Carriers are committing enormous investments to policy administration projects with the expectation that they will be able to differentiate themselves and gain competitive advantage by conducting business in all the fast, technologically enabled ways insureds and producers have come to expect.

In 2011 and 2012, these core processing deals accounted for 27 percent of the 1,475 insurance technology deals signed, second only to infrastructure and financials, according to "North American Insurance Software Deal Trends 2013: Property/Casualty Edition," a report from Celent, a financial services research and consulting firm. In 2012, Celent estimates that North American P&C insurers spent between $330 million and $415 million on policy admin systems and upgrades, and that life insurers spent between $160 million and $190 million.

Despite the focus on policy administration systems (PAS), a small number of these types of projects go as planned. According to "Eyes on the Prize: Implementing fast, flexible policy administration systems in the P&C insurance sector," a report from PwC, only 30 percent of PAS projects are completed on-time and within budget, while meeting the original requirements. More distressing is PwC's assertion that of those, just one-in-three realizes the full business benefit intended.

"We are in the midst of five years of unprecedented spend on policy admin and are probably in year number two," says Imran Ilyas, partner and policy administration expert in PwC's insurance advisory practice. "Three years ago, everybody wanted to do it 'big bang': personal lines and commercial lines all together. Then the news clip you see is that they burned through $150 million and nothing happened. It was all 'ready, fire, aim.' That's also the wrong thing to do."

In very different ways and for different reasons, insurers such as Aegis Insurance Services, Appalachian Underwriters Inc. and Foresters have risen to the challenge of core system transformation by establishing quick wins, choosing systems with flexible architecture, establishing good governance, avoiding tactical errors and even starting over after the project didn't perform up to expectations.


In 2008, when CIO Gene Blauvelt joined Aegis Insurance Services, a mutual insurer offering risk management, property and liability coverage to the utility and energy industries, the company was working with a policy admin system that he says was old, had limited automation and workflow, no escalation capabilities and few automated integrations. However, the system had been purchased just a few years prior, and the ongoing rollout for the directors and officers (D&O) line of business had proven to be a lengthy, costly and frustrating endeavor.

"I joined the company and stopped the project, which it had been working on for several years," Blauvelt says. "The software was old when it started. And then it was five years later."

To satisfy user requirements, that COBOL-based system had been customized, but it wasn't easy to modify and required tightly coupled integrations, explains Shirley Shea, president of Shea Consulting LLC and an Aegis technology partner who worked with the insurer to replace that PAS with Pegasystems' policy administration.

"Data integrity was lacking. There was no standardization. They couldn't do analysis against the data," Shea says. "Because they hadn't done any development efforts other than [the earlier PAS project], we had to regain the business users' trust," and convince them that a new system would be better and that the implementation would be faster with a modern configurable system.

Blauvelt approached his justification for scrapping the project from a financial standpoint, arguing that to continue implementing the system for the D&O product lines, upgrade to the then-current version and then implement the excess liability and property lines was wasteful.

"[Upper management] asked me straight out: What's your ROM (rough order of magnitude) estimate?" Blauvelt says. "We found that we could get the whole new system up for less than what they had paid for D&O. I said why not build it on the latest technology out there: a rules-based configurable system?"

First, they revisited and updated the D&O requirements to include what would become the common functionality across lines of business, which required expanding the number of participants to include people from other lines, so as to understand their processes and workflow and increase their buy-in.

"Your success is all about your approach," Shea says. "I recommended a pass-through. We took the data tables used for the existing system and we cloned them. We passed our data from Pega into the format the other systems were familiar with picking up. It's a day-one approach. We had all of our functionality in our front-end system. All of our business objects and our new data were there, and we didn't have to change any of the back-end processes."

Next, they created an XML feed to the data warehouse and underwriting systems. "We expanded the actuarial tables and put the data in an XML file that they could use when they were ready," Shea says. "A little at a time, they started to consume data. It was a phased approach. Right now we are cutting over and eliminating cloned tables to feed directly into those systems."

When D&O went live on Pega, it boosted IT's credibility. And while Shea moved forward implementing the other business lines, each of which took about eight months, other concurrent projects began around the new core system.

"I don't think anything had been updated for many years," Blauvelt says. IT then revamped the entire data center, went virtual and implemented HP Exstream for document management.

"We redid all of their contracts and templates; they had been doing them in Word templates that weren't managed," Shea says. "There was no editing or standardization. They could pretty much write whatever they wanted in a contract. There were no rules relevant to the data integration. We integrated directly from all of our policy admin systems, and those projects went on simultaneously."

Aegis also created an online application in Pega for renewals, which require signed applications. "Probably next year, we are going to approach the integration of that online app with our underwriting system," Shea says. "We have some authentication and security to make sure you are the insured when you come to fill out the application. We provide them with some data and last year's application and then create a PDF for them to sign." Early this fall, they plan to go live with Pega's claims system.

Blauvelt says choosing the right technology and managing expectations is crucial to the success of policy admin projects. "Many businesses want a 100-percent solution. What we have sold here is 90 percent up and running," Blauvelt says, with the understanding that additions and change requests can be accommodated in later versions. "Some of those are nice-to-haves. Once they saw that we had a release methodology, it eased the business users' minds."


Coming from Whirlpool Corp., where he was senior manager of global development, Steve Cota was surprised at how few choices were and are available for policy administration systems, even among the major software vendors, when he joined Appalachian Underwriters Inc. (AUI) in 2007 as CIO and began his search for a PAS.

"Many components were missing or immature compared to something like SAP or Seibel," Cota says. "The problem is that there is very little maturity online. People are going off on their own to develop it."

