Boston – As insurers continue their uphill battle with outdated policy admin systems, pressure is growing to create operational systems that are efficient, cost-effective and provide certain immediate returns.

And an uphill battle it is. Today’s slowing economy, coupled with tomorrow’s recessionary predictions, is causing many insurers to refocus their efforts and, in some cases, pushing replacement reviews through hastily just to acquire 2009 funding.

Yet, according to Boston based research firm Celent, the transformational nature of policy administration replacement requires careful management of expectations, and a thorough review and understanding of business case elements. And in some cases, this review will result in insurer’s making the most of legacy and modern systems—possibly together. This, coupled with solutions being offered that may hold a promise yet to be realized, poses additional issues for insurers to consider.

“There is tremendous subtlety and precision behind that promise, which is why it is hard to define, operationalize and service insurance products,” Craig Weber, senior VP with Celent’s insurance practice, told Insurance Networking News. “But at the same time, complex transactions, valuations and streams of data must be managed effectively. That is what policy administration systems do, and that is why they are so important.”

Celent’s report, “The Business Case for Modern Policy Administration Systems: Lessons from Early Adopters,” makes the case for policy admin replacement to take a holistic approach. “Separate it into two parts: "soft" benefits, which are strategic, high-level, and long-term, and "hard" benefits, which are tactical, detailed and mid-term,” Weber wrote. “Both elements are necessary and valuable, but understanding the difference ensures that decision makers have realistic expectations.”

Weber says taking a holistic approach also addresses the tremendous buzz about modern policy administration systems and their ability to change the way insurers operate.

“If you ask five people what constitutes a modern policy administration system, you could well get five slightly different answers,” he says. “As experience with modern systems grows, old assumptions about how products must be created and maintained are gradually being discarded. Modern systems also are being heralded for bringing insurance carriers much-needed improvements in operational efficiency and flexibility.”

Weber says Celent’s discussions with carriers and vendors suggest that several key elements separate the current crop of modern policy administration systems from their legacy forebears.

One thing is certain, says Weber. Carriers should prepare for massive project breadth, and unusually long horizons.

“These are transformational projects that take immense amounts of effort and time,” he says. “Remember that political changes (e.g. new CEO, new CIO), business climate changes (e.g., the current soft market), or simple adjustments to your initial assumptions can alter the vision of a five-year project. To manage this risk, carriers should either push for change as quickly as possible, or compartmentalize the project to ensure that each piece makes sense in and of itself.”

Further, carriers should address their dependency on other systems (both point and enterprise solutions) to maximize the reality of their project review and create a solid business case.

“Replacing the policy administration system is only part of the battle, and if related systems (e.g., rating/illustration, billing, claims, document production) are left untouched, that may gut your business case. The solution is to either build around a strong SOA vision so disparate pieces can work together, or take a deep breath and replace all major components.”

Finally, pursuing the reuse of any new functionality created is important. Creating functionality is greatly simplified with a modern policy administration system. Configuration will be more cost-effective than the legacy approach of hard coding, even for functionality that is specific to a single process or line of business. But reusing that functionality across processes or lines of business provides immense leverage, notes Weber.

“So to minimize total cost of ownership, seek ways to solve universal problems well rather than solving specific problems quickly,” he says.
Urging caution, Weber says carriers shouldn't pursue conversion blindly, at any cost.

“After careful thought, most carriers decide to put new products on their new systems and leave old products where they are, at least for a time. Until conversion approaches improve considerably, the cost of conversion will be hard to offset, and there are other options, such as walling off old blocks of business in a BPO environment. However, understand that this approach often dulls long-term benefits,” says Weber.

Source: Celent

Exclusive content available only on 

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access