Large insurers are spending nearly three times more ($23.5 million) on policy administration system (PAS) projects than midsize insurers ($8.7 million), and both allocate around 50 percent of that for internal services. This data comes from Novarica’s latest report, “U.S. P&C Policy Administration Projects: Averages and Metrics,” which also reveals that insurers that have completed such a project have experienced improvements of more than 25 percent in speed-to-market and data accessibility.
With insurers moving en masse to upgrade policy administration systems (more than 25 percent of large insurers and more than 40 percent of midsize insurers were currently in the middle of a project or planning one as of then end of 2011, according to previous Novarica research), the report attempts to clarify an industry-wide perspective on the projects.
The report is based on a survey of 37 P&C insurers—11 large insurers (over $1 billion in premiums) and 26 midsize (between $100 million and $1 billion in premiums)—that have completed policy admin projects within the last 10 years. The vast majority of P&C PAS projects included several other components—agent portal, rating engine, underwriter workflow, billing, claims, etc. Large insurers typically completed their initial rollouts within 20 months and their full projects within 40 months. For midsize insurers, rollouts were generally faster, but more than one-third of the full projects took longer than 40 months.
Internal staffs handled about half of the work, particularly testing and conversion, for both large and midsize P&C insurers, with large insurers spending $10.9 million and midsize insurers spending $4.4 million internally. On average, large insurers spent significantly more on “other externals”—$2.7 million to $400,000 for midsize insurers. The report noted that larger insurers were more likely to hire third-party service providers.
When it comes to results, Novarica analyst and report author Chad Hersh was most surprised with the satisfaction surrounding speed-to-market payoffs: “Vendors make many promises around speed-to-market, but the survey results indicate that the results are being delivered.”
The survey also found that system maintenance cost and underwriting results saw some of the most tepid improvements among both large and midsize insurers. Less than 40 percent of large insurers noted underwriting improvements and around 25 percent saw improvements of 25 percent or more. A little less than 10 percent of large insurers acknowledged significant improvements in terms of maintenance costs however.
Midsize insurer improvements were less dynamic. The only measure that saw more than 80 percent of insurers note improvements was internal workflow; indeed, the measure with the most significant improvements was speed-to-market.
“This report gives insurers visibility into not only the internal costs, but the external costs as well,” Hersh said. “Carriers can use the fact that internal staff costs roughly 50 percent to help better estimate total project costs up front.”
The biggest challenges insurers noted? Change management, communication and fear of change—all relating to internal culture. Some other challenges mentioned were staying within the project’s capability and “scope creep.” In dealing with vendors, insurers reported difficulties with vendors not know the business and a lack of available resources.
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