key areas of business benefit today, with a careful plan for long-term migration, they can build a bridge to their long-term modern technology platform.
Marcus Ryu is vice president of strategy and new products at Guidewire Software.
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