Talk to enough insurers about their experiences with replacing or upgrading their policy administration systems and you'll hear a common analogy: heart surgery. While it may be a bit dramatic, as analogies go, it seems rather apt. Much as the heart pumps blood around the body, a policy administration system distributes an insurance company's lifeblood-data-throughout the enterprise. Another reason the comparison fits is that despite considerable caution, both undertakings represent no small amount of risk. As failed heart operations can have mortal consequences, a failed policy administration initiative can exhibit similar results on the careers of those involved.
Given the stakes and the cost involved, it is all too easy for carriers to kick the can down the road, and no doubt some do. Yet a large number of insurers are looking to leave their legacy policy systems behind. A recent report from Novarica shows that more than one-third of insurers are either already in the midst of, or planning a policy administration system project during 2012.
While insurers will usually cite several reasons, one common impetus for redoing policy administration is competitive angst. Insurers tethered to legacy policy environments fear they may be lacking the flexibility and functionalities to properly service customers.
Greg Hillier, VP, application delivery at The Dominion of Canada, says an increasing demand for self-service from insureds was one of the deciding factors that pushed the Toronto-based property/casualty insurer to replace its legacy system with the OneShield Dragon policy administration offering.
"When we looked at it, it was clear and obvious that customer demands were such that we had to move off of our legacy system," he says. "Consumers are asking us to be more responsive to their needs and to give them the coverage that they need, so we needed a system that could meet those demands. We had reached the point where we had gotten as much out of our legacy systems as we could. It was time to bite the bullet and move."
As insurers large and small make greater use of analytics, legacy-bound carriers run the risk falling behind competitors when it comes to leveraging data.
Eric Ericksen, COO, of Murray, Utah-based Bear River Mutual Insurance Company, says the decision to install the Policy STAR policy administration system from StoneRiver was part of a broader modernization effort that began a few years ago with the installation of a modern claims systems. "One of the things we really want out of this [policy administration] system is data for analysis for rate-making purposes," he says. "We have to keep up with what the markets are doing in terms of analytics and pricing models."
Yet another factor in favor of system replacement is lack of human capital. "The brutal reality is that the people who can best maintain legacy systems are cruising off into retirement," Hillier says.
Bear River's plight in this regard was exacerbated by geography. "Java resources in Utah are scarce but it's easier to find resources for our Java systems than for our legacy systems," adds Brian Long, the company's IT Director.
While additional business demands-including better speed-to-market and better agent experience through use of straight-through processing and improved user interfaces-predominate, there can be many valid technical reasons that tilt carriers in favor replacement. For larger insurers, a policy administration project may afford them the opportunity to simplify their technology stack by consolidating various admin systems.
Nonetheless, to be successful, a policy admin modernization must be less a technology project than a holistic re-imagining of how insurers interact with their customers and agents. Matt Josefowicz, a partner at New York-based Novarica, says carriers should use replacement as way to rethink their processes and in a certain sense their whole operating models around certain areas of their business. "I think the most important thing when carriers are looking at policy admin is not just to look at replacing the systems that they have but understand how their current practices are restrained by their legacy environments," he says. "There are a lot of processes that carriers do that are solely in reaction to the limitations of their systems. These systems have been in place for so long that these processes have become part of the culture. If carriers start by documenting everything their current systems do, and then try to find a system that does the same thing with newer technology, they are not going to get any benefit." (To hear what else Josefowicz has to say about modernization, visit INNTV.)
Ericksen agrees that the business concerns must lead the way for core systems replacement. "This did not come out of IT, it was business driven," he says.
As implementation lead for an ambitious core system replacement at Los Angeles-based Mercury Insurance, Rini Dixit, director, application development, led a multidimensional team with complementary talents to shepherd the project to completion. To implement the InsuranceSuite from Guidewire, Dixit ensured the project had ample business sponsorship from the outset. In addition to a steering committee comprised of senior executives, the company also assembled a working committee made up of senior managers and co-located subject-matter experts to be nearer to the project. "The fact that we had active engagement from everyone has made a huge difference, so by the time we went live, nobody was surprised or disappointed," she says. "We were very fortunate in that the SMEs and business sponsors selected were looking for a change."
While program-level management is vitally important, Hillier says the effort to generate buy-in must be broader and extend all the way down to the operational level. "You cannot underestimate the amount of change management you have to do," he says. "We spent a lot of time getting people prepared for the change. To me one of the most satisfying parts of the job is reflecting on how people are going to make use of the tool when it is in there and managing that transition."
Yet even unanimity regarding a policy administration replacement will not preclude some tough decisions insurers will face along the way. One of the most consequential surrounds data conversion. Will a carrier port extant policy data over to the new system or allow it to runoff in parallel? (see "Adaptive Conversions" below).
Dixit says Mercury opted for the latter. "We made a decision not to get into data migration or conversion at that time," she says. "We had an opportunity to make changes to the business processes. On the technology side, it gave us a chance to test Guidewire. We did not want to integrate with our legacy systems."
