In times past, policy administration implementations were often anything but pretty. Much time and money was wasted as insurers watched vendors fumble about and try to learn on the job how to iron out kinks. “As technology was developing and companies were trying to implement new and different things, you were always living with that reality,” says Kevin Costello, president and COO of Sparta Insurance Co., a Hartford, Conn.-based property/casualty insurer. “I spent a lot of time flying places to work out problems with vendors going through R&D phases or implementation struggles with their own product, and [then watched] that impact our business.”
While some frustrated insurers have taken to suing vendors, others have simply moved on. Many of the new customers of Hartland, Wis.-based AQS Inc., a provider of solutions to commercial property/casualty insurance sector, come to the firm on the heels of policy administration system implementations gone awry—of both packaged and tools-based software—and sometimes following multiple failures, according to company representatives.
Indeed, for insurers, implementing a policy administration system can be a crapshoot. “We have seen several instances of messes that topped well over $100 million that never got off the ground,” says Chad Hersh, senior analyst in the insurance practice of Celent LLC, a Boston-based research and consulting firm recently acquired by Oliver Wyman, a subsidiary of New York-based Marsh & McLennan Cos. Of policy administration implementations, he adds: “We have seen others that were under $1 million that transformed the company.”
Hoping for the latter, insurers have been feverishly embracing modern policy administration systems, nearly doubling such implementations in the last few years, Hersh says.
GOOD TIMING
In fact, carriers have found this technology to be particularly seductive in the current environment, and for a number of reasons. For one, the number of policy administration providers entering the market has swelled, particularly those targeting property/casualty firms, and the stiff competition has led to lower prices.
Suppliers also are tending to bundle solutions, and those that do not provide multi-component solutions often look to partner with other vendors to offer carriers a holistic solution. A snowballing effect also is afoot, as insurers race to keep pace with competitors’ improved policy administration systems. “There is a strong push toward keeping up with the Joneses,” says Hersh. “When your competitors are starting to get operational efficiencies from it, it is critical that you keep the cost structure they have. Otherwise, you can’t price your products competitively.”
Additionally, insurers have gravitated toward Internet-based solutions, and vendors are scurrying to market with systems based on service-oriented architecture (SOA) or Web services. For insurers, this has made policy administration system implementations easier, and integration simpler.
Many system implementations haven’t disappointed, giving insurers major cost savings and strong returns on investment, Hersh says. The hope for improved speed to market has been a critical driver for companies like Monterey, Calif.-based Capital Insurance Group (CIG) to implement new solutions.
In late 2006, CIG, a regional writer of personal, commercial and farm lines through a network of 500 independent agents, began implementing a new policy administration system to automate its policies, which had soared to more than 15,000. They opted for an Internet-based system called Advantage, from AQS Inc.
“We are anticipating that if we have to make changes to a program similar to our hotel, motel or restaurant program, which are currently on the system, we will be able to make those changes much more quickly and get them to market quicker,” says Bob Winn, VP of underwriting and field operations for CIG.
Sparta Insurance also has benefited from employing a new policy administration system. The company now serves the marketplace through program administrators who use Policy Decisions for Commercial Lines, a product for rate, quote, policy-issuance and administration provided by Insurity, a technology firm targeting property/casualty insurers. Consequently, Sparta no longer has to do batch processing at night, and agents can now have multiple transactions processed on the same day on any particular policy, as well as process endorsements out-of-sequence.
Many carriers are seeking out a new policy administration system as part of their growth strategy. Phoenix Life Insurance Co. was looking for an “agile, flexible and cost-effective environment for developing and servicing innovative life, annuity and income products for our clients,” says John LaGrasse, executive VP and CIO of the Hartford, Conn.-based insurer. So it licensed the J2EE version of a policy administration solution from Chester, Pa.-based AdminServer Inc. and, using SOA, implemented a secondary guarantee universal life insurance policy with a shadow fund, as well as a new compensation system.