AUI decided it needed a centralized system that would issue policies, quotes and do the financials, Cota says, and they chose the Insurance Management System (IMS) framework from MGA Systems Inc. because of its .NET, SQL Server and Web services architecture.

"When I first got here, they were keying data into multiple systems. We used [Vertafore's] AMS360 for our general liability policy admin system and IDMI System's Policy Tracking System for workers' comp, but it was limited," Cota says. "We didn't have a quote system up front, and we couldn't track quotes and binds and details for the data warehousing." Cota and his team built the missing components or plugged in best-of-breed components, including a data warehouse, carrier reporting, document management application and online rating tools. AUI has had IMS for six years, he says, and development around the platform continues.

"There's a rules engine that sits up front and asks questions. Based on the answers, there's an XML integration to our rating engine, NetRate Systems software, which allows us to do real-time rates with multiple carriers. We have Instec [Quicksolver] software there, too," Cota says. "We needed XML integration and a strong rating platform. It had to be flexible and quick for setting up programs, because we are always doing different programs for carriers."

Now users receive the rates online and, through Web services integration, the details are loaded into the policy admin system, which also manages the financials and reporting and enables policies to be bound, Cota says.

"We load all the details and images to [Vertafore's] ImageRight and trigger workflow from there. We've integrated that with IMS, and we have 106 million images in there," he says, including quotes, applications, policy, billing, loss run and accounting details. "We get 1.5 million document images a month. We have e-mail and fax receivers; everything comes to us online," triggering those documents and workflow, he adds.

AUI also recently began working with a finance company, and now on every quote they provide a finance agreement, Cota says. "We tied the policy admin system, through XML and Web services integration, directly to them. Every quote that comes out of our system for commercial auto or specialty, workers' comp or personal lines will have a finance agreement attached to it. We send the policy information to the finance company; they provide the details back and attach that document as part of the quote package. That took about two weeks to build because of that integration."

Having the Web services integration is critical to the system's success, he says. "This is where we add value: the online rating piece, integrations, real-time rating and policy issuance," Cota says. Recently, AUI launched a mobile app that enables users to view quotes in real time; next they will look at scoring models, which upon a producer's log in, would it look at their losses for that type of risk and decide whether to allow them to bind online based on the scoring.

"The back office is great, but it doesn't give you any competitive advantage. The advantage is with the online and true integrations."


There were a number of business and economic reasons for Foresters, a fraternal life insurer serving members in the United States, Canada and the United Kingdom, to replace its policy administration system. But, ultimately, total cost of ownership was No. 1 for Peter Sweers, SVP and CIO of Foresters.

"What we had was expensive," Sweers says. "Our ability to create new insurance products was expensive. We had multiple systems serving very similar markets, those being Canada and the United States, so there were consolidation opportunities to be had. We had a huge change in our go-to-market strategy. Maybe five years ago we went to independent distribution, so there was a big requirement to build more interesting products a lot quicker. I made a recommendation that, if we invest this much capital, I will drive out this level of savings and the allocations go back to the United States indicating business," Sweers says.

"When we started this in 2009, it was a big decision to make it happen, and it was a big problem at the time," Sweers says. "The state of the capital markets was a lot more interesting to the executive management, which I am part of. We spent a lot of time talking about plummeting bond rates and lack of investments on our equity portfolio, and it was harder to build and price product. All the products needed to be repriced."

Foresters' former technology environment was more appropriate for a tier-1 insurer, he says. "We are not MetLife or Sun Life, but we were running Seibel and CSC Vantage, Oracle over here and DB2 over there, and I had every database known to mankind. It was time to reduce the cost profile of the platforms."

Foresters implemented and helped develop MajescoMastek's Elixir, which it runs on an AIX mid-range platform and eventually will replace the mainframe-based CSC software. The company also installed a new-business and underwriting engine and a portal that enables producers to see submitted and in-force business in real time through the Foresters' app, which is available at the Apple iTunes Store. Sweers says he doesn't anticipate any major capital outlays and is now focused on driving value out of the new systems.

"We bought the policy administration, which has a product development engine, claims engine, a workbench, and we also bought a new business system that natively connects," Sweers says. "We built an enterprise services bus using SOA, connected it all and put in an image repository with 40 million documents."

For the time being, Foresters is running Elixir and CSC Vantage for different product lines. "By the end of 2014, we will be fully migrated. Right now, 60 percent of simplified issue business goes to Elixir, and by the end of next year it will be 100 percent. Then the balance of the next year, the fully underwritten business, term and universal life and annuity products will be moved there."

The project has taken three years so far, with the new business system going live November 2011. The policy administration engine went live February 2013. Sweers says he also has significantly reduced the cost of operating Vantage by outsourcing it to CGI Group Inc., an IT and business services provider.

With Elixir, Sweers says the company does just about everything faster. "Under Vantage, reinstatements would take me three days in my back office. Under Elixir, it takes three hours," he says. And the company is saving money in other ways as well.

"Before we started the transformative activities, our operations team was more than 600 people, and our business has grown 'X percent' year-over-year. Three years later, I operate it with 390 people. And the independent producers are happier than they have ever been."

The project has experienced some delays, but with no eroded benefit. "In classic earned-value reporting, we've spent 69 percent of the dollars and delivered 87 percent of the benefit," Sweers says.

"We took a well-calculated risk and it has paid off for us," he says. "I picked the right partner. We had the mutual interests in terms of them wanting to build a product for North American carriers and we wanted a product. From a price perspective, I think we picked the right platforms and partners. I feel good about where we are."

Sweers attributes the success of the project to proper governance. "The reason big projects fail or never see the light of day or realize benefit is usually that the problem you are trying to solve is yesterday's. Today something else is more important, so you lose the focus. We had a special board subcommittee that had monthly oversight."

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