Based on their research, Novarica analysts estimate that one in three property/casualty insurers, and one in five life/annuity/health insurers are currently planning, evaluating or conducting core policy administration system projects. And, while the reasons each are taking on the task vary, most recent policy administration projects seem designed to deliver capabilities or replace an unsustainable system, not necessarily to reduce costs dramatically, the firm says.
Two reports—“US P&C Policy Administration Projects: Averages and Metrics” and “US L/H/A Policy Administration Projects: Averages and Metrics”—from Novarica document the experience of more than 30 U.S. insurers—P&C and life, annuities and health insurers—that have undertaken core systems replacement projects over the past 10 years.
Report findings reveal that insurers have been most likely to use internal resources for testing and conversion, while relying on vendor resources more heavily during deployment. Novarica analysts see a possible shift as IT services firms focus their offerings and models to emphasize their value in the testing and conversion stages, especially offshore.
Novarica recommends insurers use high-level requirements to find the right vendor and set the project direction, and an iterative approach to developing more detailed requirements later. And, insurers should carefully evaluate vendors for both product fit and organizational capabilities.
Another recommendation from Novarica is for insurers to focus on program management and change management as well as project management. Average project lengths are one to three years. P&C projects can be as short as six months, but also can be longer than four years. In the life/annuity/health space, few projects took less than 18 months, and several took three years or more.
Another difference between P&C and life/health/annuities policy admin projects is costs. Software license fees average less than 10% of total cost for life/annuity/health projects but closer to 25% for P&C projects. In the life/annuity/health space, even for large projects, software license rarely exceeds $1 million to $3 million, while P&C rarely exceeds $1 million to $2 million. Novarica analysts note though that in the past 18 months, they have seen significant firming of license costs on larger P&C projects.
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