“The goal of the transition to AdminServer is to contribute to profitability and growth through innovative product design capability, improved speed to market, reduced operating costs through faster and higher quality servicing and reduced costs in platform administration,” says LaGrasse.
OTHER BENEFITS
Insurers are finding other major advantages from forging relationships with a new policy administration system provider. Sparta gained from its vendor’s ancillary offerings, which are not technically part of the policy administration system, but are associated. Insurity provides Sparta with an electronic interface, and helps the insurer face hurdles such as reporting to regulatory bodies.
Additionally, proximity to its vendor has been crucial for Sparta, as Insurity is also in Hartford. This enabled Sparta to “reach out and touch” its supplier, dramatically reducing the time and expense of the implementation. Additionally, being in Hartford has been a boon because of the city’s volume of insurance firms, making “it is easy to find people experienced with policy administration systems,” explains Sparta’s Costello.
For CIG, an important benefit to using Advantage is that it includes a system called Integrator that extracts statistical information from AQS and then converts it into a program that CIG’s own internal processing system can read. Thus, as CIG issues a policy, it is automatically dumped into its statistical system for billing and claims purposes, as well as statistical reporting. “In the past we had to build that bridge ourselves, and it was a cumbersome, almost two-step process,” Winn says. Previously, CIG staff performed double entry by issuing a policy in the policy processing and issuance system, and then bridging it into the company’s processing system for statistics, claims and billing.
Fast implementation rates also are increasingly important to insurers today. “They are very keen on looking for solutions that can be implemented quickly, especially if they are replacing a legacy policy administration system,” says John Worden, CTO of AQS. While the suite of components that an insurer needs varies widely, Worden believes that, at a minimum, vendors need to quickly deliver to insurers a mechanism for collecting the policy data, a ratings engine, a document production system and a policy management system.
Modern policy administration systems also can reduce training headaches. CIG agents report that it’s easy to train staff to use the system. So CIG is thinking big: A few of its agencies have the system installed in their operations, since they do underwriting and processing from their locations, and the company aims to expand use of Advantage so that by 2009 its agents can access and quote CIG’s commercial products from their terminals via the Internet. If customers like the CIG quote, agents can send CIG those applications electronically. CIG can then process those applications in its system.
A NEW MODUS OPERANDI
Still, converting to automated policy administration systems is hardly easy. Winn recounts how when CIG went from manual to automated processes back in 1999 (also with an AQS solution), it had to put almost every policy in the system manually, which was more work than when it renewed via renewal certificates. While CIG still has to do some manual work, the conversion is far simpler now, as AQS built a program that takes most of CIG’s data and converts it automatically.
But training those in the insurance industry to use the systems can be a tall order. The new policy administration work may not be in the skillset of many insurance firm staffers. “If you switch from a code-based approach to a rules-and tools-based approach, you may have a big learning curve for folks to try to do things in a whole new way,” observes Celent’s Hersh. Consequently, he says, the vendor is often onsite for at least half of the implementation, and usually is there the entire time.
Firms such as Insurity can provide intensive training and support, helping guide insurers’ thinking on subjects such as how to best leverage Web services. “For our customers, this is the biggest project they have done—maybe ever. They are massive undertakings,” says David Pedersen, senior VP of Insurity. “So our biggest challenge is helping the customer to understand what it is going to take to support it from a business perspective. They are going to have to know what kinds of changes they want to make to their workflows, and what kinds of changes they may want to make to their insurance filings,” among other things.
While certain pieces of a policy administration system can be rolled out in a mere six months, Pedersen notes that it can take a couple of years of blood and sweat to get them on a truly stable platform so that they can take advantage of all the pieces, lower their costs and be prepared to thrive in hard markets.
Insurers also will have to keep pace with the rapidly changing technology and vendor landscape. This can mean everything from a flurry of mergers and acquisitions among vendors, to a growth in the use of business process management tools, which have yet to become mainstream. Carriers that find a supportive provider, and that master using the technology, may find that the days of woeful policy administration system implementations are behind them.
Daniel Joelson is a freelance business writer based in Alexandria, Va.
