Say the word "conversion" in a roomful of insurance technology professionals, and you'll likely hear a cacophony of moans, groans and expletives.That's because converting policy data from one administration system to another is tedious, stressful, time-consuming and costly.
A conversion, if not handled carefully, can become a veritable black hole for resources, says Jim McAdaragh, assistant vice president, business systems, at Sammons Financial Group (SFF).
Despite the pain, however, sometimes conversions are necessary-as they were for Sammons Financial Group (SFG) and AEGON Financial Partners (AFP).
When they are necessary, it is possible to conduct them in an efficient and consistent manner, says McAdaragh.
"Conversions are difficult, and they can be tedious and stressful. But if they are managed correctly and they target blocks of policies that have real business benefit, they make sense to do," he says.
SFG reached the point with its older legacy systems that they required huge upgrades or retrofits if the company were to implement some of the modern products its actuaries were developing, such as indexed universal life products, notes McAdaragh. "So it didn't make sense to put that kind of investment into those systems that were no longer actively supported by the vendor."
Instead, SFG-a Dallas-based holding company for the Midland National Life Insurance Co., the North American Co. for Life and Health, Sammons Annuity Group and Sammons Securities-decided to move approximately one million life policies from three older administration systems over to CyberLife, a component-based, open standards platform for real-time administration of traditional and nontraditional life products and annuities developed by Computer Sciences Corp. (CSC), El Segundo, Calif.
Similarly, the Netherlands-based AFP hit a wall with its legacy administration systems. Created in 2002 by consolidating four previously autonomous divisions- Transamerica Insurance, Investments Group; Western Reserve Life; Life Investors; and the World Financial Group-AFP had inherited nine life administration systems that serviced 3.1 million policies.
"All these groups came to AEGON through acquisition," says J.D. Johnson, CIO of AFP. "When they were acquired, they were left alone as independent divisions. But when you're operating as an autonomous division, there's only so much you can do to lower your expenses."
To cut costs and eliminate redundancy, AFP consolidated its multiple legacy systems into common back-office technologies, including CSC's CyberLife for its life policies, while still enabling the sales and marketing groups to operate independently.
A key to both companies' conversion strategies: They are taking an incremental approach-converting blocks of policies in manageable chunks on an ongoing basis determined by the business needs.
In the past, SFG would acquire a company or block of policies and convert them by a "drop dead" date, says McAdaragh. Or, the company would postpone the pain of conversion by maintaining the old administration system and running it beside its other legacy systems.
Now, the insurer is trying to make policy conversion a routine, predictable business function, he says. They are scheduled well in advance, they are carefully planned and they are flexible in scope. Converting between 30,000 and 50,000 at a time, SFG establishes fixed conversion dates, and policies that are not ready for the planned date conversion are added to the next conversion block on the calendar.
"We are taking conversions on an as-needed basis," says McAdaragh. For example, when converting a block of policies running one of its legacy systems, SFG converted term policies first and then universal life. "We left intrasensitive whole life behind because it required some modifications," he says. "But we're going to make those same modifications for future blocks of business, so when we do that, we'll circle back and pick up those policies for conversion then."
AEGON Financial Partners began its conversion process by first developing common business processes, says AFP's Johnson.
"We had autonomous divisions spread out across seven different locations and back-office operations," he says. "If we were going to get to a set of common systems and processes-whether that's how we're handling cash or how we're paying claims-we were not going to get there until everyone agreed on the processing flow and modifications that go along with that."
After two solid years working across the businesses to develop common processes-some of which are still in progress-AFP has converted annuities and some of its health policies, and the company is now in the process of converting 600,000 term policies-broken into three blocks-for its Transamerica Life and Investments businesses.
In addition to taking an incremental approach, SFG and AFP established dedicated conversion teams- building a repeatable, predictable conversion process that will continue years into the future.
SFP's conversion team is currently working on "routine" conversions - converting the blocks of business the company now owns. But the team is ready to respond to an acquisition.
"In the past, we would do an acquisition, we'd pull together a conversion team, we'd work like beavers for a year to get that conversion done, then we'd disband the team," says McAdaragh. "A year later, we'd have to repeat the process and basically relearn a lot of the skills we had forgotten."
Now, with a project manager, several programmers, business analysts and testers on its conversion team, SFG is better prepared to convert newly acquired blocks of business.
"We have a conversant team of people in place who keep their skills honed," says McAdaragh. "This way, when an acquisition comes along and we need to react quickly to convert a block of business to meet a legal agreement, we can divert them to that effort. Then when they've completed that work, they can go back to the routine conversion work," he says.
AFP, which hopes to have all its currently owned policies converted by 2010, has a repeatable process broken into three phases for each project:
* Study: Documenting the products, data and system modifications required from the source system.
* Preparation: Documenting the destination system end-state and required modifications, creating an intermediate data repository, and constructing a standard format for input to the conversion phase.
* Execution: Generating destination systems transactions and balancing (testing to make sure the values that end up in the new system match those in the old system before the actual conversion takes place).
In both companies, a lot of effort is spent on balancing.
"You'll find cases where the values don't balance, and it may be an interest rate table that wasn't updated correctly in the conversion-or a rate that was keyed into the rate file with the decimal in the wrong place," says SFG's McAdaragh. "Basically, you do all this balancing and verification to find those errors and fix them so when you run the final conversion, the values are correct."
"When balancing, you're trying to protect the integrity of your policy data," AFP's Johnson concurs. "A lot of the difficulty of balancing depends on the product." A term policy is much easier to convert because no cash values are associated with it. Universal life and variable universal life policies are more complex.
As a result, when converting these more complicated products, insurers select a point in time-typically about 24 months in the past-and convert the policies to that point. "Then, we apply 24 months of transactions to carry the policy forward to the present, and we're balancing along the way," Johnson explains.
EASY ON END USERS
Finally, both life insurers are using flexible, Web-based front-end systems that integrate with their legacy systems as well as with CyberLife to make their conversion work unnoticeable to end users.
"We didn't want to disrupt the business user by continually converting policies out from under them," says SFG's McAdaragh. As a result, SFP has licensed CSC's Customer Service Accelerator, a Web-enabled, front-end interface based on open standards, including ACORD XML.
"We still have to maintain all our previous systems while we convert to the new system," McAdaragh says. "Converting an entire subsidiary's policies may take a number of years. That's why we looked for a front-end system that gives the user a common interface to whatever system is running on the back-end while we do our conversion work. So they are using the same screens and the same interface."
AFP is moving all its Web sites to IBM's WebSphere portal technology.
All AFP's businesses are agency-based, using brokers, independent agents and managing general agencies to distribute their products.
"We've maintained the look and feel of the Web sites, so (producers) don't know the difference," says AFP's Johnson. "The branding associated with the sales and marketing groups all remains the same. It's just the underlying infrastructure we use to support that branding and operational functionality that has changed to common platforms and tools."
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