Bear River's Long says his company made a similar decision to avoid mass conversions and will just move policies over at the time of renewal. "At some time you have to change over, but going through the configuration process is taxing enough," he says. "We're still dealing with unknowns, and you can only test so much."
While this decision means Bear River may now be years away from turning off its legacy system, the company wanted to avoid any chance of disrupting service to its customers. "We had talked about the benefits of doing mass conversions with certain chunks of business," Ericksen adds. "There would be some advantages for us to do that but the potential disadvantages were just too great."
Dixit advises a modest, phased plan. While the lack of data conversion meant the company would begin with a fresh slate, Mercury opted for a pilot program in a single state with a solitary line of business. The project took 13 months to complete. Applying the integration lessons learned there, the company completed a second state in eight months. The last two rollouts took a combined five months. "Keeping the strategy simple is very important," she says.
Despite such diligent planning, pain points will occur and projects will inevitably run into some unknowns. "We underestimated the effort related to reports and data feeds," Dixit says.
Hillier faced similar issues recreating reports. "I've been here 18 years and I can't tell [from] where some of the reports were being generated," he says, adding that even under the best-case scenario, policy administration is a long and arduous, if ultimately rewarding, process. "If you think you are going to fit it into a quarter of your day, you are being naive; it's all consuming. Be prepared for some bumpy roads and some celebrations."
Long adds that carriers need to remain realistic about what can be accomplished given their internal resources. Since Bear River's policy administration replacement coincided with overhauls of printing, billing and agent portal, the company sought outside program management help to keep the multiple projects on track. "You need to learn your boundaries," he says.
When it comes to selecting a technology provider for policy administration replacement, insurers do not want for choices. That said, each solution will have relative strengths and weaknesses insurers will need to weigh. "There's no perfect solution out there," Long says.
Yet, compared to areas such as claims, it is a veritable embarrassment of riches, with dozens of policy admin vendors in the market. However, this dynamic may be changing as the market begins to consolidate and large services firms such as Accenture and MphasiS, an HP company, buy up assets. This means that a lot of the small remaining independents are likely to be targets at some point over the next year, Josefowicz says.
"There has been a lot of M&A in the vendor space over the past few years and it has sort of been a natural evolution of the marketplace," he adds. "One of the things driving it is that we are seeing a huge preference from buyers now for these integrated suites - vendors that are able to offer policy admin, billing and claims, all with a common data model and architecture. Vendors that only offer a piece of that puzzle or don't have strong partnerships are going to be more likely to be acquired."
Thus, as part of their vendor evaluation process, Josefowicz advises carriers to understand the situation of any vendor that they are considering and what an acquisition would mean to them. To make sure these risks are mitigated, he recommends carriers demand code escrow and continuity of the implementation team as part of the deal.
As for functionality, the base expectations of what a policy administration system should be have broadened in recent years. Features once considered optional, such as agent portals and customer Web portals, are now largely standard fare. Carriers should also expect sophisticated reporting capabilities and a modern, intuitive interface as part of the package. Another emerging expectation is that of configurability. Many modern policy administration systems sport wizard-like configuration rather than code-based configuration.
This last feature has had some profound implications at Bear River, Long relays. "The biggest difference for us is in the way the configuration is managed," he says. "In our system, legacy IT was always interfacing with the code-base. Now with STAR, conversion is done more at the business user level than at a programmer level."
Despite the challenges, Long says the new system has brought Bear River many benefits. It has simplified workflows and cut down inefficiencies and redundancies, such as the need to re-key in data. It also enabled a degree of straight-through processing, no mean feat considering the company's traditional high-touch relationship between underwriters and agents. "We're automating as much of the underwriting process as we possibly can," he says.
Likewise, Mercury's policy administration efforts are bearing fruit and fostering a better relationship with producers. "Agent response has been positive, they have a lot more integration than they did before," Dixit says.
In addition to more efficiency in underwriting, Dixit says speed to market has improved and changes to products are less onerous. Another improvement is less noticeable because it involves what you don't see-paper. "We have moved from paper-driven to paperless," she says, adding that the name "transcend," which has been bestowed on the initiative, seems apt in this light.
Hillier too regards Dominion's efforts to redo its policy management as transformational to the way it does business. "Because the architecture is that much more open, the project opens up the doors to potentially support business initiatives that we haven't even approached yet," he says.
He cites better, more immediate metrics as one of the primary benefits. The days of batch processing and waiting a month for reports are gone.
"In the past the metrics were done outside," he says. "With our new system, there are metrics in it. Given the reporting capabilities and specificity in the data that we now have, we can understand our performance a lot more rapidly and in more detail than we could in our legacy system. It's now proactive management versus reactive management."
Aside from tightening up underwriting, Hillier says one of the primary benefits to having a modern policy system in place is the ability to be more customer-centric. "Profitability rules the day," he says. "But you have to meet customer expectations to get the customer that you want."
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