Norcal Takes The Application Path Of Least Resistance

There's no way around it: It takes a long, long time to develop the software programs for a new underwriting and billing system. Then throw into the mix the risk of the internally built system not working properly, taking longer to implement, and perhaps even draining cash flow."I've been in the business for about 30 years," says Mark Gire, vice president of information services for Norcal Mutual Insurance Co. "I've never seen it take less than four to five years" to develop a solution internally.

For Gire, time is the most critical ingredient. "In my experience, it's been less risky, less expensive and much faster to purchase (information technology software) products (than to build your own)."

Norcal, a $200-million medical malpractice insurer based in San Francisco, needed a new billing, claims and underwriting system to replace piecemeal legacy systems.

"When we looked at replacing our policy and billing components, we were looking at more than double the cost to do it ourselves and a four-to-five year development cycle," Gire explains. "Instead we had the purchased application installed in 18 months and all of our business operations were fully converted over to the new system in two-and-one-half years."

To replace its enterprisewide legacy system, Norcal Mutual chose a packaged application developed by Delphi Technology Inc., Cambridge, Mass. Called OASIS, the software is an integrated insurance processing system that provides billing, claims and underwriting management.

Two-step process

Norcal completed the installation in two phases, starting with the claims system. The year-plus implementation was completed in April 1999. Then Norcal installed the underwriting and billing system components of OASIS and converted all of its business to OASIS by the end of 2001, an 18-month process from the date of signing the contract in July 2000.

"We wanted an integrated claims, policy and billing system in order to make coverage verification and reporting easier," explains Gire. Norcal's legacy system had divided policy administration and billing from claims processing. That made it difficult to perform loss reporting. OASIS provided the malpractice insurer with a mini-customer relationship management tool that keeps track of clients. "Now we are able to link each customer to their individual policies, their claims and their billing information. It's a nice architecture," notes Gire.

Marketing, underwriting, billing, claims, and the policyholder services unit all use the OASIS application.

Norcal's purchased billing and underwriting system was up and running in 18 months versus a 48-to-60 month timetable for internal development, a major plus. In addition, it would have cost the malpractice insurer more than twice as much to produce the same application in-house. "That cost includes staffing up (our IT department) and/or hiring contractors to develop the software," says Gire.

OASIS provides Norcal with a credit card-type billing architecture and a balance-forward feature. The old system created invoices for every transaction and was a pain for clients.

"Our customers, especially groups, didn't want to get all these little bills throughout the year," Gire says. "They wanted a monthly or a quarterly statement, and now our system has the flexibility to do that. That's a big advantage because the OASIS software is a customer-centered system. Customer relationship management features are built right into it."

OASIS also gave Norcal the ability to have all its business information processing done in one IT system.

"Before OASIS, we had a policy system and a billing system, but the policy system only handled about 80% of our business," Gire explains. "Another 20% of our business was too complex for that underwriting system. (For that business) we had to look at spreadsheets and collect information manually. That was a real headache. For every quarterly run, we had to reconcile a four-foot high stack of paper-based spreadsheets. It was insane."

Today, Norcal gets all its reporting information from one source. "It's made reconciling our books, our actuarial work to come up with rates, or just finding information all that much easier," Gire notes.

In addition, the old spreadsheet system was error-prone and now that the implementation kinks have been ironed out, the error rate has dropped. Also, the packaged application has allowed Norcal to standardize all its internal business processes. "We now can report in a unified way, which is a huge advantage," Gire says.

The old legacy system could only produce calendar year insurance policies that ran from January 1 to December 31. In addition, Norcal couldn't accommodate large groups of hospitals with special dates and had to write that business manually. OASIS can handle any policy anniversary date.

"OASIS gives us the flexibility to put all our business into one IT system. That was the driving force behind implementing it," says Gire. "Not having everything in one system caused us tremendous problems," he adds.

Not without pain

All these positive changes didn't come without pain. "It's a good product and it is the only integrated software product that is specifically tailored to medical malpractice," says Gire. "I won't say it's been perfectly smooth, but I've never seen an implementation that is perfectly smooth."

Gire and his IT team encountered problems related to how they were using OASIS and adapting to the new system. "I would call them implementation problems. They started right away and took us about one year to wring out," says Gire.

The OASIS system rated policies differently than the old system. So Norcal adapted to the new software, but the disadvantage was the time and trouble it took to change its internal processes and procedures.

"It's difficult for people to get used to a new way of doing things," Gire says. "That's really the big challenge. But in my experience, when you build something new (internally), you have the same problem of changing the customer/user processes and procedures."

Sound advice

The information technology executive believes changes encountered during implementation are also opportunities. "If you build your own IT system, you can collect detailed requirements and customize the system to meet the exacting needs of your business.

"When you buy a packaged application, if you try to modify the system to (turn it into) a 'custom package' you will eat up all of your cost savings," he observes. Gire believes in modifying the purchased package only if the changes allow you to keep a strategic business advantage or are necessary to meet specific state regulations.

Rather than wasting time to customize the OASIS system, Norcal changed its internal processes to fit the package.

Norcal also had to adapt to a new billing feature. "It was a whole new way of thinking about billing," Gire explains.

He and his staff solved the problem by coming up with new procedures and training people in the new system. "It took some time for us to adapt, but now that we've done it, we see advantages to it because it is a more flexible way of doing business."

In his three decades of IT experience, Gire has learned that whenever a new system is developed and installed, companies encounter the same problems whether they build it or buy it.

"Normally when you build something new, there is a reason . . . to have a better system than you had. So it's going to mean changing your processes and procedures anyway. And with any implementation, it's the customer/user processes and procedures and their learning curve that is the big problem."

Norcal hasn't quantified any of the efficiencies, financial benefits or improvements that have resulted from the OASIS software.

"We didn't do an ROI," explains Gire. "We consider this system to be the cost of doing business. It's like brick and mortar. We can't perform our business functions without this system. There is no way that we could do our business manually. It's too complicated and there's too much to it."

Like a four-foot stack of paper spreadsheets processed in a manual mode.

Brian S. Moskal is a business and financial writer based in Chicago.

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